Bear, Stearns & Co.'s merchant banking unit has teamed up with an Arlington buyout shop, GlobeSecNine, and committed $300 million to do leveraged buyouts in the homeland security sector.
GlobeSecNine, one of a growing number of investment firms in Washington, filled with former senior military and intelligence officials, plans to evaluate and bring deals to Bear Stearns. Anthony Padgett, GlobeSecNine's chief executive, said the firm's partners have pledged their own money and plan to soon raise more funds to co-invest in Bear Stearns deals in the homeland security sector. GlobeSecNine joined Giuliani Partners, former New York City mayor Rudolph Giuliani's municipal security consulting firm that also has an alliance with Bear Stearns, in helping Bear Stearns put the $300 million to work.
"Over the last few months we've been seeking a large financial partner," Padgett said. "We think we have a very good team of people from the private sector and public sector that could be of great use to a large financial partner."
Padgett said several deals are in the pipeline.
GlobeSecNine is the latest entry in the private equity race to buy up companies in the fragmented security market. Paladin Capital Group is raising a second fund to invest in small companies that have technology with potentially broad government and commercial security applications. Former defense secretary William Cohen has launched TCG Financial Partners with Edward Carter, Bank of America's former investment banking chief, to invest in defense companies. Cohen hopes to raise a $300 million fund.
Like these other efforts, GlobeSecNine has the requisite collection of former generals and intelligence officers as founders and advisors.
In addition to Padgett, the firm's co-founders are David Miller Jr., a former ambassador and a counterterrorism member of the National Security Council under the first President George Bush, and Gregory Newbold, a retired Marine lieutenant general. Newbold's last job in the military was as director of operations for the Joint Chiefs of Staff. Newbold retired in 2002.
Padgett, a lawyer, spent several years at Monsanto Corp., most recently as head of its international seed business.
GlobeSecNine's advisory board chairman is Brent Scowcroft, the first Bush's national security adviser. Other members are Frederick A. Turco, a co-founder of the CIA's counterterrorism center; and Robert Damon, North American president for executive recruiter Korn/Ferry International.
Padgett said the firm will invest in companies that have a track record and are valued at $50 million to $300 million. The firm must be in a position to benefit from the anticipated growth in infrastructure security efforts in the private sector. Newbold said they will be on the lookout for companies that could benefit from consolidation in the sector.
"First we have to have an accurate vision of what the homeland security picture will be in the next five years," Newbold said. "Then to see where the identifiable areas of growth will be in the next three to five years. Then narrow that down to the companies that have the employees to manage it, and the capital needs."
The relationship with GlobeSecNine was put together by Richard Perkal, a senior managing director at Bear Stearns's merchant banking group. Bear Stearns's total merchant banking fund is $1.5 billion.
Perkal, before moving to New York four years ago to work for the investment bank, headed the corporate law practice at Kirkland & Ellis in Washington, a job now held by George Stamas, a private equity investor. Perkal also is an investor in several Washington-based retail chains, including the Healthy Back Store, an ergonomic products firm, and Cartoon Cuts, a chain of hair salons for children .
"We've been on a mission over the last 12 months to acquire companies in the security space," Perkal said of Bear Stearns. "We formed a year ago an alliance with Giuliani Partners. But what GlobeSecNine adds is insight into what our military needs are today."
Perkal said potential investments include body armor companies, and logistics and transportation security companies.
Terence O'Hara's e-mail address is email@example.com. Dealmakers appears every other Monday in Washington Business.