By Prakhar Srivastava and Pragyan Kalita
Sept 14 (Reuters) - Early-stage defense and space companies are increasingly seeking to go public through backdoor listings this year, drawn by the appeal of flexible capital and a faster route to market at a time of surging investor interest in the industry.
Unlike traditional initial public offerings, these listings involve mergers with special purpose acquisition companies, or SPACs — shell firms that raise money through an IPO and then merge with a private
company to take it public.
SPAC mergers allow companies to negotiate valuations privately and secure financing before going public, giving them more certainty over fundraising and reducing their reliance on favorable market conditions.
Many smaller defense and space companies, which typically rely on government contracts with unpredictable development cycles, find SPACs to be an easier route to public markets, experts say.
"A SPAC merger can offer a more flexible route for companies with government contracts, strategic backing, or a clear growth pipeline, but not yet the revenue scale, margin, or predictability," said IPOX Vice President Kat Liu.
A wave of blockbuster IPOs is also creating an opportunity for SPACs as smaller companies seek to go public without competing for investor attention with mega-deals.
U.S. defense firm Ursa Major, which develops propulsion systems for missiles and rockets, agreed to a $2.3-billion SPAC deal last month.
Ursa Major CEO Chris Spagnoletti told Reuters that customer demand was outpacing industry supply and the SPAC transaction would provide capital to close that gap.
"A traditional IPO would have meant taking our timing from the market rather than from our customers, and we didn't want the schedule set by whatever next year's window looks like for defense," Spagnoletti said.
"Public market capital lets us expand domestic production at the moment customers are asking for more capacity, more speed and better pricing."
Six defense and space or satellite-related companies have announced SPAC mergers so far this year, accounting for about 10% of all deals, up from three in all of 2025, according to SPACInsider data.
DEFENSE, SPACE AND TRUMP
Besides the SPAC mergers, at least seven other defense and space companies have gone public through IPOs so far in 2026, according to LSEG data, an indication that issuers are looking to capture the booming window as well.
Space has emerged as a leading pick, driven by rising government and commercial spending on satellite networks and communications, with the listing of Elon Musk's SpaceX adding to investor interest in the sector.
Earlier this month, Reuters reported that hypersonic flight company Stratolaunch was preparing for an IPO.
Strong investor demand in the sector is also evident in the private market. Sierra Space's valuation has surged more than 50% in three years to $8 billion in its March funding round.
National security has also taken center stage as the Trump administration seeks to strengthen U.S. defenses and replenish stockpiles depleted by arms shipments to allies and munitions used in the Iran conflict.
President Donald Trump has proposed a sharp increase in 2027 U.S. defense spending, with the national defense budget totaling about $1.5 trillion, up from the enacted budget of $901 billion in 2026.
The changing nature of warfare is creating opportunities for newer companies as drones play a growing role in conflicts in Ukraine and the Middle East. Startups are increasingly leaning on low-cost systems and newer technologies in an attempt to take market share from traditional contractors that have long held a dominant position in government awards.
The sector has drawn prominent political connections. Eric Trump, son of U.S. President Trump, is an investor in counter-drone company Space-Eyes, which has agreed to go public through a SPAC deal, and has backed drone maker XTEND.
Trump's older son, Donald Trump Jr., has also been involved in several defense and space investments, underscoring the Trump family's growing ties to the industry.
Early-stage defense and space companies are, however, vulnerable to disruption from fragile supply chains and delays in orders, while reliance on a relatively small pool of government customers can make revenue unpredictable.
SPACS OFFER FLEXIBLE ROUTE
Nine SPACs are currently seeking defense or space targets, with about $2.35 billion held in trust, suggesting more deals could emerge, SPACInsider CEO Kristi Marvin said.
Meanwhile, Quantum Space and Elroy Air announced SPAC deals in June.
Quantum Space develops spacecraft for orbital mobility, satellite servicing and refueling, and is backed by more than $88 million in secured government contracts, while Elroy won a $46-million, multi-year U.S. Army contract to develop an autonomous hybrid-electric aircraft system.
While SPAC mergers offer flexibility and faster access to capital, they can also lead to dilution for existing shareholders, particularly when private investment in public equity, or PIPE, is involved.
The route has also faced concerns over investor protections and the level of scrutiny compared with traditional IPOs, but some analysts see those risks as manageable.
"SPAC investors don't necessarily need to see revenue, let alone profit, to buy into a promising startup," said Matt Kennedy, senior strategist at Renaissance Capital, a provider of IPO-focused research and ETFs.
"Despite the fact that some big-name SPAC mergers have fallen from their recent highs - for example Rocket Lab, Intuitive Machines, and AST SpaceMobile - the 2-year chart looks a lot better."
(Reporting by Prakhar Srivastava and Pragyan Kalita in Bengaluru; Editing by Leroy Leo)
