by Maureen Flanagan
As high technology becomes key to keeping America's highways safe and free-flowing, TransCore Holdings, Inc. is a company on the move. With revenues exceeding $115 million, TransCore provides state and local government agencies with information technologies, management systems and services to manage their transportation operations. Since 1994, TransCore was owned by Science Applications International Corporation (SAIC), one of the world's largest employee-owned firms.
In September 1999, the company became independent in a management buyout with financing from American Capital Strategies, Ltd. (Nasdaq:ACAS). The transaction was sponsored by KRG Capital Partners, LLC, a Denver, CO based private equity firm. To accomplish the transaction, American Capital provided $7.3 million in subordinated debt and redeemable preferred stock, together with financing from Stratford Capital Partners, LP to provide the financial resources that will enable TransCore to become a major provider of high value-added information technology to public and commercial transportation systems throughout the U.S. and selected international markets.
"We turn a new chapter in the history of TransCore," said John Worthington, TransCore's President and CEO. "This buyout will allow our employee owners to continue our leadership in providing intelligent transportation systems (ITS) to our traditional client bases of public transportation agencies, while extending ITS-based applications to a broader range of commercial customers," Worthington said.
TransCore has carved out a strategic niche in its different markets and has become the leading provider of electronic, manual and automated toll collection systems in the country. The company has installed or maintained toll collection equipment on more than 3,000 highway toll lanes which represent 60% of the total base in the United States and more than 80% of the tolls collected. On the cutting edge of toll technology, TransCore has pioneered applications for electronic systems that enable patrons equipped with radio frequency identification transponders to pay tolls without stopping. It also has extended the application of this transportation-based technology to enable the conversion of HOV (high occupancy vehicle) lanes to HOT (high occupancy toll) lanes on a variable pricing basis; providing a solution to the broad under utilization of HOV lanes nationwide. The company has also achieved a dominant market in technologies to streamline the movement of goods across U.S. borders and increase the transit speed of border commuters and commercial vehicles.
TransCore also enjoys a leading position in the provision of comprehensive planning and engineering services, and ITS applications and products to transportation agencies throughout the U.S. The company offers integrated applications for traffic management systems enabling complex transportation networks to operate as a single, seamless entity. Products include software for traffic control systems, traveler information systems (such as traveler kiosks deployed for the Atlanta Olympics), computer applications for tracking and disseminating traffic information, and custom designed information systems to support a client's need for transportation-related management technology. The company has some 720 employees and maintains 60 offices in 22 states.
TransCore was formed in February 1997 when SAIC merged two operating subsidiaries that it had acquired in 1994: Syntonic Technology, Inc., the country's largest third-party installer and maintainer of toll collection and related equipment and systems, and JHK & Associates, a firm on the forefront of initiating and operating complex traffic management systems. TransCore spent five years under the SAIC umbrella, incorporating the solid business practices of one of the largest employee-owned companies in the country. Based in San Diego, SAIC is a $4 billion company that offers a broad range of expertise in many technical fields, including information technology, transportation, telecommunications, health systems and services, energy and environmental systems and engineering.
When the company's management team saw an opportunity to purchase this successful and growing SAIC subsidiary, they searched for buyout financing. To accomplish the transaction, they teamed with KRG Capital Partners and American Capital, which has extensive experience structuring and financing leveraged buyouts, management buyouts and employee buyouts through employee stock ownership plans (ESOPs).
American Capital is an ideal lender to support the employee buyout of this fast moving, cutting-edge company. With capital resources exceeding $360 million, American Capital provides financing to middle market companies in need of capital for growth, acquisitions, employee buyouts, management buyouts, liquidity and restructurings. Its investment portfolio includes a diversity of industries, from manufacturing and services to food and beverage, communications, and hospital outsourcing.
"This is American Capital's first transaction with KRG, and we look forward to a long, productive partnership," said American Capital Principal, Darin Winn. "KRG provides incentives to management teams of the companies it invests in to give management the opportunity to benefit from improved operations and profitability."
"TransCore is an excellent investment for American Capital," Winn said. "Operating in a stable market, the company has been led by John Worthington and a dynamic management team who have built a significant and increasing base of recurring revenues in addition to an existing backlog in excess of $300 million. The company's high level of technological expertise and solid customer base give it a solid foundation in a growing market with almost unlimited potential in the private consumer- and commercial-driven sectors."
Stratford Capital Partners, LP, supported American Capital with the subordinated debt financing and purchase of preferred stock. Deutsche Bank also participated in the transaction, providing a $50 million senior loan and revolving credit facility. With the backing of this strong financing team, management is poised to pursue several strategic acquisitions that could further accelerate TransCore's growth and market position.
The transaction was structured so that a broad base of employees has the opportunity to own a stake in the company. Coming from SAIC's employee ownership culture, KRG, management and American Capital felt that this was an important element to maintain the continuity of TransCore's highly skilled workforce. In addition, management and the new ownership group plan to establish other broad-based employee ownership opportunities in the company going forward.
TransCore's management plans to take advantage of the significant growth potential in the market. Industry experts estimate that the market for public infrastructure-driven sector will total $46 billion over the 10-year period from 1996 to 2005. Primed by the funding authorized under the Transportation Equity Act for the 21st Century (TEA-21) passed by the U.S. Congress in June 1998, opportunities abound for the application of technology to address the nation's rapidly escalating traffic problems. It is also expected to be augmented by a growing interest in privately developed roads.
Increased private and government funding for advanced traffic management systems is expected to enable TransCore, with its combination of experience and proven products, to garner a significantly larger portion of the market. The border crossing market, still in its formative stages, is poised for growth over the next five years. TransCore dominates the market, implementing new technologies that continue to expedite the flow of trade and travel across U.S. borders. Added to this, the currently undeveloped market for HOT lanes is rapidly gaining currency among transportation planners and politicians. With thousands of miles of HOV lanes in place in the U.S., HOT lanes have a long-term potential to become another large revenue stream for the Company. In addition, service center operations, a rapidly growing market that now exceeds $50 million, is viewed as a critical strategic business in transportation technology.
TransCore has a wealth of new opportunities that will enable the company to become a dynamic force in the increasingly technology-driven transportation industry. Its already solid position with cutting edge applications puts the company at the forefront of a wide array of transportation management and information services.
"The bottom line is helping to keep our country's highways running safely and efficiently, integrating the latest technology and information systems to make that a reality," said Worthington. "Already many local and state governments - as well as the private sector truck fleet operators and car owners -- are enjoying the advantages of traveling on roads that make use of intelligent transportation technology applications. TransCore is on the forefront of these technologies, poised to grow with the market, and lead the industry to even more exciting applications down the road."
