MDA Ltd., maker of the iconic Canadarm, has filed a prospectus to raise $500-million in an initial public offering on the Toronto Stock Exchange, laying out its plans to nearly quadruple revenues over five years as the global space industry takes off.
Brampton, Ont.-based MDA said in a prospectus filed Monday with regulators it plans to sell between 25 million and 31.25 million shares at between $16 and $20 apiece. The deal is being led by BMO Nesbitt Burns, Morgan Stanley and Scotia Capital; Barclays Capital Canada, RBC Dominion Securities, Canaccord Genuity, CIBC World Markets, National Bank Financial and Stifel Nicolaus Canada are also in the underwriting group. The Globe and Mail first reported last week the filing was imminent.
If MDA can meet its targets it will go public valued at more than $2-billion, twice the amount an investor group led by Canadian entrepreneurs John Risley and Jim Balsillie paid in April, 2020, to repatriate the Canadian company from its heavily indebted owner, Maxar Technologies Inc. of Colorado. Their partnership will dissolve prior to the IPO.
MDA, once known as MacDonald, Dettwiler and Associates, stands to be a key player in the 2020s vintage of the space race. The space industry has emerged as a key sector thanks to several factors, including rising geopolitical tensions between China and the United States. Also fuelling growth is the arrival of space tourism and widespread deployment of tens of thousands of satellites in the Earth’s lower orbit (LEO) to power next-generation internet communications.
The U.S. Chamber of Commerce has forecast the global space industry will generate US$1.5-trillion in economic activity by 2040, up from US$1.1-trillion in 2017. Equity investment in the sector, backed by such entrepreneurs as Elon Musk, Richard Branson and Jeff Bezos, reached a high of US$8.9-billion last year, up 50 per cent from 2019. The market for data and services provided via satellite imagery is also expected to nearly double to US$8-bllion by 2029 from 2019 levels.
MDA is a key supplier in all those markets. It provides geo-intelligence from satellite imagery for national security, climate-change monitoring and global commerce, which accounts for 45 per cent of revenue. The balance is split between its businesses making autonomous robotics and vision sensors that operate in space and on the surface of the moon and Mars, and supplying systems and spacecraft to enable space-based services and broadband internet connectivity from LEO satellites, including a contract to make antennae for the LEO fleet of Telesat Canada – which also plans to go public this year. Close to half of MDA’s revenues come from commercial customers, and the rest from governments.
The company aims to double revenues to between $800-million and $900-million in 2022 from $411.5-million in 2020, and then to $1.5-billion in 2025. Some of that will come from several recent contracts, including building the latest Canadarm for the Lunar Gateway mission, and designing and implementing electronic warfare systems on 15 Royal Canadian Navy warships. But it also forecasts a spike in demand for geo-intelligence and satellite system work.
MDA expects to post adjusted earnings before interest, taxes, depreciation and amortization of between $160-million and $180-million next year, up from $127-million in 2020. It lost $36.2-million in 2020 as it shifted from Maxar’s ownership, after earning $73-milllion in 2019.
The company plans to use $340-million of IPO proceeds to repay most of its outstanding debt and use the rest to fund growth initiatives. MDA aims to hire 400 engineers in the next five years, up from 1,110 now.
MDA is opting for a TSX-only listing to stress its domestic roots when pitching for contracts from the federal government, a major customer. Its predecessor was founded in 1969 by University of British Columbia professor John MacDonald and physics graduate Vern Dettwiler. After two acquisitions in the 2010s, the company renamed itself Maxar and reincorporated in the U.S. with an eye toward more U.S. government work. Maxar kept MDA as a stand-alone unit, with Canada retaining control of the Radarsat-2 satellite used to monitor the Far North. Groaning under debt, Maxar sold MDA to the Risley-Balsillie group last year.
Despite wrapping themselves in the Canadian flag, the inclusion of Morgan Stanley, one of the world’s top investment banks in the space trade, suggests MDA’s owners are also actively courting U.S. investors.
“MDA is coming out at a good time,” said Scott Morrison, chief investment officer with Toronto’s Wealhouse Capital Management, which has invested for years in the space sector. It should have scarcity value among investors and “is well positioned and pedigreed. … There are not that many companies with legacy know-how to meet that growing demand. It truly could become a national champion and give Canadian investors exposure to a global industry.”