Arlington Capital Partners made quick work of its NLX Corp. flight simulation platform, hammering out a deal to sell the company to Rockwell Collins just seven months after it acquired the business. Rockwell agreed to pay $125 million for the company, valuing the business at a multiple of about one times its anticipated 2004 sales.
“It’s a win/win. We were not in the market to sell this company, but Rockwell identified it as a strategic fit for them,” said Robert Knibb, a partner with Arlington. “When they approached us, we told them it was too early, but they really wanted to make this happen so we gave them a price and they hit it.”
Arlington had barely taken the wrapping off of its purchase before Rockwell came calling. In March, Arlington contributed $25 million in equity and $6.5 million in notes to the leveraged recapitalization of the company, which gave the firm control of the business. Funding for the investment came out of the firm’s Arlington Capital Partners LP fund, a vintage 2000 vehicle with $452 million in committed capital.
Although the time Arlington actually owned NLX was fairly short, Arlington was able to institute some changes during its ownership. The firm implemented a plan to focus on international sales and also supplemented the management team with a new CFO. Additionally, as part of Arlington’s portfolio, NLX struck some notable contract wins, including programs to develop Black Hawk flight and Stryker armored vehicle simulators for the U.S. Army and maintenance trainers for the U.S. Navy’s E-2C Hawkeye. With these contracts, NLX was able to grow its backlog to more than two and a half years.
“We had wanted to double the size of the business,” Knibb said referring to Arlington’s original plan for NLX, which initially had an investment period of four to five years sketched out. “We were on pace to reach that and the business will probably grow 25% this year and at least another 25% next.”
However, even with strong growth, Arlington decided to cash in, taking back more than two times its invested capital in under a year’s time. “We were able to get real growth and multiple expansion on top of having leverage. And the opportunity was there to return some capital to the LP base at a time when there is not much going back,” Knibb said.
From Rockwell Collins’ perspective, it sees NLX contributing roughly $125 million to its 2004 revenue and expects the addition to be slightly beneficial to earnings next year.
Arlington’s Lawyer: CHoward Adler at Gibson, Dunn &Crutcher
Arlington’s Accounting Firm: Ernst & Young