PARIS — DataPath Inc., a manufacturer of military satellite communications terminals, has purchased a Swedish company that is fast becoming a player in the same business. With its new acquisition, DataPath intends to broaden its product offering to U.S. and other governments’ military and civil customers.
DataPath’s focus has been on trailer-portable satellite communications units whose antennas are 1.8 meters in diameter and bigger . SWE-Dish’s showcase product is a suitcase-sized transportable system.
Duluth, Ga.-based DataPath, in a transaction that closed July 12, purchased SWE-Dish Satellite Systems AB for $56 million in cash and will operate it as a wholly owned subsidiary.
Stockholm-based SWE-Dish, which was created in 1994, has been growing by some 27 percent annually since 2000, when it was purchased by private-equity investor Litorina Kapital of Stockholm.
SWE-Dish sales in 2006 were 286 million Swedish krona($42.6 million). In the past couple of years, its biggest customers have been in the United States – the U.S. Defense Department in particular. The company has offices in Reston, Va., and in Hong Kong, Dubai and Britain, in addition to its Swedish headquarters.
DataPath said it will retain SWE-Dish’s current management team and its Reston offices.
Lars Jehrlander, SWE-Dish chief executive, said the DataPath purchase is not expected to result in any layoffs of the company’s current 60 employees. In a July 11 interview, Jehrlander said the company’s headcount is expected to rise to about 70 people this year as part of a previously approved expansion to meet customer demand.
“I am very confident about our growth potential in the next few years,” Jehrlander said. “Having DataPath as our mother company will be a positive factor here and will help us reach our objectives.”
DataPath and SWE-Dish both specialize in building portable satellite communications terminals for commercial broadcasters and government customers. In recent years, both companies have sharply increased sales on the strength of military contracts. Using commercial off-the-shelf products, both have been able to outmaneuver their larger competitors by keeping their product lines relatively free of gear designed with military specifications.
This has enabled them to respond more quickly to product evolutions and keep prices down.
DataPath has focused on the market for antennas 1.8 meters in diameter and larger that are part of systems transported by small trailers. Their equipment is used by military personnel for what the company has called “Communications on the Quick Pause.”
SWE-Dish occupies the suitcase-portable end of the market. The company originally thought it would appeal mainly to commercial television broadcasters. In 2000, two-thirds of its sales were to this market.
But in 2000, Litorina Kapital made its initial investment in SWE-Dish and then continued to invest in the suitcase-size satellite communications product, according to Harold Kaiser, managing partner at Litorina.
In a July 12 interview, Kaiser said Litorina stuck with SWE-Dish longer than the private-equity investor normally keeps a given investment.
“We worked with the company and spent a lot of time and capital on expanding its presence worldwide and improving the technology,” Kaiser said. “It became clear that the commercial broadcast market was growing at no more than 5 percent a year, but the defense market – particularly in the United States – was increasing at a high rate.”
Kaiser said 70 percent of SWE-Dish’s business is now for military customers. Because the U.S. market is the biggest customer now and likely in the future, having a U.S. owner for SWE-Dish was viewed as the optimal way to monetize Litorina’s investment, he said.
“We have been approached by several potential buyers and we determined that DataPath was the best fit,” Kaiser said. “SWE-Dish has now turned the corner. In 2006 it reached break-even and the company is expected to make a profit this year. The double-digit revenue growth will continue for several years in our view.”
Litorina said the sale to DataPath represents a 400 percent return on its investment in SWE-Dish.
Privately held DataPath since September 2006 has been preparing an initial public stock offering. Like SWE-Dish, it has been growing very quickly following adoption of its products by the U.S. Defense Department. DataPath reported revenues of $44 million in 2003 and $237 million in 2005. For the first six months of 2006, revenues were $131 million, the company said in filings to the U.S. Securities and Exchange Commission (SEC). In 2005, 84 percent of its revenues were to the U.S. Defense Department.
Peter K. Herbert, director of communications at DataPath, said the company could not comment on the details of the SWE-Dish purchase because of the ongoing stock registration with the SEC .