Caxton-Iseman bid farewell last month to its longest investment and one of the best in its history-government IT contractor Anteon International Corp.
Caxton-Iseman was founded in 1993 and two years later, in the summer of 1995, it started working on a buyout of the small company, which it ultimately bought in 1996 for $45 million. It put in just under $10 million in equity, borrowing $30 million from Mellon Financial and First Union.
Fred Iseman, Caxton-Iseman’s president, called the unit the “neglected stepchild” of conglomerate Ogden Corp. Caxton-Iseman got off to a good start by better managing the account receivables at the firm. “We better managed them by collecting them,” he said.
Caxton-Iseman then brought on Joe Kampf as CEO, a man who both understood the business and had a skill set that included M&A. The CEO at the time of the takeover, an air force colonel, took a spot as COO and remained a major shareholder.
From there, Anteon began its consolidation, buying one company a year for the next nine years. Over the life of the investment, as Anteon grew, Caxton-Iseman had many chances to sell. “We were offered 10x our investment after a year, but we agreed it made no sense to accept it, we felt things had just begun,” Iseman said.
Indeed. The recent sale to General Dynamics Corp. is a valued at $2.2 billion. Over the life of the investment, in which Caxton-Iseman plugged another $22.5 million of equity capital in 1999, sales grew from $110 million to $1.5 billion and EBITDA bounced from under $5 million to $140 million. An IPO in 2002 priced at $18 per share while the planned sale to General Dynamics is at $55.50 per share.
“Anteon has been our longest investment, but if any investment compounds like Anteon, then we’ll be sorry to sell it after ten years,” said Iseman. All told, the IRR was about 70% on the investment, said Iseman. Fueled by its sole investor, the investment firm Caxton, the private equity firm has the luxury of a long-term horizon. Steven Lefkowitz, a Caxton-Iseman managing director, said his firm believes the “natural life cycle” for an investment is five to 10 years, and “we do run 20 year models.” Iseman quipped: “we don’t have the egg-timer clicking.”
Lefkowitz explained that as Anteon’s sector has grown, acquisitions have grown more expensive, and for this a public company’s stock is needed as a currency to fund deals. General Dynamics-whose $23 billion market cap makes room for ample deal currency-had been in discussions with Anteon’s management over the years about a deal and Anteon and General Dynamics hammered out the details over six weeks leading up to it.
Another reason to sell Anteon was that its trading multiple had been stagnating. Iseman said the multiple on the planned sale is 13.2x forward EBITDA and about 1.5x sales, which technically was a record breaking deal valuation. According to Bear Stearns, which advised Anteon, Anteon received the highest multiple ever paid for an IT contractor with a market cap of more than $500 million.
General Dynamic’s 2003 purchase of Veridian for 12.5x projected EBITDA established a “very good data point” for the sale of Anteon, said Iseman.
Other recent deals for Caxton-Iseman include the 2004 buyout of health plan administrator North American Health Plans Inc. and the $570 million purchase of vinyl building products maker Ply Gem Industries from Nortek in 2003.
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