Back to the article in Forbes discussed yesterday about Veritas founders Robert McKeon and Thomas Campbell. We’re going to skip over the discussion about the supposed origins of strife between McKeon and Campbell over the DynCorp deal and subsequent departure of the latter from DynCorp’s board. Instead we’ll focus today’s post in part on what the Forbes article fails to mention about Campbell’s new firm DC Capital Partners, which has been profiled here on this site.

In the end perhaps it will be Campbell who achieves the most from his unique investment perch within the defense industry. We have remarked previously about the difficulty of 3rd party investors – Veritas among them – to maintain persistent returns from simply doing deals. Defense is a narrow industry, after all. When deal flow is strong, or when a big deal like DynCorp comes along, returns will tend to concentrate for a specialist firm like Veritas. However, when credit tightens and deal flow contracts sharply, Veritas may struggle to compete for quality against cash rich defense firms looking to integrate struggling mid-market firms.

One way to counter such a trend may be exactly the model that Campbell has developed at DC Capital, namely the integrated platform that focuses on rolling up companies around a particular market sector. DC Capital has pursued this strategy so far with its National Interest Security Company (NISC), which the Forbes article mentions is already profitable at around $200M revenue. More than just a concept, Campbell has recruited top management talent into NISC, led by Andrew Maner, former CFO for the Department of Homeland Security.

However, the Forbes article overlooks one of the principle strengths of DC Capital in addition to its platform strategy. In 2007 DC Capital acquired a controlling interest in The Spectrum Group, a consulting group with “over 100 associates – half of which are Admirals and Generals, the remainder are former Political Appointees, former Hill staffers, Corporate officers and lobbyists, and U.S. Government officials.” This is the reason NISC can deploy a deep advisory board for NISC that includes Ambassador Henry Crumpton, General Hagee, Chuck Hagel, General Michael Hayden, Admiral Joseph Lopez… and others, as well as access to the dozens of other brand names at Spectrum.

Tomorrow we’ll do another post of Part III commentary, in which we’ll provide some direct feedback on specific points within the Forbes article, particularly about the DynCorp deal and their current outlook in general.

The August edition of Forbes Magazine features an outstanding article about Thomas Campbell and Robert McKeon, one-time partners and founders of Veritas Capital. The article gives us a detailed timeline on the start-up of Veritas Capital Management and the subsequent acquisition in 2005 of DynCorp International.

Worth reading in its entirety, but here are some highlights:

• Neither McKeon nor Campbell had a background in defense related deals when they started Veritas in 1996 (with $175 million for its first fund). McKeon was apparently more well known at Wasserstein Perella & co for a deal with Maybelline in the cosmetics industry.
• Computer Sciences Corp. bought DynCorp for $622 million in 2003. Veritas buys it in 2005 for $850M with a $100M of equity from Veritas. A year later after going public DynCorp pays off equity sponsors with a $100M dividend. DynCorp shares are today worth over $1B, of which McKeon personally is estimated to own/control around $270M worth through his sole ownership of DIV Holding.
• The DynCorp deal almost did not happen. Although Veritas only had to put up $100M, they were limited to a $38M investment. Some support came from Northwestern Mutual Life Insurance and from various Veritas investors, but ultimately McKeon put up $48M of his own money in the deal. 

The article also covers the story of McKeon's and Campbell's eventual falling out a couple years ago, when Campbell was forced off the DynCorp board. In part II of our commentary on this article, we'll cover more details of Campbell's launch of DC Capital and some hints to Forbes writer Nathan Vardi for following up on this piece.

Look for Part II tomorrow. In the meantime bone up by checking out this site's profiles of both Veritas and DC Capital.