Arlington Capital Warming Up To Defense –

Arlington Capital Partners went back to the defense sector for its latest deal, the acquisition of Hampton, N.H.-based Thermal Solutions Inc. New England Capital Management was the selling party in the transaction.

Thermal Solutions provides custom engineered thermal management and electronic components and systems. For non-engineers, the company manufactures enclosures that are able to dissipate the heat that emanates from electronics. The company primarily serves the aerospace and defense industry, but also sells products to telecom and other sectors.

Electronics are being packaged into smaller and smaller spaces, and as this happens, heat starts to become a dramatic concern, Arlington Partner Robert Knibb said. These products help cool the electronic components, either through fins in the chassis, heat sinks or liquid coolings.

The companys customer base includes the likes of Boeing, Honeywell, Lockheed Martin and other contractors and its products are currently being used in the F/A-22 Raptor stealth fighter, the F-35 Joint Strike Fighter and the Apache Attack Helicopter, in addition to use in other defense and commercial applications.

Arlington was drawn to Thermal Solutions because of its ability to build a more complete product. The company doesnt just make the chassis or the heat sink. Thermal Solutions, according to Arlington, provides the complete electronic system, which helps it stand out from its competitors.

The larger prime contractors in the aerospace and defense industry are becoming less and less actual manufacturing companies as they are integrators, Peter Manos, a principal at Arlington, said. More and more theyre really pushing a desire to source complete systems rather than individual parts from a wide supply base. Thermal Solutions, because it makes whole systems, is benefiting from this.

Going forward, Arlington will look to complement the companys existing growth with acquisitions of either thermal management companies or related businesses in the electronics space. Historically, Thermal Solutions has generated revenue and EBITDA growth in the double digits, and both Knibb and Manos expect that to continue.

The New Hampshire-based Thermal Solutions should not be confused with other companies of the same name. There is the Thermal Solutions that was recently sold to Team Inc., which is a provider of field heat-treating services; the Thermal Solutions that early last year won a patent infringement lawsuit protecting its thermal retention pizza delivery bags; and the Thermal Solutions launched in 1992 as a joint venture between M&S Engineering and Business Kinetics that offers on-site thermal destruction of toxic materials.

The purchase price of Arlingtons Thermal Solutions was not disclosed. To finance the deal, the firm tapped Madison Capital for the senior debt and Audax Group for the mezzanine. Wachovia Securities, Ares Management and Newstar Financial all contributed in the financing as well.

Arlington, meanwhile, used its first fund, Arlington Capital Partners LP, a $452 million, 1999-vintage vehicle, for the investment. The firm is currently engaged in raising a successor fund, which has been targeted at $500 million.


Target: Thermal Solutions Inc.

Seller: New England Capital Management

Buyer: Arlington Capital Partners

Advisor: Seller: Legg Mason

Legal Counsel: Seller: Testa, Hurwitz & Thibeault LLP and Choate Hall; Buyer: Arnold & Porter LLP

Accountant: Buyer: Ernst & Young