BERN (Reuters) - Swiss defense and aerospace company RUAG is planning around a $500 million acquisition spree to cash in on a boom in private U.S. space projects inspired by billionaire Elon Musk’s SpaceX.

FILE PHOTO: The logo of Swiss defence and aerospace equipment maker RUAG is seen at the company's headquarters in Bern, Switzerland May 29, 2019. REUTERS/Arnd Wiegmann

RUAG, owned by the Swiss state, makes ammunition for the Swiss army as well as parts for satellites and airliners. But Chief Executive Urs Breitmeier told Reuters the firm wants to get out of defense and concentrate on expanding its space business before a planned flotation in the next couple of years,

Switzerland said in March it wanted to privatize RUAG, which has become a technology specialist in civil aviation and space since it was created 21 years ago. Defense now makes up less than half its 2 billion Swiss francs in sales.

Breitmeier wants the company to capitalize on the space industry’s shift toward the private sector.

“There has been a big change in the space industry in recent years,” Chief Executive Urs Breitmeier said in an interview. “It has moved from institutions to the commercial sector.

“The U.S. market is much more dynamic than the European market with billionaires like Elon Musk, Jeff Bezos and Richard Branson setting up space companies. If you want them as your customers, you have to be there.”

Musk’s SpaceX has upended the launch services market by slashing the cost of rocket launches with its reusable rocket technology.

The California company is one of several private groups challenging legacy aerospace companies in a new “space race” fueled by demand for satellite launch services and, potentially, tourism and deep space exploration.

Some of the newer space companies also have their sights set on Internet services, asteroid mining, lunar missions, and in-space manufacturing, among other endeavors.

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Morgan Stanley has estimated the global space industry could generate revenues of $1.1 trillion or more in 2040, up from $350 billion currently.

ACQUISITION TRAIL

Breitmeier said RUAG must scale-up in space and aerospace for a successful IPO and aims to spend “at least half a billion francs” on acquisitions in that area to prepare for the flotation in Switzerland in 2021 or 2022.

The group plans to raise the money by selling off its bullet making division Ammotec, its cybersecurity arm and the maintenance and repair business that works for armed forces outside Switzerland.

Breitmeier said private equity and industrial buyers are already showing interest and the first deals could come this year.

According to Reuters estimates, the company could have a valuation of around 1 billion Swiss francs ($1.01 billion) when it floats.

Space is RUAG’s most profitable business, with a 2018 earnings before interest, tax, depreciation and amortization (EBITDA) margin of nearly 14% from sales of 377 million francs.

After the float, RUAG is looking for organic sales growth of 4% and a double-digit EBITDA margin.

“Space has a lot of potential,” Breitmeier said, pointing to the commercialization of the industry, which now makes hundreds of satellites rather than individual bespoke models.

Tesla CEO Musk, for example, plans to launch as many as 12,000 satellites as soon as 2024 to make high-speed internet available from space.

RUAG is also involved with the OneWeb project for 650 satellites providing 5G global internet access. RUAG builds the platforms for the satellites as well as dispenser systems which deliver the satellites into orbit.

Other space customers include Thales, Airbus and Maxar Technologies and the United Launch Alliance, a joint venture between Boeing and Lockheed Martin. RUAG’s products include computers and antennae as well as heat shields and fairings - the nose cones on rockets.

The growth in demand is also due to space companies following the examples of Boeing and Airbus in aviation by outsourcing production.

“With the concept to launch thousands of satellites, the system integrator ... needs more reliable suppliers, this is where we want to jump in,” said Breitmeier, who has led RUAG since 2013.

RUAG, which already has space plants in Alabama and Florida, has begun narrowing its focus on what it wants to buy.

“We are at the early stage of looking for partners. But in the ideal case it would be one company we would look to buy, or it could be two. We don’t want to buy 20 companies,” he said.

(This story has been refiled to say EBITDA in paragraph 16)