When is an IT investment not just another technology play? Arlington Capital Partners’ answer to that lies in the customers being served, and recently saw its bet in the IT space pay off in spades thanks to growing demand from the federal government.
The firm launched its IT platform in 2002, linking itself with a team made up of Phil Odeen, Todd Stottlemyer and Paul Leslie, all former executives of Carlyle Group portfolio company BDM International.
The timing of the investment hints at Arlington’s strategy, as the firm recognized that following the terrorist attacks on Sept. 11, 2001, there would be a scramble to improve the IT infrastructure in a number of federal agencies. The firm dedicated $75 million to the platform and less than a year later, in 2003, made its first and central acquisition, buying ITS Services Inc. The platform would later be renamed Apogen Technologies.
ITS Services gave Arlington a company with a customer base revolving around the federal government. The U.S. Customs Service, U.S. Census Bureau, U.S. Department of Agriculture, Internal Revenue Service and other agencies dotted the ITS list of clients, but most important to Arlington was the company’s contract with the recently established Department of Homeland Security.
Arlington Partner Jeffrey Freed told Buyouts, “ITS was providing mission critical work… When [the government] created the Department of Homeland Security, they effectively needed to link several agencies into one, and that entailed upgrading their IT systems and making their access to data and overall information flow more efficient.”
With ITS serving as its cornerstone, Apogen’s three focus areas encompassed enterprise architecture, network services and operations, and software and applications development. ITS, the year prior to Arlington’s acquisition, had generated revenues of roughly $70 million.
Arlington only made two acquisitions under the Apogen platform, later adding Science & Engineering Associates (SEA) in a $100 million deal. At the time of the SEA purchase, sources confirmed that there was still dry powder remaining from the original $75 million commitment, although Freed would not comment on the total equity invested into the company.
Rather than rely on acquisitions to fuel growth, Apogen instead grew alongside its customer base, with the buildup of the Department of Homeland Security serving as the primary spark. Last year, the combined platform reportedly had $205 million in sales, with its Homeland Security business representing almost half of that sum.
Arlington isn’t the only firm that has targeted growth in the federal IT infrastructure. Other successful plays include GTCR Golder Rauner’s investment in DigitalNet (sold to BAE Systems) and Monitor Clipper Partners’ LBO of Veridian (acquired by General Dynamics).
Like past deals in the space, Arlington’s platform also appealed to strategic players, and earlier this month, U.K. defense contractor QinetiQ (pronounced ki’ ne tik) agreed to buy Apogen in a deal valued at roughly $300 million. The Carlyle Group has a minority stake in QinetiQ, although Freed dismissed the idea that Apogen management’s past connections had anything to do with the sale. Instead, he pointed to QinetiQ’s current expansion in the U.S., as the company acquired engineering outfit Foster-Miller and Westar Aerospace & Defense Group.