Caxton-Iseman reaps 23x return

Caxton-Iseman Capital will recoup a more than 23x return on equity when General Dynamics completes its $2.2 billion (€1.84 billion) acquisition of the firm’s government IT platform, Anteon International.

The sale, scheduled to close next year, marks the end of a ten-year holding period for the New York-based Caxton-Iseman, which started the Anteon platform in 1996 with a $47.5 million buyout. In the original investment, the firm put $10 million of equity into the deal, which was followed with an additional $22 million investment to help fund an add-acquisition a few years later.

It was the lack of institutional capital that let us let it ride. Steven Lefkowitz, managing director, Caxton-Iseman Capital

Under Caxton-Iseman’s watch, the company averaged roughly an acquisition per year, according to Steven Lefkowitz, a managing director at the firm. Its annual revenues shot up from $110 million to roughly $1.5 billion today, while EBITDA grew from $5 million to $140 million during that same span.

The federal IT space, during the decade of Caxton-Iseman’s ownership, underwent a sea change in terms of popularity. Lefkowitz described that when the firm first bought the company, the slow steady growth inherent to the federal side of the sector was being overshadowed by the sharp jumps on the commercial side, fuelled by the internet boom.

“Ten years ago when we first made the investment, everyone thought the commercial IT space was the place to be, and the government IT area was basically the ugly stepchild. But we could see that these were fundamentally good businesses – good, stable cash-generative companies – and now the whole world has shifted [toward the government IT sector].”

Caxton-Iseman does not operate under the standard fund structure. The group is funded solely by Caxton Corp., Bruce Kovner’s New York-based investment firm. Because of this, Caxton-Iseman could afford to be patient.

Lefkowitz noted that just a couple years following the original Anteon acquisition, the group was approached with an offer for the company that would have resulted in a 10x return. Caxton-Iseman, however, turned down the proposal in pursuit of more profits.

It wasn’t until 2002, when the firm floated the company in an IPO, that the returns started to flow in. In the offering, Caxton-Iseman sold off roughly $215 million worth of stock. Shortly after that, roughly a year later, the firm sold off another $200 million through a secondary offering, and in 2004 executed two block sales that together resulted in another $200 million payday. In the sale to General Dynamics, Caxton Iseman will unload the remainder of its holdings, which should amount to around $130 million. The internal rate of return on the ten-year investment comes to roughly 75 percent.

Lefkowitz credited the absence of institutional investors for allowing the group to reach the profit level it did. “It was the lack of institutional capital that let us let it ride,” he told PEO.