Virgin Galactic CEO: Here’s Why We Sidestepped a Traditional IPO
Before Monday if you wanted to get in on the Virgin Galactic experience you needed around $250,000. Now, for those who don’t have that kind of cash lying around there’s another option: after the company’s NYSE listing you can buy a share of stock for around $11.75 per share.
The company took an interesting path to the public markets, sidestepping the more traditional IPO route and going public by merging with an already traded “blank check” company—that is, a corporation that has been specifically set up to acquire a business. “It required less (managerial) bandwidth and less time quite frankly,” said Virgin Galactic CEO George Whitesides in an interview with Fortune, adding the process from the pre-IPO phase in which companies test the waters to now has been six months compared, considerably shorter than an IPO process. Virgin Galactic raised $450 million by merging with Social Capital Hedosophia, backed by venture capitalists and the new company’s Chairman Chamath Palihapitiya. The transaction valued the company at about $2.3 billion, according to a press release.
Such blank check companies have grown in popularity recently in part because private equity firms have been seeking new ways to deploy their capital. Palihapitiya previously branded the blank check company process as “IPO 2.0,” saying it would do away with features of the IPO process that investors may find frustrating, including the lockup period. The process is said to be faster and requires less paperwork than a typical IPO.
“My sense is that it worked well for us, I do think others should think about it,” said Whitesides. “There’s clearly a desire for a diversity of ways to approach public markets whether this way or through direct listings.”
The deal also opens the roads to Virgin Galactic eventually raising more funds from the public, should it need it, said Whitesides.
“Although we don’t currently forecast that we need it, but it does give us access to the public markets in the future for bigger projects we might tackle down the road,” he said.
Previously, Virgin Galactic had been in talks to accept a $1 billion investment from Saudi Arabia’s Public Investment Fund. But after the slaying of journalist Jamal Khashoggi, talks were suspended.
“It is never easy to put a pause on something that represents a billion dollars,” he said. “But I think all things considered Richard, the Virgin Group and myself felt that the right thing to do at the time was to not do that deal. Not very much longer after that point Chamath came and visited on the tour and the rest is history.”
The firm posted revenue of $2.9 million in 2018 and a loss of $138.2 million. The majority of the company’s revenue has come from carrying payload cargo into space, according to the company’s filing. The company says it has already collected over $80 million in deposits as it battles the likes of Blue Origin and Elon Musk’s SpaceX for dominance in the space tourism industry.
As for the cost of space tourism itself? That’s likely to rise in the near term, according to Whitesides. “Honestly we’ll see it going higher first, and then maybe lower if you will. We will see,” he said, following a question about when and whether consumers should expect prices to trend below the $250,000 figure tickets were most recently marketed at. “In the long-term, for sure we’d like to make it lower.”
Previously, Founder Richard Branson has been quoted as saying he’d like to see the price of a ticket to fall to $40,000 or $50,000. But the company is targeting ultra-high net worth individuals that still appear to be vying for a ticket from Virgin Galactic, according to the company’s filing. Virgin Galactic has a backlog of about 603 customers as of June 30, and says it has received over 3,000 inquiries since December.
Meanwhile, Virgin Galactic says it expects to launch commercially in the first to the second quarter of 2020—and investors are hoping shares will blast off as well.
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