New PE Firm Playing Defense

Jon Stout is aiming to serve middle market defense contractors that haven’t performed as well as they should. The defense industry veteran has started a new firm, The Shawmark Group, and is looking to take over defense companies with about $30 million in revenue.

The Shawmark Group will specialize in turning around companies in the defense and military intelligence sectors through growth and acquisitions.

Stout brings to the firm nearly 20 years of experience in the defense industry.

In 1987, Stout founded DPC Technologies. The company provided IT services to the National Security Agency and was generating annual sales of $70 million when he sold it to Northrop Grumman in 1999.

Retired for all of six months, Stout soon decided to get back in the game and led a team that bought out Hadron, a bankrupt defense contractor. Under new management, Hadron’s fortunes improved and the company merged with Analex, with Stout becoming the merged company’s chairman. When Analex decided it wanted to grow more aggressively, it took funding from Pequot Capital last year and Stout sold his shares.

With the funds he has from his exit from Analex, which he describes as being in excess of $5 million, but still “in the low seven figures,” he started Shawmark earlier this year. The capital he has now will service the takeover of a company of about $30 million in revenues, he says.

Stout says he intends to draw from a pool of individual investors familiar with the defense contracting space. Rather than raise a traditional private equity or buyout fund, Stout aims to create a limited liability corporation and give all investors equity in the acquired company.

He adds that his years as a defense contractor allow him access to deal flow. Military intelligence and related agencies need work done quickly and can forgo the bidding process on contracts, which can take up to six months to sign.

The firm, which is located outside of Washington D.C. in Middleburg, Va., is a family affair. Stout’s daughter, Shawna Stout is Jon Stout’s co-founder and fellow managing partner. She and her brother Mark Stout lend their first names as the basis of the name of Shawmark.