Aeroflex sees homeland security opportunity in IFR Systems
Aeroflex, a Plainview, NY-based company that makes microelectronic, test and measurement products, completed its acquisition of Wichita, KS-based IFR Systems yesterday for the equivalent of about $60 million in cash.
“We believe the private mobile radio sector is posed for substantial growth because of homeland security,” said Michael Gorin, president of Aeroflex.
In addition to homeland security initiatives that imply public safety radio communications, Gorin identified growth in corporate private mobile radio, He referred to organizations with large field service teams that now use cellular but that would be better-served by a private system. He said that the wireless telephone industry segment’s use of test equipment is important to Aeroflex, but that spending by carriers has substantially dried up.
“Spending will come back. It’s only a question of when,” Gorin said.
IFR has been known for its communications test sets that are widely used for land mobile radio and wireless telephone systems and subscriber unit troubleshooting and testing. Since acquiring the test equipment business once owned by United Kingdom-based Marconi, IFR has seen its business suffer under the weight of its debt and the integration with the Marconi test equipment business.
“To some degree, IFR was hurt in last 12 to 18 months because of a bad financial situation. It might have given some people pause for thought about future prospects. But Aeroflex has a strong balance sheet. We’re a strong company, and we fully back IFR. Customers should have no concerns. They ought to take a look at the IFR product line,” Gorin said.
Aeroflex stepped in with a tender offer for all of IFR’s outstanding shares. The tender offer was completed on June 17 at a price of $1.35 per share, far below the $25 per share the stock once fetched in 1998. Aeroflex paid $10 million to 90% of the shareholders for control of the company. Aeroflex brought IFR under its wing as a wholly-owned subsidiary.
Where shareholders saw value dissipate, so did IFR’s lenders. As part of the acquisition offer, IFR’s bankers accepted $48.8 million from Aeroflex as payment in full for IFR’s loans, about $35 million less than what IFR owed them.
Those still holding IFR shares not already purchased by Aeroflex have the right to receive $1.35 each, without interest, from Aeroflex. IFR shares no longer trade on the stock exchange. Shares of Aeroflex trade on the Nasdaq National Market under the symbol ARXX.
In 2001, Aeroflex posted net sales of $233 million and an after-tax profit of $9 million, a margin of about 4%. Its profit has shown an upward trend since it posted an after-tax profit of $4.7 million on $96 million in sales, a margin of about 5%.
On April 15, when IFR entered into an agreement to be acquired by Aereoflex, IFR’s president, Jeffrey Bloomer, said that IFR was under-capitalized and cash-constrained. He said that IFR’s board of directors believed the sale of the company was in the best interests of shareholders, employees and lenders.
Gorin said at the time that IFR’s test instrument and systems product line would complement his company’s test solutions product line with a minimum of overlap. He said that adding IFR’s product line would result in “significant synergies in both sales and operating income.” He added that the transaction would improve Aeroflex’s market presence in the United Kingdom, Europe and the Pacific Rim.
