Target: Escort Inc.
Seller: American Capital Strategies Ltd.
Buyer: Falconhead Capital LLC
Financial Advisor: Seller: Piper Jaffray & Co.;
Legal Advisor: Seller: Weil Gotshal & Manges LLP;
Buyer: Kirkland & Ellis LLP
Accountant: Buyer: KPMG
Private equity pros like nice things: homes, vacations, watches and, of course, cars. They also like minimizing costs. That’s why Falconhead Capital LLC’s latest purchase is one private equity pros will easily understand.
Falconhead recently won an auction for Escort Inc., the nation’s leading provider of high-end radar detectors, which are meant to help drivers of BMWs and Lamborghinis save money by not piling up speeding tickets.
New York-based Falconhead focuses on leisure, lifestyle and other businesses. Investments include National Powersport Auctions and Premier Salons International Inc. It recently exited investments in Maritime Telecommunications Network and ESPN Classic Europe LLC.
Escort, based outside Cincinnati, claims it is responsible for 85% of radar detection patents granted to date. It has more than 20 radar and laser detection products under the Escort and Beltronics brands and more than 250 employees. Terms weren’t disclosed on the deal.
David Moross, Chairman and CEO of Falconhead, said there is a definite upside. Only 2% of car drivers use detectors, which are legal everywhere in the U.S. but Virginia and Washington D.C. The company has a 95% market share on high-end detectors, which can cost several hundred dollars.
A major marketing plan will be informing consumers that detectors are in fact legal to buy, said Moross. The Federal Highway Administration has prohibited radar detector use in commercial vehicles involved in interstate commerce since January 1994. But for the rest of cars it is legal, as long as you avoid Virgina and the capital.
Numerous attempts have been made in the U.S. to ban them, but states have been unwilling to do so. Detectors are banned in several other countries, such as France and Spain, as well as some provinces of Canada.
“One of our biggest messages will be that they are not illegal,” said Moross.
Moross also believes the market is secure from swings in the economy. The mobile electronics industry generates between $16 billion and $20 billion in revenues per year, and “gear heads” can have fanatical devotion to dolling up their cars. The plan for Escort is organic growth, but one avenue would be to add, possibly via M&A, other related products like GPS and alarm systems, said Moross. There are also other ways to expand: last year, the company announced a joint effort with Harley Davidson, designing a motorcycle-friendly radar detector.
Moross added that Escort’s business is recession-proof. Buyers of Escort’s products tend to be high rollers and fast drivers, firing down highways in Ferraris and Porches. This jet set, car-aficionado crew is more dependable to keep buying through swings in the economy, he said.
There was debt issued on the transaction, but Moross declined to comment on the level of debt versus equity. He said he learned from the auction process that there is ample interest in the company and an exit won’t present a problem.
Escort CEO Greg Blair, who Ernst and Young named entrepreneur of the year for an emerging company in 2002, has rolled over a significant amount of equity into the new company.
Other companies in the mobile electronics space include $71 million market cap Cobra Electronics Corp. and Directed Electronics Inc. Cobra has been active in acquisitions.