Carlyle Preps Defense Company For Sale

Sponsor: Carlyle Group

Target: Arinc Inc.

Price: $1.2 billion to $1.5 billion

Advisers: JPMorgan Chase and Evercore Partners (sell-side)

Arinc, which the buyout firm bought from six U.S. airlines in 2007 for an undisclosed sum, is expected to draw interest mostly from larger aerospace industry rivals and may fetch $1.2 billion to $1.5 billion in a sale, the three people said.

The latest attempt to find a buyer would come more than two years after Carlyle’s previous efforts to sell Arinc failed over a price gap, as well as lack of interest by potential buyers in pursuing the entire company.

Carlyle, however, sold Arinc’s government consulting services division to Booz Allen Hamilton Holding Corp late last year, getting rid of a business that potential buyers found unattractive in the previous auction, the people said.

Arinc has roughly $120 million to $125 million in earnings before interest, tax, depreciation and amortization (EBITDA) and could be sold for more than 10 times EBITDA, the people said. The auction is expected to be launched later this spring, they added.

The people asked not to be named because the auction is not public. Carlyle did not have immediate comment, while JPMorgan and Evercore declined to comment.

The Annapolis, Maryland-based Arinc, founded in 1929, designs systems that help airline pilots communicate with the ground.

Carlyle tried to sell Arinc in 2010 but scrapped the auction after strategic buyers expressed little interest in purchasing the company as a whole, partly due to concerns that Arinc’s government consulting services could create organizational conflicts of interest, sources told Reuters at that time.

Many defense companies had long offered services that include advising government agencies on programs they end up bidding for, creating a conflict of interest. That prompted the U.S. Congress to pass a law that requires the Department of Defense to tighten rules on potential conflicts at such companies.

With the sale of that division to Booz Allen last year, Arinc would be a much more attractive takeover target for aerospace and defense companies, the people familiar with the matter said.

Reporting by Reuters Editor-in-Charge Soyoung Kim based in New York