Carlyle Cashes Out on Indigo

To go IPO or not to go IPO? That is the question for one of The Carlyle Group’s investment companies, which chose instead to be acquired and in the process create a larger return for Carlyle.

Portland, Ore.-based FLIR Systems (Nasdaq: FLIR) recently announced its acquisition of privately held Indigo Systems, based in Goleta, Calif. Carlyle invested $10 million of a $19.6 million dollar round raised by Indigo in February 2002.

Allan Thygesen, a Washington D.C.-based managing director with Carlyle, said that there were five interested parties bidding to acquire Indigo and that in the end, FLIR was chosen because of its dominant position in the infrared imaging market. Thygesen further explained that his group gave careful consideration to pushing Indigo’s management towards an IPO in the near future, but that that the $190 million deal, of which approximately $165 million is in cash for Indigo’s investors, was so significant as to sway investors and management towards a merger instead.

Thygesen said the investment’s “IRR was extremely attractive” for investors in Carlyle’s CVP II fund. CVP II, which closed in September 2002, was the fund from which Carlyle made its investment in Indigo, As a result of FLIR’s purchase, Carlyle will begin sending cash distributions to investors, says Carlyle Vice President Joshua Ofstein.

The early exit from Indigo, leaves Carlyle with two other portfolio companies in the semiconductor imaging market: SMaL Camera Technologies and Canesta. SMaL, which received a $13 million Series C investment from Carlyle and Wasserstein & Co. in August, has considerable overlap with Indigo in the security, automotive, and military markets that Carlyle prefers, a possible consideration of the firm in relinquishing its hold on Indigo.

Tony Trunzo, vice president at FLIR Systems, says the deal strengthens FLIR in three ways: By adding the high-quality detector manufacturing that Indigo possesses, by bringing a core of new revenue to FLIR’s base in commercial and government infrared camera markets and by allowing the joint companies to address new markets.

FLIR has projected revenue of around $300 million for its current fiscal year, while Indigo reported over $30 million of revenue for its fiscal year ended in February 2002.

The stock market appears to agree that the deal is a win-win. Shares of FLIR were trading at a near 52-week high shortly after the deal was announced.

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