Integrated Defense Technologies, Inc.

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Integrated Defense Technologies, Inc.

110 Wynn Drive
Huntsville, Alabama 35807
Telephone: (256) 895-2000 Fax: (256) 895-2064

Public Company
Incorporated: 1998 as PEI Electronics Holding Corp.
Employees: 1,650
Sales: $304.36 million (2002)
Stock Exchanges: New York
Ticker Symbol: IDE
NAIC: 334511 Search, Detection, Navigation, Guidance, Aeronautical, and Nautical System and Instrument Manufacturing; 541710 Research and Development in the Physical, Engineering, and Life Sciences

Integrated Defense Technologies, Inc. (IDT) has several subsidiaries that develop high-tech electronics and other products for the defense and aerospace industries. Its Electronic Combat Systems (simulators, weapon controls, instrument panels, etc.) unit accounts for a little more than half of revenues. Diagnostics and Power Systems (electronic test equipment, flat-panel displays, drive-by-wire systems) contributes a quarter of sales. Communication and Surveillance Systems (radio transmitters, microwave devices, weather radars) accounts for almost the same amount. The company also has created a unit to develop hybrid electric-powered military vehicles.

IDTs products are in demand as the digital battlefield of computer-guided weaponry evolves. One area in most need of upgrading has been networking components, connecting laser target designators to command-and-control center and smart bombs. Here the military has lagged behind the civil sector after several years of lowered funding levels under the Clinton administration.

Although highly focused on defense electronics, IDTs subsidiaries have produced 500 distinct items, which have been used both in upgrading existing systems and in original equipment manufacture. IDTs products are found on the F-16 fighter and C-17 transport aircraft; Navy destroyers; Ml Abrams tanks, light armored vehicles, and Bradley Fighting Vehicles; and Patriot and Tomahawk missile systems.

VC Origins

Robert B. McKeon, a leveraged buyout specialist at New Yorks Wasserstein Perella & Co., founded Veritas Capital Management, L.L.C, in 1992 with Thomas Campbell, also formerly of Wasserstein Perella. Veritas soon became involved in defense-related businesses.

The end of the Cold War made it easy to acquire defense and aerospace firms. Veritas bought H. Koch & Sons in 1992. Formed in 1909 as a maker of fine luggage, it began making military equipment in 1941 and continued to produce harnesses, life support systems, and other equipment for military aircraft after World War II. In 1995, Veritas bought Hitco Technologies, Inc., which produced sheathing materials for the stealth fighter. Koch and Hitco would not be made part of Integrated Defense, but they established a positive track record in the industry for Veritas Capital.

In 1998, Veritas began looking to institutional clients for capital, and raised $175 million for its first such fund (Veritas Capital Fund, L.P.). While other VCs were backing dot-coms, Veritas went with what it knew, and the timing was very good to stay with defense and aerospace. After years of Clinton era defense cuts, the military was ripe for rebuilding. Yet, defense and aerospace firms were still valued quite cheaply, especially when compared with what dot-coms were demanding.

There were other advantages to investing in advanced military technology, McKeon and Campbell told the Daily Deal. The companies IDT was buying typically had backlogs of up to five years. Being suppliers rather than prime contractors, they were not as capital-intensive.

Creating IDT in 1998

Veritas acquired PEI Electronics Inc. (PEI), in October 1998. PEIs origins dated back to an assemblage of engineers that gathered in Hunts ville, Alabama, in 1952 to work on the Redstone Missile.

Veritas Capitals acquisition of PEI was made via a holding company, PEI Electronics Holding Corp. (PEH). PEH was renamed Integrated Defense Technologies, Inc. (IDT) on July 20, 1999. Veritas Capital President Robert McKeon served as IDTs chairman.

Several of Veritas Capitals defense-related holdings were incorporated into IDT along with PEI. In August 1999, IDT acquired Sierra Research from Sierra Technologies, Inc. as well as Sierra Networks, Inc.s Zeta division. IDT posted revenues of $102 million for the year.

IDT continued to grow by acquisition in 2000, picking up Houston electronics manufacturer Tech-Sym Corp. for $182 million. Tech-Sym had a handful of electronics and telecommunications subsidiaries across the United States: Metric Systems Corporation, TRAK Communications Inc., Enterprise Electronics Corp., and Crosslink Corp. Of these, IDT retained Metric Systems, including its Continental Electronics unit, while selling TRAK and CrossLink to other companies in the Veritas Capital portfolio.

IDTs revenues for 2000 were $180.6 million; this grew 50 percent in the following year to $263.9 million. The firm still had plans for ambitious growth. It planned to increase sales organically by a rate of up to 12 percent a yearyet acquisitions were planned to be its main growth driver, as the companys underwriter told Aviation Week & Space Technology.

Renewed Interest After 9/11

The September 11, 2001 attacks on the United States renewed the investment communitys interest in the defense sector. The military was asking for advanced technological means to combat new threats. Although IDT was tightly focused on the defense market (government work accounted for 77 percent of sales in 2001), it produced about 500 different products. This diversification sweetened the appeal for investors wary of the risks of depending on government contracts. IDT was also able to boast three years of revenue growth averaging 61 percent a year.

IDT went public on the New York Stock Exchange in February 2002, raising $154 million from its very successful initial public offering (IPO). Veritas owned 51 percent of IDT after the IPO.

A few months later, IDT created a new unit dedicated to hybrid electric vehicle (HEV) technology. The company was working on military applications for hybrid electric technology, which was much more visible in its role at the forefront of fuel-efficient passenger vehicles. IDT had delivered the Army prototypes of high mobility multipurpose wheeled vehicles using hybrid electric power.

Hybrid power allowed the vehicles, which were converted from AM General Corp. Humvees, to operate more quietly. In addition, they could be used to power the various electronics and communications systems that were part of the modern battlefield. The company was developing a commercial version for United Parcel Service.

In mid-2002, PEI Electronics won a contract to build three small robotic vehicles as part of the Armys Future Combat Systems program. Another of PEFs latest technological achievements was a 100-kilowatt laser cannon, mounted on a Humvee, that could shoot down rockets and other airborne projectiles. PEIs sales were $84 million in 2002.

IDT was supplying all branches of the U.S. military. The company refurbished equipment and also supplied parts for new vehicles. According to Investors Business Daily, IDT was upgrading 5,000 aircraft, 800 naval vessels, and 100,000 land vehicles. It was retrofitting the Navys DDG-51 Arleigh Burke Class destroyers with fiber optics cable.

In the fall of 2002, IDT announced its first acquisition in two years. It paid $146 million for BAe Systems PLCs Advanced Systems unit, based in Maryland. The unit, which IDT renamed Signia, employed 300 people and had revenues of about $80 million a year. It produced surveillance equipment. BAe Systems had bought it two years earlier from Watkins-Johnson Co.

Company Perspectives:

Since our inception in August of 1999, Integrated Defense Technologies and its operating companies have consistently delivered outstanding results and industry leading customer support while growing internally and expanding in important strategic directions. Our progress has gained business and industry recognition, which include recent quality and service awards.

We are all very proud of IDTs achievements and feel especially honored by the recognition from our customers and industry peers. While we did not begin this journey with a specific goal of winning awards, the hard work and personal dedication by our employees is such that recognition was sure to follow and for this we are deeply gratified. We sincerely mean it when we state that the customer is always right, and his or her needs come first.

Key Dates:

Veritas Capital is formed.
Veritas acquires PEI Electronics.
Integrated Defense is formed from seven Veritas acquisitions.
Tech-Sym Corp. is acquired.
IDT goes public on the New York Stock Exchange; the company buys BAe Systems surveillance equipment unit.

IDT ended 2002 with revenues of $304 million. The U.S.British-led war against the regime of Saddam Hussein in Iraq had obvious potential for boosting IDTs business, as fighting commenced in March 2003.

Principal Subsidiaries

Continental Electronics Corporation; Enterprise Electronics Corporation; Excalibur Systems Limited; IDT-PEI Electronics Inc.; Metric Systems Corporation; Sierra Research Inc.; Sierra-Tech, Inc.; T.S. Holding Corporation; Tech-Sym Corporation; Zeta.

Principal Divisions

Electronic Combat Systems; Diagnostics & Power Systems; Communications & Surveillance Systems.

Principal Competitors

The Boeing Company; Harris Corporation; Lockheed Martin Corporation; Northrop Grumman Corporation; Thaies S.A.

Further Reading

Arroyo, Arnaldo, Standout IPOs, Equities, March/April 2002, pp. 23 + .

Carey, David, Defense Buildup Pays Off for Veritas, Daily Deal, April 4, 2002.

Glynn, Matt, Cheektowaga, N.Y. Defense Research Firm to Launch New Work Week Plan, Buffalo News, November 14, 2000.

Hennessey, Raymond, Winning an IPO Skirmish: Integrated Defense Rises 14%, Wall Street Journal, February 28, 2002, p. C14.

IDT Forms New Business Unit Focused on HEVs, Electric Vehicle Online Today, July 12, 2002.

IDT Nails Futuristic Army Design Deal, Birmingham Business Journal, June 19, 2002.

Integrated Defense Technologies Units Win Army Contracts, Defense Week, July 22, 2002.

Mahoney, Ryan, Analysts Bullish on Integrated Defense, Birmingham Business Journal, September 12, 2002.

, Huntsville Defense Technology Firm to Make Public Offering, Birmingham Business Journal, December 19, 2001.

Menlow, David, IPO Pick of the Week: Integrated Defense Technologies, Daily Deal, February 25, 2002.

Moore, Heidi, Integrated Defense May Inspire Similar IPOs, Daily Deal, February 27, 2002.

OConnor, Colleen Marie, Operation IPO: Defense Industry Takes Over, IPO Reporter, March 4, 2002.

Velocci, Anthony L., Jr., Market Focus, Aviation Week & Space Technology, April 8, 2002, pp. 18 + .

Whiteman, Lou, IDT Back in the Hunt, Daily Deal, September 14, 2002.

Wooding, Walker C, Jr., Tech-Sym Buyer Veritas Capital Fund Plans Expansion for Electronics Maker, Houston Business Journal, June 30, 2000, p. 6A.

Woodward, Chris, Integrated Defense, Huntsville, Alabama; War As Video Game? This Makes It Possible, Investors Business Daily, May 14, 2002, p. A12.

Frederick C. Ingram

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Integrated Defense Technologies, Inc.

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