DUAL EQUITY BUYS
Riordan Gets SMS From Marconi
By RAJIV VYAS
Private equity investor Riordan, Lewis & Haden has bought Brea’s Systems Management Specialists Inc. from Britain’s Marconi PLC for nearly $10 million,about 10% of what the data services provider sold for in 2000.
The Irvine office of Los Angeles-based Riordan, Lewis said it invested $9.5 million for a majority stake in SMS. The company’s managers, including Chief Executive Patrick Dolan, invested more than $1 million in the deal, which closed last month.
In 2000, during technology’s boom, Marconi paid $125 million for SMS. The telecommunications gear maker sold SMS as part of a restructuring prompted by the industry’s downturn.
“In the bigger scheme, SMS was a small part of the total picture” for Marconi, Dolan said.
The deal marks the first for Riordan, Lewis since the October 2001 $7 million recapitalization of Santa Barbara-based Intri-Plex Technologies Inc.
SMS has “a great management team with a proven record of success in this industry,” said Murray Rudin, a partner at Riordan, Lewis and head of the firm’s Irvine office. “There is good long term growth opportunity in IT outsourcing.”
SMS provides data services for Beckman Coulter Inc. and parts of Fluor Corp. and Boeing Corp. The company is a smaller version of Electronic Data Systems Corp. or IBM Corp.’s outsourcing arm.
While EDS and IBM go after big clients,those with yearly sales of $10 billion or more,SMS targets midsize companies with annual sales of $1 billion to $5 billion.
Rivals include Leonia, N.J.-based Infocross-ing Inc. and Level 3 Communications Inc.’s (i)Structure Inc.
SMS counts yearly sales of about $25 million, down from $125 million during the data center bubble. The company has about 150 workers in Brea at its 100,000-square-foot office and data facility.
“Marconi threw a ton of money at the facility,” Dolan said.
The company was started by Miguel Winder in 1981. In the mid-1990s, SMS made waves by unsuccessfully trying to wrest a multimillion-dollar contract with the county of Orange from Lockheed Martin Corp.
By 2000, SMS counted 800 workers and data centers across the country. Then, in Dolan’s words, “telecom exploded.”
After Marconi started a major overhaul, Dolan said he and other managers approached the company and private equity funds about buying SMS.
“This is a fundamental, sound business model,” Dolan said. “We had half a dozen different term sheets. We had the luxury to choose our financial partner.”
Plans now are to grow SMS. Dolan said his goal is to grow to $200 million in yearly sales and 400 workers in five years. The funding from Riordan, Lewis provided a sizable “cash cushion,” he said.
“We now have good strong balance sheet. There are other companies that we can acquire,” Dolan said.
ClearLight Acquires Printer Maker
By RAJIV VYAS
Newport Beach-based ClearLight Partners LLC has invested $20 million to $40 million in Glendale’s Futurelogic Inc., a maker of printers used at gas stations, casinos and parking lots.
ClearLight picked up a majority stake and was the only equity investor in the deal, according to Michael Kaye, managing partner at the $300 million private equity firm. Futurelogic’s managers kept a minority stake in the deal, which closed last month.
“One of the things that we are excited about is that the management team is in place,” Kaye said. “They have been successful, are quick moving, have great engineering staff and are responsive to customers.”
Futurelogic was started in 1983. One of the company’s three partners was looking to sell his stake, so they contacted ClearLight and other private equity funds in mid-2002.
“We spoke to a bunch of companies,” said Tony DiMarco, Futurelogic’s president. “We were impressed by ClearLight and the diligence done by them.”
Futurelogic also wanted money to expand its staff and go after new markets, DiMarco said.
“We wanted more bodies to work on more projects simultaneously,” he said.
Futurelogic has about 19 engineers and administrative staff in Glendale. It has another 35 people at a plant in Arizona. DiMarco said he plans to hire 10 to 15 more people in the next year.
Futurelogic’s thermal printers,which use heat to create images on special coated paper,are designed to work in tough settings.
The company said it has a 33% market share among gas stations. In the next couple of years, DiMarco said he aims to double Futurelogic’s share among gas stations and penetrate new markets.
“We are targeting parking kiosks,” he said. “They are more prominent in Canada and Europe and they are now getting more popular in the U.S. That’s a market in its infancy.”
Another area where thermal printers are common: casinos. Some slot machines use them to print out where winnings via a barcode that’s taken to a cashier or used to gamble more.
“There has been a lot of growth in that area,” Kaye said.
The deal marked ClearLight’s second for 2002. In May, it invested $50 million in Irvine-based U.S. Education Corp. along with Chicago’s William Blair Capital Partners LLC in what was Orange County’s largest private funding last year.
“Last year was a little bit short of what we wanted to invest,” Kaye said. “But considering the economic environment, we are very happy.
ClearLight, who’s sole limited partner is Tokyo-based security services company Secom Co., still has more than $200 million in capital to invest, Kaye said. n
