Termsheet: Brothers in arms



Carving out a single small business line from FTSE 100-listed multinational defense, security and aerospace company, BAE Systems, means your new acquisition comes minus a lot of administrative essentials. That was the situation private equity investor Warren Kanders found himself in two years ago when his firm, Kanders & Company, bought back police equipment-maker Safariland.

Kanders was undeterred though, as he was the one who sold Safariland’s previous parent, Armor Holdings to BAE in July 2007. Five years later he bought back the body armor and law enforcement accessories producer.

Because Safariland was plucked from BAE and Armor Holdings, which Kanders built and took public, administrative infrastructure was limited while financials reporting had been absorbed as a line within the London-headquartered defense giant that is BAE.

Kanders credits GSO Capital Partners, which provided both a unitranche loan and minority equity to finance the carve-out, with doing a deep dive into the company and using its expertise to understand the asset.

Brad Colman, a principal at GSO, who originated the deal and still oversees the relationship, talks about the company with the ease of a defense expert, though he is an industry generalist at GSO.

Kanders built up Armor Holdings Group, a defense business that provided armor for the war in Iraq. “It became orphaned under BAE’s ownership. Safariland’s core business is protective gear—mainly bulletproof vests—and the business had some issues under BAE, such as difficulty selling internationally,” Colman explains.

BAE Systems is headquartered in the UK, leaving it subject to restrictions on selling defense products, with any sales subject to scrutiny and requiring government approval.

Safariland’s products were primarily geared toward municipal police departments at the time. The company also sells gun holsters, batons, riot gear and other equipment.

Since Kanders regained ownership in 2012, GSO has negotiated deals for Safariland with its vendors to cut costs and provided it with further acquisition financing. The company’s EBITDA has increased dramatically and Safariland has more purchases in the works. Both Kanders and GSO say it will soon make a good candidate for public listing. GSO lent the money via the FS Investment Corp BDC.


The company was established in 1964, when Neale Perkins launched a gun holster business from his garage in Sierra Madre, California, after making custom holsters for his father. He named the company after the African safari trips he and his dad had taken. American Body Armor, a company specializing in bulletproof vests, was born shortly after that: in 1969.

In the late 1990's, Kanders bought both companies and formed Armor Holdings, which was then acquired by BAE in 2007.

Kanders’ return to Safariland was driven by his belief that BAE failed to tap into the firm's sales potential. He also says he made the wrong call in 2007. When he sold the firm, Kanders thought that the upcoming US election would mean a political shift that would result in a decline in military activity.

He says he now recognizes that the company’s products are still in high demand, as global conflicts have continued to play out underpinned by continuous demand from local law enforcement in the US.



Kanders has known Bennett Goodman and Doug Ostrover, two of GSO’s three founders for several years. He approached them for debt for the Safariland carve-out and worked out a package that, he says, made sense for everyone involved.

GSO provided a $45 million unitranche loan and $10 million in preferred and $2.5 million in common equity. That was subsequently replaced with a larger $160 million senior secured unitranche facility in 2013 to support the purchase of Canadian firm, Med-Eng, according to documents obtained by PDI. The preferred equity investment, which is structured with a seven percent cash coupon and six percent payment-in-kind, increased to $22 million. The six-year loan pays an interest rate of 8 percent with the LIBOR floor set at 1.25 percent.

Kanders admits that the cost of capital is higher than what other providers quoted, but he is happy with the relationship, as Blackstone went above and beyond the call of duty – acting more like a private equity parent than a lender to support the company’s growth.

An example of this was when GSO’s own parent, global asset manager Blackstone, stepped in to cut costs for Safariland. “Shortly after closing, we brought in our group purchasing organization team, which is part of Blackstone at large, and we attacked a bunch of categories there, the biggest one of which was FedEx,” Colman explains.

Using Blackstone’s negotiating power and existing agreements with vendors, the $290 billion firm cut deals for Safariland with FedEx, rental car companies, hotels and airlines. “We had gone up and down the P&L, both with their materials cost and their overhead, and helped them transition from an orphaned position of a big global defense company to a nimble, responsive mid-market company with attractive margins,” Colman says.

The company’s EBITDA is now north of $45 million, up from less than $10 million at the time of Kanders’ purchase. The company is big enough and could probably get cheaper financing from a bank syndicate, but Colman says Safariland has not refinanced its expensive debt because GSO provides flexibility and a wider range of services.

The Blackstone credit arm, which has about $72.9 billion under management, has been quick and flexible in arranging debt for further acquisitions, and Kanders prefers this to wrangling with a group of traditional banks through a fast-moving M&A process.

“There are always ways to get cheaper capital and the market is competitive, but we take a long-term approach to this and the arrangements we have are really fair,” Kanders says. “GSO has been very responsible and receptive as we’ve built the company, so our cost of capital has actually gone down because the business is growing and our credit is better,” he says.

Bank of America also provided a $45 million asset-backed loan facility in 2012.



Since 2012, the company has made six acquisitions, including Canadian bomb suit company Med-Eng, which Safariland bought from Allen Vanguard in October 2013. Colman notes that the company has incredibly strong brand recognition, dubbing it “the Kleenex of bomb suits”.

The deal prompted the partners to increase the original unitranche loan to $160 million and at the same time GSO doubled the size of its preferred equity investment.

With Med-Eng under its belt, Safariland is now the biggest supplier of bomb suits globally. “We’re helping them diversify the business and move into new product categories,” says Colman.

Some of these transactions required digging deep into the financials again, Med-Eng was also a carve-out of a larger business. “They did all of this work again and we subsequently put in place an accordion facility to make other purchases,” Kanders explains. The accordion facility totals about $30 million, with $6 million drawn giving Safariland another $24 million in term debt to draw down, should it be needed.

Safariland also acquired Mustang Services, a Canadian company that sells protective gear to coast guard operations, in March 2013. It bought Atlantic Tactical, a tactical equipment supplier to police forces, this January. “Part of their strategy now is to move down the supply chain and acquire those distributors,” Colman explains.

Kanders says one of the challenges so far has been integrating all these businesses. “The risk is management and execution. We’ve continuously acquired assets, so we have to make sure that management is set up well,” he says.

Part of the strategy has been to replace management, as private equity firms are wont to do. Of the top nine people at the company in 2012, seven have been replaced. Kanders says the replacements were necessary to better cater for the company’s acquisition and growth strategy.

Safariland has also created new senior roles. Gray Hudkins, who is a president at Kanders & Company, joined Safariland as vice president of corporate strategy, and oversees some of the business integration and management appointments.

“In the last year and a half we brought in a new CFO, a new head of sales, who had been in the industry for a long time, as well as a strategy guy from Bain [Capital],” Hudkins explains.

The positions are new and were created to have better lines of reporting and accountability in some departments, says Hudkins, who has worked with Kanders for 12 years. He is based in Los Angeles, but travels a lot between Los Angeles, New York, and Safariland’s locations. The company has large manufacturing facilities in Tijuana, Jacksonville, Florida and Ontario in California. It has additional offices and departments in Vancouver, Iowa, Wyoming, Massachusetts and West Virginia.



Having the weight of Blackstone behind the company helps, but it doesn’t guarantee success in all deals. Safariland bid for UK survival equipment company, Survitec, which was up for sale by private equity firm Warburg Pincus in autumn last year.

Canadian investment firm Onex Corporation bid a higher price for the company, £450 million ($687 million; €607 million) as opposed to Kanders’ £420 million offer. The deal closed on 12 January and Kanders says that market conditions held them back from upping the bid. “During that time, the currency markets were extraordinarily volatile and then the price of oil collapsed and we weren’t prepared to increase our offer as a result,” Kanders explains.



Kanders and Colman both agree the company will be ripe for an initial public offering with just a bit more scale. “Diversified protective gear companies go for very high multiples because they tend to be much less cyclical and have very good cash flows,” Colman says. “The Federal government pays half of the cost for bullet proof vests for a police department, so it’s a very good sticky market.”

Kanders says the Survitec purchase would’ve been large and transformational enough to warrant an IPO, but since that deal fell through, he’ll be scouting for other purchases. “We could go public today, but I think it’s too soon. You’ll see us make a number of acquisitions in the next 12 months, our pipeline is pretty thick and GSO is prepared to accommodate us,” he adds.



Safariland’s motto is “Together, we save lives”. To achieve that aim, the company engages in some grim research.

Any time a police officer is shot, the company holds a meeting at its various facilities to go over the news stories and extract any lessons they can from the incidents.

“We do that because it’s our mission to save lives and our product can’t fail. It has never failed. We’re obsessive about that,” Kanders contends. “Every time we do that, it reminds everyone in the company why they work for our business and that their jobs are so important.”

Kanders admits that his original motivation for selling the business in 2007, the expectation that demand for Safariland’s products would fall, was wrong. That’s bad news in general, but the company – and the partnership between Kanders and GSO – has thrived.

“The world is not getting any safer and we’re set up well against that,” concludes Kanders.