Arlington Capital Partners on Thursday said it has agreed to acquire the military and security ground robotics operations of iRobot [IRBT] and is turning its focus to its home robots business, which generates about 90 percent of annual sales.
iRobot said the deal price is upward of $45 million, including contingent payment based on meeting certain milestones. The transaction is expected to close in the next few months.
The pending divestiture ends a nearly two-year review of strategic alternatives of the Defense and Security business begun in the spring of 2014 when iRobot engaged Blackstone Advisory Partners LP, which is now PJT Partners. iRobot said the expected financial impact of the sale will be disclosed in its fourth quarter earnings release on Feb. 10.
iRobot Defense & Security business tallied $45.5 million in sales in 2014 and $50 million in 2013. Through the first nine months of 2015 the business posted $24.5 million in sales and reported a backlog of $27.6 million. The home robot business of iRobot had $384.4 million in sales through the first three quarters of 2015.
Sean Bielat, a former director of Business Development at iRobot and later the program manager for the company’s biggest defense program, PackBot, will be the CEO of the new company, which will be renamed once the deal closes.
iRobot’s defense business has been trending down the past few years once the wind down of the United States troop presence in Iraq and Afghanistan began, but Bielat says growth is on the horizon. The business has stabilized and while he couldn’t discuss the fourth quarter results Bielat told Defense Daily in a telephone interview that 2016 will be a growth year and then significant growth will return in 2017 and beyond.
That’s because the Defense Department has established a need for robotics and has initiated some programs of record with upcoming opportunities “that will be larger in size and scope than anything we’ve seen in the past that are in the DoD budget,” Bielat said. “So we’re very optimistic and think we’re well positioned to win some of these major programs,” he said.
Arlington Capital said it plans to grow its new portfolio company through internal investment and acquisitions. Bielat said there are no gaps in the Defense and Security business’s product portfolio but will look for opportunities to help it succeed in the ground robotics space for its customers.
With the backing of Arlington Capital, Bielat said the Defense and Security business now will have the advantage being able to focus on its core customers in defense, safety and security markets. As a private company, the business will also have flexibility that it doesn’t as part of a publicly-traded firm with fewer requirements and regulations and in the investments it makes.
A third advantage is having a “strong, committed and well capitalized private equity firm behind us that gives us a lot of options to invest in going forward,” Bielat said.
Bielat will be joined in the senior management ranks of the new company by Tom Frost, who is the current senior vice president and general manager of the business, and will be named president. The company has about 100 employees and will continue to be based in Massachusetts.
iRobot’s Defense & Security business designs and manufactures small robots for public safety, military and hazardous materials applications. Products include the iconic man-transportable PackBot, the throwable FirstLook, the backpack-portable SUGV, and the Kobra, which deploys from small vans and SUVs for counter-vehicle borne improvised explosive device missions. More than 6,000 of the company’s defense and security robots have been sold and deployed worldwide.
Once it closes the transaction, iRobot said it will expand its share repurchase program by $65 million, lifting the total authorization to $100 million.