Lightyear Profits Through Third Telmar LBO

Target: Telmar Network Technology Inc.

Buyer: Warburg Pincus

Sellers: Lightyear Capital; Stonebridge Partners

Price: Undisclosed

Financial Advisor: Sellers: Merrill Lynch

Legal Counsel: Lightyear: Simpson Thacher & Bartlett


Currently raising its second fund, financial services specialist Lightyear Capital has been stirring up a flurry of activity. Already this year the firm completed the buyout of real estate software company Realm Business Solutions, agreed to acquire specialty insurance underwriter Sirius America Insurance Co., and sold student loan provider Collegiate Funding Services Inc.

Most recently, the New York firm sold its interest in Telmar Network Technology Inc., a logistics and supply chain broker to the telecom market, via a secondary transaction to fellow private equity firm Warburg Pincus. Warburg will be the third financial sponsor to control the company, which sells new and refurbished telecom equipment in addition to providing maintenance and other services.

Lightyear acquired a majority stake in Telmar in November 2003 from Stonebridge Partners, which retained a minority stake in the company throughout Lightyear’s stewardship. At the time Lightyear entered the picture, Telmar was focused exclusively on wireline products and services and reported $102 million in prior-year revenues. In April 2004, Lightyear broadened the company’s mandate to include wireless supplies and services through the acquisition of Commnet Supply, which provided an almost 50% boost to Telmar’s revenues.

The Telmar platform was subsequently bolstered with the add-on of Maya Telecom as well the acquisition of several product lines from Alcatel last November. Lightyear would not comment on Telmar’s current revenue, but in an interview with Buyouts, Mark Vassallo, a managing director at the firm, said it is was “multiples above where it was when we acquired it.”

The firm also was reticent to discuss return data related to the investment save for a $50 million dividend recapitalization that was completed early last year. However, a 2005 article in the Orange County Business Journal reported that Lightyear had made a $25 million equity investment in the company, which would imply a significant return for the investor.

The Telmar investment came out of The Lightyear Fund, a $750 million vehicle that closed in March 2002. As of the beginning of this year, Lightyear’s inaugural fund had posted an approximately 42% gross return and a 30% net return, with a 1.7x equity return multiple, according to the published minutes of The New Mexico State Investment Council’Merrill Lynchs advisory committee.

Vassallo said the Fund’s investment period ended late last year and that eight of its 17 investments had been realized.

Lightyear Fund II, meanwhile, is targeted to raise $800 million. Donald Marron, Lightyear’s chief executive and founder noted that financial services—the firm’s bread and butter—is a sector that’s well embedded in the U.S. economy.

He cited that financial service companies make up 20% of the S&P and are growing at twice the rate of the GDP. Telmar’s business model is centered on trading and distribution, which made the company a fit for Lightyear’s sector focus.

Warburg Pincus, meanwhile, is a veteran player in the communications industry whose previous investments include communications systems provider Avaya, Indian telecom outfit Bharti Tele-Ventures, and cordia Technologies, which provides telecom software and services for IP, wireline, wireless and cable.

Warburg is currently investing from its $8 billion Warburg Pincus Private Equity IX LP, which held a final close last year. —A.N.