Private equity firms Thomas Weisel Capital Partners and defense-oriented J.F. Lehman & Co. entered into a joint venture this month to acquire Racal Instruments Group, a global manufacturer of test systems for the communications, defense, and industrial markets, from Thales S.A. Terms of the transction were undisclosed. BNP Paribas and CIBC World Markets financed the deal with senior debt.
“There’s a tremendous opportunity to incentivize the management team for the first time in their careers and that’s always been a very successful formula for J.F. Lehman,” said a source familiar with the deal. “This is a brand name that’s been around for a long, long time and is very well respected within its industry.”
Irvine, Calif.-based Racal provides electronic test and management systems for the radio and optical communications and commercial and military electronics markets. The company’s customer base includes the U.S. Navy, Lockheed Martin, Nokia, Lucent and AT&T. The company achieved global sales revenue of approximately $120 million last year.
“This is a very interesting company because it possesses a rare combination of a diversified end market base as well as a strong presence in the wireless market,” said Keith Oster, a partner at Thomas Weisel. “Its performance has been very good despite the choppy economic environment.”
Oster added that the investors plan to use the company as a platform to acquire other small-to-medium sized businesses in the same space.
J.F Lehman has also been busy closing its own deals. The firm this month, through its affiliate Terrapin Partners Subsidiary LLC, acquired all 5.7 million shares of OAO Technologies Solutions Inc. in common stock held by Safeguard Scientifics Inc. Terrapin Partners paid $9.4 million in cash, or $1.65 per share, for OAOT’s shares. Terrapin Partners also issued to Safeguard $2 million of convertible preferred stock, or $0.35 per share, for each OAOT share purchased.
A source close to the firm said its founder, John Lehman, who was already a member of OAOT’s board of directors, was approached by Safeguard about providing liquidity for the company.
Greenbelt, Md.-based OAOT provides subcontracting services to companies including IBM. “It’s not very exciting work but they’ve been doing it for a long time and make decent money doing it, and it is very stable work,” said a source familiar with the deal. The company has pro forma revenue north of $160 million.
Safeguard was trying to build new product lines for the business like the resale of third party e-business software, which has not been very successful. “But while they haven’t fared well in that area, they have been fairly successful in entering the high growth area of IT outsourcing for Fortune 500 customers,” said the source.
“J.F. Lehman found a lot of long-term contracts with very blue chip customers in this market and they’ve been able to put a fantastic year on the board, and we think that they’re going to do even better next year,” he said.
The source added that J.F. Lehman has been fortunate to have had a busy fall in terms of getting opportunities to put capital to work. “These are going to be two very good deals for the firm,” he said.