NEWMARKET, Ontario—AirBoss of America Corp.'s defense and first response products business has entered 2020 as a much larger, more diverse operation than it had been in 2019.
While the business had been growing through new contracts and products during the last two years, the main reason for its big leap this year is closure of a transaction on Jan. 1 that merges the AirBoss defense unit with Charleston, S.C.-based Critical Solutions International Inc., a global supplier of route clearance vehicles, countermine and survivability products to the U.S. and almost a dozen international and allied military forces.
The deal creates a big defense and first response products business with a global reach, according to Chris Bitsakakis, president and chief operating officer of AirBoss.
Under terms of the transaction, which has been in the works for months, Newmarket-headquartered AirBoss is merging its defense business and operations in Acton Vale, Quebec, with those of Critical Solutions in Charleston.
AirBoss said it has contributed the shares of AirBoss Engineered Products Inc. and the interests of Immediate Response Technologies L.L.C.—a Landover, Md.-based company purchased by AirBoss in 2015 that became part of the firm's defense unit—to the newly formed Canadian and U.S. entities that form the new company, called AirBoss Defense Group.
AirBoss' contribution to the merged venture is valued at $100 million. Critical Solutions has turned over all its shares to the new business, putting its contribution at $32.7 million.
Because of that, AirBoss will receive 55 percent of the equity in ADG along with $60 million and CSH will hold 45 percent of the equity interest. The $60 million currently is structured in the form of a vendor takeback note, which is secured against the assets and equity of ADG and matures on Jan. 1, 2026.
Patrick Callahan, the former CEO of CSI, was named CEO of ADG while Bitsakakis is chairman of the firm's board. ADG will operate as a stand-alone business but its financial results will be consolidated with those of AirBoss, Bitsakakis said.
"We retain the controlling interest in ADG, so it's business as usual for us," Bitsakakis said. "But we can leverage CSI's sales, marketing and distribution strengths with our design, engineering and manufacturing strengths, and take our products around the world to areas we haven't hit in the past.
"This transaction offers us enhanced scale and improved flexibility to drive even greater levels of value creation in the future."
In addition, AirBoss said it also has amended its senior secured credit facilities to, among other things, add ADG as borrowers. The revision will provide the merged business with up to $15 million in revolving credit facilities, the firm said, which will provide ADG with access to capital needed to achieve its objectives.
According to AirBoss, the primary strategic and financial benefits of the merger for the company include:
- Creation of a dedicated defense firm better positioned to capitalize on emerging opportunities from the current geopolitical environment by combining the manufacturing design, engineering and manufacturing strengths of the AirBoss defense unit with CSI's expertise in global marketing, sales and distribution of products;
- Diversification of the operation's product offerings, which will provide significant cross-selling opportunities to a combined global customer base;
- Retaining a majority stake in the newly formed entity with enhanced long-term value creation potential; and
- Offering improved financial flexibility to fund planned capital expenditures and target potential acquisitions.
"This will give us a much wider range of products and new markets," Bitsakakis said. He added that AirBoss expects the merged business to grow through a combination of organic initiatives, including new and next-generation product development as well as acquisitions that bring new offerings, customers and relationships to the business.
Callahan said that CSI has developed strong relationships with various armed forces, legislators and manufacturers globally, "ideally placing us (in a position) to identify, tender and win high-value contracts around the world.
"In a period of record U.S. defense spending budget allocations, combined with high levels of geopolitical instability around the world, we feel we are very well-positioned to capitalize on an even broader array of opportunities to grow the new combined business going forward."
Callahan has more than 14 years of leadership experience in business, military and educational environments, and served as an infantry officer in the U.S. Army from 2002-12. From October 2003 to December 2004 he was deployed to Iraq with the first Stryker Brigade Combat Team, serving as a platoon leader.
For the last seven years, he served in several senior management posts in the defense industry. In addition, nearly three quarters of CSI's staff comprises military veterans.
CSI provides a number of different products to its global customer base, with perhaps the Husky being its most recognized clearance vehicle. The Husky's radar and sensor systems are best known for countermine and non-conventional explosives detection.
According to CSI, the Husky has been combat proven in thousands of blast situations and has established itself as the most durable and survivable wheeled clearance vehicle in the world.