Rocket Lab (RKLB 6.92%) rolled up another space stock last week, paying as much as $60 million for the privilege -- and depending on how you do the math, it may have gotten a bargain. In a press release issued alongside its Q1 earnings report, Rocket Lab announced a definitive agreement to acquire Motiv Space Systems.
Rocket Lab will pay $40 million in cash for Motiv, plus a potential additional $20 million in stock, paid later based on how the purchase works out. (This price was disclosed not in Rocket Lab's press release, but in a 10-Q filing with the SEC.)
Image source: Getty Images.
Rocket Lab's motive for buying Motiv
What will Rocket Lab get for this cash (and stock)?
Rocket Lab describes Motiv as a specialist in space robotics, motion control systems, and precision mechanisms for spacecraft. Motiv's website lists the company's products as including motors designed to operate robots and space equipment, as well as a robotic arm and a "high-definition, 3D zoom-capable stereo camera system," both used on the Mars Perseverance rover.
Bringing these capabilities in-house, Rocket Lab says, fills one of the "final gaps in Rocket Lab's vertical integration strategy," helping to turn the company into a one-stop shop for performing space missions. Motiv Space will be renamed Rocket Lab Robotics and will position the company to perform more surface operations on both the moon and Mars.
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Key Data Points
Valuing the acquisition
But is Rocket Lab getting a good price on Motiv? That's harder to say, but I think the odds look good.
While Rocket Lab disclosed the purchase price of Motiv, it did not disclose Motiv's sales or profits, making it harder to value the acquisition. Various sources give various answers to this question, though. A possibly dated estimate from S&P Global Market Intelligence says that Motiv will generate $3.2 million in annual sales, while Prospeo.io guesstimates a too-round $10 million, and Growjo.com gives the highest estimate, seeing Motiv making $27.1 million in sales per year.
None of the three believes that Motiv is currently profitable, although Rocket Lab may be able to change that by integrating Motiv into a business with vastly greater scale.
Valued on sales alone, therefore, we can estimate that Motiv will cost Rocket Lab anywhere between 18.8 times sales on the high end, assuming $60 million is spent for $3.2 million in annual sales, and as little as 1.5 times sales on the low end, assuming only $40 million is spent for $27.1 million in annual sales.
Take a middle-of-the-road approach, assume Rocket Lab ends up spending $60 million and Motiv is making only $10 million in annual sales, and the purchase still works out to only six times sales -- not a huge amount for a space stock these days, and a whole heck of a lot cheaper than the 86 times sales that Rocket Lab's own stock currently costs.
All things considered, I'd say Rocket Lab just bought itself a bargain.
