New York-based Castle Harlan last month exited its investment in portfolio company Ion Track, selling the business to General Electric’s GE Industrial Systems unit for around $200 million, sources said.
In June, Castle Harlan filed to raise up to $100 million through an initial public offering, but the firm scrapped the offering after GE Industrial came through with a bid that nearly doubled that figure. The transaction officially closed Oct. 15.
Sources close to the deal told Buyouts that the GE acquisition gave Ion Track an enterprise value of roughly $200 million. Castle Harlan initially acquired the company in January of 2000 for $27.6 million, with an equity contribution of $14 million. After nearly two and a half years since the original purchase, Castle Harlan will realize close to a 120% annual internal rate of return on the investment.
Ion Track, which makes detection systems for explosives and illegal drugs, reported profits of $500,000 on roughly $33 million in revenue last year. Those numbers represent an increase from 2000, which is in part the result of the nation’s efforts to beef up the war on terrorism. Last May, for example, the U.S. Navy awarded Ion Track with a contract to supply its VaporTracer2 explosives detection and identification systems, while the company’s ITEMISER systems have been installed throughout Capitol Hill and in all seven congressional office buildings.
Further, Ion Track looks to benefit from the Aviation and Transportation Security Act, which mandates that the Transportation Security Association (TSA) installs screeners in every commercial airport by Nov. 19. And by the end of 2002, the TSA will also be required to screen all checked baggage for explosives. The airports will use a combination of trace detection systems and bulk detection units to meet the requirement, with the distinction being that trace detection systems monitor the vapors and particles of a piece of luggage, while bulk detection units analyze the densities of bags. The two kinds of systems will be used in tandem at airports around the country, as trace detection has a higher level of accuracy but a lower throughput, while bulk units can check more items in a given amount of time, but generally are not as accurate.
John Morningstar, an associate at Castle Harlan, said Ion Track controls a 50% market share in the trace detection arena. He noted that while Castle Harlan typically holds onto its portfolio companies for between three and five years, Ion Track surpassed the firm’s original projections well ahead of schedule. “It was prudent to see what kind of [buying] appetite was out there, given the company’s progress,” he said.
Morningstar said GE took part in what, to a limited extent, was an auction process for Ion Track. He cited that GE’s offer had the best overall structure, including a good bid and the ability to move quickly on the transaction.
“Ion Track has been a pioneer in the development of advanced trace detection technologies since its beginnings. GE has a more than 100-year history of developing new technologies to help make the world a better, safer place. We are better together than we ever could be alone,” said Lloyd Trotter, president and CEO of GE Industrial Systems.
Ion Track President and Chief Executive Anthony Jenkins will continue to head the business as it assumes its place in GE Industrial Systems’ GE Interlogix group.