* Deal is expected to provide up to $251.7 million in gross

proceeds

* Eric Trump is expected to serve as strategic adviser to

combined company

* Combined company is expected to trade on Nasdaq under

ticker CUAS

(Changes sourcing in paragraph 1)

By Echo Wang and Sabrina Valle

NEW YORK, July 31 (Reuters) - Defense technology company

Space-Eyes has agreed to go public through a merger with special

purpose acquisition company McKinley Acquisition Corp ( MKLY ) in a deal

valuing the combined business at $638 million, the companies

said on Friday, confirming an earlier Reuters report.

President Donald Trump's son Eric Trump has recently become

the third-largest private investor in the original Space-Eyes,

which has operated primarily as a research-and-development

company and generated about $1 million in annual revenue,

according to people familiar with the matter.

Eric Trump will serve as a strategic adviser to the combined

business following the transaction. He helped introduce

potential board candidates to the new public company, the people

said.

Representatives for Eric Trump did not respond to a request

for comment.

The Miami-based company develops artificial

intelligence-powered counter-drone and geospatial intelligence

technologies for governments and agencies.

While it is so far mostly a technology developer, it plans

to scale up the business using third-party manufacturers,

allowing it to expand into government contracts in different

continents and into corporate clients, from cruise companies to

data centers, the people said.

The investment thesis is based on expected contract growth

rather than existing revenue, the people said.

The company is currently negotiating contracts worth around

$35 million over a period of five years, compared with the

company's current awards that are typically valued annually at

$300,000 to $400,000, the people said.

Those could include monitoring drug trafficking in the

Caribbean, defense applications in the Middle East or preventing

drone-borne contraband from entering U.S. prisons, the people

said.

As part of his new role, Eric Trump is expected to advise

the company on security threats posed by drones and other

emerging technologies, drawing on his experience with security

issues surrounding the White House.

"He is an important adviser that connects us to people and

opportunities, and he is an adviser that brings the

intelligence," one of the people said.

The transaction is expected to provide up to $251.7 million

in gross proceeds, including capital held in McKinley's trust

account and a planned private investment in public equity, or

PIPE, financing.

The deal reflects growing investor interest in defense

technology companies as governments worldwide increase spending

on drone detection, autonomous systems and AI-driven battlefield

intelligence.

Space-Eyes' model is inspired by software and data analytics

providers such as Palantir, the people said. Palantir, a major

U.S. government contractor, reported an adjusted operating

margin of 60% in the first quarter, compared with the

single-digit margins typical of traditional defense hardware

contractors.

Space-Eyes defines itself as software and systems company

that combines data from satellites, radar, radio-frequency

sensors and other sources to detect, track and respond to drone

threats and deliver real-time geospatial intelligence.

Its products include SeaWatch, a maritime intelligence

platform that tracks vessels using satellite and sensor data,

and Morpheus, an AI-driven counter-drone system designed to

detect and mitigate unmanned aerial threats.

Special purpose acquisition companies, or SPACs, are shell

companies that raise money through an IPO to merge with a

private company and take it public. SPACs have largely lost

favor since the 2020-2022 boom, as many companies that went

public through the vehicles struggled to meet growth projections

after listing.

The deal is expected to close in the fourth quarter of 2026,

subject to shareholder and regulatory approvals, with the

combined company expected to trade on the Nasdaq exchange under

the ticker symbol "CUAS", a reference to counter-unmanned aerial

systems.

Space-Eyes, led by founder and Chief Executive Officer Jatin

Bains and Chief Operating Officer Dylan Monroe, disclosed in

January that it was opening an office in Washington to deepen

government partnerships and support federal contracting

activities.