Caxton-Iseman Runs With Anteon IPO –

Completing its first initial public offering, New York-based private equity firm Caxton-Iseman Capital Inc. last month succeeded in floating Anteon International Corp. on the Nasdaq. The company, trading under the symbol ANT, priced at $18.00 per share, which is above its original filing range of $15.00 to $17.00. The stock has yet to trade below $19.25, and was among the top 10 best-returning IPOs in Q1 2002.

Caxton Iseman’s blended basis in the stock prior to IPO was $0.88 per share, and then at approximately $0.40 per share for its second investment, generating a return of more than 25 times on equity and 50 times on the original equity investment. At press time the stock was trading at $22.91, only cents below its high of $23.45. Needless to say, Frederick Iseman, president of Caxton-Iseman and chairman of Anteon, is proud of the company’s performance and eager to find more opportunities in the same field – federal information technology services. Iseman spoke with Buyouts first about his firm’s history with Anteon as it came out of the quiet period this month.

Despite the fact that the IPO market is turning many more companies away than in previous years, Caxton-Iseman recognized its opportunity for Anteon. “The defense and federal IT part of the market has been in favor,” said Iseman. “So the underwriters all thought the market would be receptive.”

The lead underwriter for the offering was Goldman Sachs & Co. Co-underwriters included Bear Stearns & Co., Credit Suisse First Boston, Lehman Brothers and Merrill Lynch & Co.

Iseman said the company stood to benefit from being public in several ways. “We thought it would be good from a contracting standpoint and from a management morale standpoint for all the management and 5400 employees to have stock ownership in a public entity,” he said. “Also, it gives us, if we ever want to use it, a potential currency for acquisition.”

The lack of bumps on the road to the IPO also suggested the company would be a success. Of the company’s 66 roadshow meetings, 63 resulted in stock orders. The result was an offering that was 20 times oversubscribed.

Caxton-Iseman continues to be the largest shareholder of Anteon, although its stake is now less than 40%.

The Roots

Back in 1996, Caxton-Iseman purchased a company called Ogden Professional Services, which had $110 million in revenue the previous year, for $47.5 million. The firm and management put up $10 million, comprised of $7.5 million in subordinated debt and $2.5 million in equity. Ogden later changed its name to Anteon, took on a new chief executive, Joseph Kampf, and began a series of add-ons. Each of those add-ons was completed without additional equity from Caxton-Iseman except its largest add-on acquisition, Analysis & Technology Inc., for which Caxton-Iseman contributed $22.5 million of equity. Now with five add-on acquisitions under its belt, Anteon is approaching $1 billion in revenue a 20-fold increase in enterprise value since 1996. Those add-ons include Vector Data Systems, which specializes in information systems for military intelligence data; Techmatics, a provider of systems engineering for large-scale military system development; Analysis & Technology, which provides technology based training systems; Sherikon, a technology solutions firm; and SIGCOM Training, which is a provider of simulation systems.

After Caxton-Iseman took on Anteon, it brought in a new chief financial officer, Carlton Crenshaw, who was able to collect Anteon’s receivables, which were out approximately 116 days, and repay almost all the senior debt in the first year. “Our view has always been that the equity for our next deal is sitting on our balance sheet, which is why we’ve only had to put additional equity into the company once, even though we were able to do five acquisitions,” said Iseman.

The strength of Anteon lies in its growth and its consistent performance for its government customers. “Management has continually looked at the portfolio of contracts and businesses that they’re in and said, how do we make sure that we’re in the fast moving part of the stream,'” said Iseman. “We want to be in agencies and departments and acquiring capabilities that are in growth areas.”

In 2001, Anteon’s top programs by revenue included products for the U.S. Air Force, U.S. Navy, Department of Defense, and the Naval Surface Warfare Center. While having a business that makes up the majority of its clients with government agencies provides a certain extent of stability, Iseman warns that the federal government is a sophisticated and rational customer. And as the saying goes in the industry: This is the only business in the world where your customer can indict you.

Anteon, and like companies, are audited twice annually first there is a financial audit, then the Defense Contracting Audit Agency audits the company for compliance with contracting rules. “If you mess up with the federal government, start looking for a new job,” said Iseman. “Your record for doing good work – delivering what you’ve promised, being responsive to the agencies that record is a precious asset. If you mess up with one agency, it’s very easy for another agency that’s looking at you as a contractor to find out.”

Therefore, Anteon’s record for winning and re-winning government contracts speaks volumes of its ability to perform. Since the IPO March 12, Anteon has been awarded a $27 million Navy contract to support the Aegis Shipbuilding Program; a five year task order to support the Defense Finance and Accounting Service (DFAS) Technology Services Organization (TSO); and three Navy contracts valued at more than $35 million.

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