Reaction Engines explored multiple rescue options throughout 2024 – including a merger, break-up sale or equity injection – as the hypersonic propulsion developer fruitlessly battled a growing cash-crisis that ended in its October insolvency.
Detailing the UK firm’s increasingly desperate search for fresh funds as the year progressed, administrators from PricewaterhouseCoopers (PwC) – appointed on 31 October – say Reaction faced a race against time, needing to raise additional capital by the third quarter.
Since its inception in 1989, Reaction had been consistently loss-making and remained largely stuck in the research and development phase, requiring “regular equity injections to fund operations”, the most recent of which was a £40 million ($50 million) raise in 2023.
While another funding round was always planned for 2024, PwC says the situation had become ever more urgent.
“Challenging market conditions combined with delays and cancellations associated with key contracts accelerated the funding need,” it says in a notice of administrators’ proposals signed off on 23 December and uploaded to the UK’s Companies House registry on 6 January.
Initially, Reaction had hoped to secure a working capital loan from its existing shareholders “but this proved unsuccessful”, the report says.
Instead, three options were pursued in parallel over the May-October period: a merger with a US competitor specialising in thermal management technology; an equity raise from new and existing shareholders; and the sale of all or parts of the business.
Although a “small number of expressions of interest and funding injection proposals” were received, these did not result in any “viable offers” for the company and there “were a number of issues” with the investment plans, PwC says.
In the meantime, “contingency planning” saw PwC engaged on 24 June to conduct a short-term cash-flow review, and on 5 August to develop an orderly wind-down plan in case the sale process and fundraising efforts failed.
Ultimately, finding “no viable solution to its funding challenge”, Reaction’s directors on 23 October concluded that administration was the only option, leading to PwC’s appointment eight days later.
Of the firm’s 208 staff, 172 were made redundant immediately, with two more let go on 5 November; 34 employees were retained to service a third-party contract and assist with winding down the business. These staff are expected to be retained “for a few additional months”.
Work on the third-party contract – details of which have not been disclosed – has brought in £1.7 million in post-administration revenue, PwC says, with “further payments expected”.
Additional cash may be raised if the administrators can realise any value from Reaction’s multiple patents, which the company said were worth £848,000.
“The joint administrators continue to liaise with their lawyers and agents to establish the position of the patents and assess the recoverability of any value,” PwC says.
Reaction’s total deficiency topped £160 million, including now-worthless shareholdings of more than £150 million from previous investors BAE Systems, Boeing, Rolls-Royce and UAE investment fund Tawazun.
Emerging as spin-out from Oxford University, Reaction had hoped to sell its developmental SABRE hypersonic engine for either civil or military applications.
Although it saw some modest success selling thermal management technology into the aerospace and motor racing industries, as PwC points out: “The company struggled to transition its technology into commercially viable applications quickly enough.”
