by Maureen Flanagan
Texstars, Inc., is a worldwide supplier of transparencies, composites and molded products for the aviation and transportation industries. The company offers solutions to its customers' complex problems utilizing its advanced capabilities in transparency optics, sophisticated coatings, thermoplastic molding and composite manufacturing. As a result of their development of leading polycarbonate technologies, Texstars is the primary supplier of canopies for the F-16 fighter aircraft.
The company operated for more than a decade as a stand-alone company within the British conglomerate, BBA Group, Plc. However, as a manufacturer, Texstars did not fit with BBA's portfolio of aircraft services business.When BBA decided to divest Texstars, American Capital Strategies (Nasdaq:ACAS) saw a chance to take the company to the next level by targeting new business in the military market and further developing products for transportation markets. On June 4, 2001, ACAS led a buyout of the company, investing $25,500,000 in senior notes, subordinated debt, mortgage financing, and common stock.
"American Capital's flexible, complete financing package made the Texstars buyout a winning transaction for everyone. As an independent company, Texstars can maximize its full potential with new products and further market penetration," said David Rollings, the company's CEO.
Based in Grand Prairie, Texas, Texstars developed its manufacturing processes under several different owners since it was founded in 1946. In the early 1970s, the company developed the first single-piece wraparound polycarbonate canopy for F-16s, giving pilots an exceptionally strong, clear shield that allowed 360-degree vision. Further enhancements firmly established the company's reputation as the premier manufacturer of optical quality transparencies for military applications. It also made Texstars one of two manufacturers in the global market capable of producing single-piece canopies to the exacting specifications of Air Forces around the world. Texstar's canopies are strong enough to withstand the impact of a four-pound bird striking the shield at 550 knots/hr - a characteristic very important to the US Air Force. The company's proprietary coating technology offers advanced abrasion resistance and radar absorption with the ability to resist flying objects and metal fragments. In addition, a unique patented dry seal technology provides durable and easily replaceable seals, reducing the down time required for canopy changes.
Texstars now supplies Lockheed Martin with new canopies for F-16 manufacturing and replacement canopies for the entire world fleet of more than 3,400 F-16s. The company also makes windows, windshields, and protective coatings for other military aircraft and transparency products for commercial applications. Texstars' sophisticated manufacturing capabilities are applied to products for aircraft interiors and components for commercial planes. These include wing slat ribs, end-seals, ventilation duct systems and interior lines and ceiling supports. Another growing part of the business is producing interior components for mass transit vehicles, such as wall and ceiling panels, seat backs and arm rests, map and advertisement frames, window masks and shrouds and HVAC ducting.
Texstars has established itself as a premier developer of proprietary materials and technologies. Texstars' visors, for example, shielded Apollo astronauts from the harsh environment of the moon's surface. The company's signature material, Tex-Stretch�, introduced in 1989, has become a valuable material for acrylic and laminate transparencies. Its capabilities in composite manufacturing enable metal parts to be replaced with lighter, plastic parts. For instance, materials for the transportation market --- low-toxic, lightweight and resistant to flame, smoke and graffiti -- are in demand.
"With such strong engineering and manufacturing capabilities, Texstars will be a dynamic force as it leverages its success in military applications to commercial and mass transit markets. We are pleased to partner with a company of this quality, with excellent management and proven expertise to move Texstars to the next level," said David Ehrenfest Steinglass, ACAS Principal.
American Capital's update buyout package included financing of $11.5 million in senior debt, $4 million mortgage financing, $8.5 million senior subordinated debt and $1.5 of common stock. As a debt and equity investor, American Capital supports acquisitions, growth and recapitalizations of middle market companies and has sponsored more than 15 buyouts of companies in a wide range of industries. Its investment in Texstars adds to the many other manufacturing companies in ACAS' portfolio.
Texstars is well-positioned in an industry that is vital to the security of the United States and other countries. The company has historically produced the majority of all canopies for the F-16, the most widely used military aircraft in the world. In the United States, the F-16 fleet size is expected to grow in the coming years, and Texstars will continue as a foremost supplier.
In the commercial segment of the market, Texstars has wide latitude for growth in its role as supplier to Boeing, Airbus, and Canadair RJ. The airline industry issued its most optimistic report in three years for anticipated growth in passenger traffic. To meet these increases, the world fleet is expected to more than double by 2019, growing by as many as 32,000 aircraft. Fleets of small and intermediate regional jets will also expand. In addition, new markets are opening up as Boeing and other aircraft OEMs convert traditionally metal parts to plastic and composite products.
The nation's mass transit systems offer opportunities as well. To meet the growing use of city transit systems, federal appropriations for public transportation have risen 43% since 1999. Most public systems are expected to grow over the next five years due to replacement and modernization of old equipment. A trend toward privatization and the growing use of subcontractors for operations and maintenance are also positive developments for Texstars. The company is already ramping up its mass transit work with a contract to provide parts for the Long Island Railroad. Trends in worldwide mass transit systems appear equally favorable.
The company's change of ownership enhances its fundamental opportunities. Its new status as a small business under US ownership will help it qualify for increased sales and enable more aggressive marketing to win military contracts and develop closer relationships with military personnel.
Building on its solid foundation, Texstars' new ownership gives it the operational leeway to further develop products for the military and commercial transportation markets. Cleared for takeoff, this market leader expects to fly high in the years to come.
