Chip Off the Deal Block, TA Pumps $95M Into Eagle Test

It took 30 years, but Eagle Test Systems finally went to the private equity well. And when it did, the company went after a whopping amount.

Last week, TA Associates of Boston announced an investment of $95 million in Chicago-based Eagle Test Systems, a 30-year-old builder of test systems for the semiconductor and communications markets. The investment was the first outside equity investment in Eagle’s history.

The large investment is a testimony to the return to growth for the semiconductor industry, as well as the ongoing dealmaking of TA.

Semiconductors and semiconductor-related industries have been in steady decline since historic highs in 2000. But recent reports by the Semiconductor Industry Association indicate a surge in growth during the late summer and fall among semiconductor manufacturers.

The return of semiconductor equipment industry bellwether Applied Materials’ stock to a year’s high price of over $20 a share is another indicator of rising sales among manufacturers that support the semiconductor industry. Ted Foxman, son of Eagle founder Len Foxman and executive vice president at Eagle, says that his firm, which supplies test equipment to companies such as Texas Instruments, Motorola, National Semiconductor and others, saw revenue growth of 50% last year. And he and other industry analysts expects further growth this year.

TA’s $95 million investment into Eagle follows on the heels of the firm’s Oct. 6 $82 million investment into GlobeOp Financial Services and its Aug. 27 $115 million dollar buyout of One Call Medical.

Mike Child, a Managing Director at TA in Menlo Park, says that the investment in Eagle will “last forever,” or, in other words, until such time as the company becomes a target for acquisition or a possible IPO in 2004. Child says TA has been monitoring Eagle for over two years.

One of Eagle’s competitors in the test market, Credence Systems Corp., based in Fremont, Calif., is like Eagle an important, albeit minor, player in the test systems market that’s dominated by Teradyne (which owns 24% of the market, according to industry figures), Advantest (21%), and Agilent (20%).

Of these, Agilent is currently planning an IPO, which if successful, will position TA and Eagle to also take advantage of the now open window for technology IPOs sometime during 2004.

The size of the investment into privately held Eagle left one industry executive “astounded and speechless.” The projected 2002 revenue of privately held Eagle is somewhere over $10 million, but well under the Eagle’s peak 2000 revenue of $30 million.

Even if the firm’s growth, as stated by Eagle’s Ted Foxman, was 50% last year, a $95 million investment would mean that TA largely owns the company. TA says it will take two of Eagle’s five board seats although TA’s Child says that no changes are planned in management for the firm.

Tom Newman, vice president of Boston-based Teradyne, the leading supplier of test equipment for the semiconductor industry, confirms the bullish outlook for test equipment manufacturers, predicting revenue growth for Teradyne this year of $1.3 billion following $1.2 billion during 2002.

According to Newman, the source of the industry’s growth comes from Asia, and more specifically from China. Teradyne, for example, already manufacturers test equipment in China for use by semiconductor companies there.

TA’s $95 million investment, will according to EVP Foxman, allow his firm to quadruple its manufacturing space, expand its existing six product lines and provide the [marketing] reach that a small firm like Eagle needs to compete with the likes of Teradyne in rapidly growing global markets.

Email Jerry Borrell