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Arlington Capital Partners: The Middle Market Player

Overview:

Founded in 1999, Washington DC based Arlington Capital Partners is a middle market private equity firm focused on buyouts and recapitalizations of US based private companies and divisions of larger businesses. Deal values range from US$50 to US$500 million (with Arlington investing US$25 to US$75 million and borrowing the rest) and the firm has more than US$1 billion in committed capital in the form of two funds: Arlington Capital Partners LP (formed in 1999 with roughly US$450 million raised) and Arlington Capital Partners II LP (formed in 2004 with roughly US$500 million raised). Sectors of focus include Business Services & Outsourcing, Aerospace/Defense, Federal and Commercial IT, Media, Education and Training, Healthcare Services/Training, and Highly Engineered Manufacturing. Key criteria for investment include high barriers-to-entry or substitution, deeply rooted customer relationships, distribution capabilities that are difficult to replicate, regulatory protection, defensible or enduring cost structure advantage, and proprietary technology or unique processes. Arlington will co-invest with other firms but prefers to be a sole investor.

Management Team:

Arlington Capital’s senior management team includes:

Ÿ          Jeffrey H. Freed (Founding Partner) has overall responsibility for all management and investment activities of the firm. Jeffrey has 21 years of private equity and business experience and has actively participated in nearly 30 transactions worth over US$3 billion in value. Prior to co-founding Arlington, he was the President and Chief Investment Officer of Westbury Capital Partners, a Principal at Oak Hill Capital Partners, and a Principal at Adler & Shaykin.

Ÿ          Robert I. Knibb (Founding Partner) shares overall responsibility with Jeffrey Freed for all management and investment activities of the firm. Robert has over 23 years of private equity experience in a variety of industries and was involved in more than 20 acquisitions worth over US$4.2 billion. Prior to co-founding Arlington, Robert was a senior member of the investment team at MacAndrews & Forbes Holdings, and an associate in the Corporate Development Department of Warner-Lambert.

Ÿ          Raymond W. Smith, the Chairman of the Executive Committee, is the former Chairman and CEO of Bell Atlantic (now Verizon) and was once named "CEO of the Year" by CNBC, "Top Manager" by BusinessWeek, and "Chief Executive of the Year" by the International Television Association. He has served on the boards of Bell Atlantic, The Carnegie Corporation, Westinghouse, CBS, Corestates Financial, First Union, and US Airways. He is also the Chairman of Rothschild (North America) and the Chairman of Verizon Ventures.

 

Other key figures include Partners Peter M. Manos (who was part of Carlyle’s aerospace and defense buyout team) and Perry W. Steiner who together share overall responsibility for all management and investment activities; Matthew L. Altman, Principal (business services, healthcare, media and defense industries); John A. Bates, Principal (education, healthcare, information services, interactive marketing, and media sectors); Michael H. Lustbader, Principal (outsourced business services, IT services, and aerospace/defense); Jesse Y. Liu, Vice President (aerospace/defense, media, government contracting, business services, and energy industries); and Matthew K. Buckley (CFO).

 

Portfolio:

Key defense related portfolio components include:

Ÿ          Founded in 1991, Pomona California based Consolidated Precision Products Corp. (CPP) is one of the world’s largest precision sand casting companies producing complex super alloy, aluminum, magnesium, and steel components for military and commercial aircraft, weapon systems, regional/business jets, and helicopters. Key customers include Airbus, Boeing, General Electric, Honeywell, and Lockheed Martin. Arlington’s early 2008 acquisition of CPP from Industrial Growth Partners (a San Francisco buyout shop) was reportedly made for an amount between US$280 to US$400 million (with GE Antares Capital and the Bank of Ireland reportedly arranging a US$137 million credit facility).

Ÿ          Founded in 1989, Huntsville Alabama based Chandler/May Inc. (CMI) builds critical, real-time, rugged, and demanding military applications. Core products or domain knowledge include advanced systems and command and control stations for the unmanned aerial vehicle (UAV) market, embedded computer solutions and integration services for the development of tactical ground control shelters, custom computer systems, simulators, and test stations and trainers for the military and aerospace industries. In late 2005, Arlington invested an undisclosed amount in CMI.  

Ÿ          Founded in 1997, Hampton New Hampshire based TSI Group has three operating divisions: 1) Brazonics, 2) American Avionic Technologies Corporation (AATC), and 3) Performance Metal Fabricators (PMF). The group designs and manufactures custom engineered thermal management and electronic component and system solutions for mostly defense and aerospace customers. Arlington’s early 2005 investment in the TSI Group was acquired from New England Capital Management. To finance the deal, Arlington tapped Madison Capital for the senior debt and the Audax Group for the mezzanine debt while Ares Management, Newstar Financial, and Wachovia Securities contributed additional financing.

Arlington’s other portfolio investments include: Advanced Health Media , BrightStar Education Group , Cambridge Major Laboratories , Cherry Creek Radio , Main Line Broadcasting , New Vision Group , PlattForm Holdings , SECOR International , SignalTree Solutions , Sports Information Group/DRF , and Virgo Holdings .

 

Past Defense Deals:

Noteworthy defense related deals completed by Arlington include the following: 

Ÿ          In 2002, Arlington formed a platform later named Apogen Technologies and committed US$75 million in capital to consolidate providers of IT services and solutions to the US government. Acquisitions included ITS Services, acquired in March 2003 (a senior debt facility was provided by Allfirst Bank, Citizens Bank, and Wachovia while Allied Capital provided mezzanine debt and a small equity contribution) and Science & Engineering Associates (SEA), acquired in January of 2004. Apogen Technologies eventually employed nearly 1,000 people and became a leading provider of IT solutions to the US Government in three areas: enterprise architecture, network services and operations, and software and applications development. In 2005, QinetiQ (a UK based aerospace and defense company with US$2 billion in revenue and partially owned by the Carlyle Group at the time) acquired Apogen for US$300 million.

Ÿ          In early 2003, Arlington invested US$31.5 million (US$25 million in equity and US$6.5 million in notes) in Sterling Virginia based NLX Corporation , a private designer, manufacturer, and integrator of advanced military and commercial flight simulators and weapon systems trainers whose customers included all three branches of the United States Armed Forces (Air Force, Navy, and Army), commercial aerospace companies, and original equipment manufacturers. In late 2003, Arlington made a quick exit from NLX when Rockwell Collins, Inc. (NYSE: COL) (a leading aviation electronics and aviation company) acquired the firm in a US$125 million all cash transaction.

The Bottom Line:

Arlington was initially expected to be a telecommunications shop and had begun with investments in a DSL provider and a regional e-commerce consultancy - investments that both cratered during the tech bust. The firm quickly switched gears and moved into technology, media, and defense. Although it may lack an all-star cast of ex-government, defense, or intelligence community types, Arlington is still Washington DC venture capital shop with a sizable amount of capital to invest. Thus, expect them to continue to be players for opportunistic defense or government plays.

Contact Information:

Arlington Capital Partners

600 New Hampshire Ave., NW

Suite 660

Washington, DC 20037

Phone: 202-337-7500

Fax: 202-337-7525

Website: http://www.arlingtoncap.com