Franchise Value
Operating Executives
Case Study
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Arlington’s strategy of conducting extensive industry analysis and partnering with Operating Executives is illustrated by the creation of its portfolio company Apogen Technologies ("Apogen"), which operates in the Federal information technology sector. Arlington identified the Federal IT sector as a compelling area for investment as a result of several important characteristics:
- A rapid projected growth rate due to demands to upgrade an aging IT infrastructure and the anticipated retirement of a meaningful portion of the Federal IT workforce
- Barriers-to-entry existing in the form of security clearances, knowledge of specialized procurement rules and past performance requirements
- A highly fragmented industry with hundreds of companies but fewer than 50 firms with greater than $150 million in revenue
- An expansive universe of acquisition targets concentrated around Arlington’s Washington, D.C. headquarters
Arlington’s investment approach was to create a premier mid-tier Federal IT company through the strategic acquisition of several highly regarded, smaller service providers that were experiencing double-digit internal growth and healthy profit margins. Due to recent consolidation in the mid-tier, this company would fill a void as a nimble, customer-focused provider in the $200 million to $500 million size range in order to meet the government’s increasing outsourcing needs.
As a result of its thorough and exhaustive research initiative, as part of its process, Arlington considered more than two dozen private Federal IT companies, including ITS Services, Inc. (ITS), the company that later became Apogen’s platform acquisition. In keeping with the firm’s dedication to leveraging outstanding management talent, Arlington formed a partnership with Todd Stottlemyer, an 18-year Federal IT industry veteran who had previously been a senior executive with BDM and BTG, two prominent, publicly traded companies in the sector. Stottlemyer and Paul Leslie, a former colleague of Stottlemyer’s who became Apogen’s President, shared Arlington’s vision and strategy for creating a leading mid-tier provider of Federal IT solutions. Both Stottlemyer and Leslie possessed significant experience in running business units and integrating acquisitions. Together with Stottlemyer and Leslie, Arlington recruited Phil Odeen as Chairman. Odeen is the former Chairman and CEO of BDM International, a $1.3 billion Federal IT services firm where he was a colleague of both Stottlemyer and Leslie and had most recently served as Chairman of TRW, which was sold to Northrop Grumman in December 2002 for $8 billion.
Arlington’s partnership with Stottlemyer, Leslie and Odeen served as the main catalyst in accelerating the firm’s initiative in the space. Not only did the firm’s Operating Executives bring significant industry credibility but they also helped to further focus the firm’s priority areas of interest, generate significant additional deal flow, and expedite Arlington’s due diligence efforts. Furthermore, their involvement proved critical in both the acquisition of ITS and Science & Engineering Associates (SEA) – Apogen’s second acquisition – after the review of dozens of potential add-on acquisition candidates. Arlington and its Operating Executives became the "buyer of choice" in both transactions since these business owners were motivated by numerous factors, specifically a desire to remain shareholders of the combined company, the preservation of company culture, and placing a premium on a buyer that prioritized growth and building a large enterprise.
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