At the end of 2012, Viola Private Equity partners made a difficult investment decision. The group, founded by Shlomo Dovrat, decided to invest $5 million in UAV and military equipment manufacturer Aeronautics.
Viola already invested in Aeronautics in the summer of 2009, when it bought $20 million dollars’ worth of preference shares at a significantly higher valuation of $200 million, such that the investment was to some degree throwing good money after the bad. Aeronautics, which, until then, had been operated by its founder, Avi Leumi, encountered operational and cash flow problems, which led to heavy losses, layoffs, and failure to pay salaries to the remaining employees. During this time, the company received a great deal of negative attention from the press.
A year after that investment, “Globes” has obtained the UAV manufacturer’s 2013 financial results, which indicate that over the past year the company’s losses have narrowed, and that it has made steps towards growth. The company’s orders backlog could allow it to reach significant profit already this year, and, in so doing, to allow Viola, and the two other funds invested in the company, KCPS and Bereshit, to increase the return on their investment.
The Aeronautics group companies’ total revenue was $97 million in 2013, up 31% from 2012. Losses narrowed significantly, to $8 million, after totaling $27 million in 2012, the crisis year.
Most of the losses last year were in the first quarter, with the completion of the company’s restructuring, and over the course of the year matters improved. 2012’s remaining quarters ended on break-even, or with slight profits. Aeronautics’ orders backlog stands at $150 million today, and the fund managers believe that the company will succeed in ending 2014 with a profit of more than $10 million.
The growth in activity caused a working capital problem. In order to enable the company to carry out the projects it had won, the three controlling funds injected an additional $4 million dollars. Aeronautics’ shareholders’ equity totaled $13 million at the end of 2013, which indicates that without the financial restructuring that took place in the company, and the cash injection by the funds, it would have faced an equity deficit.
From launch to crash
Aeronautics, established in 1998 by Avi Leumi, develops, manufactures and markets small and mid-sized unmanned aircraft for armies and civilian entities around the world. The company is headquartered in Yavne. Over the years, Aeronautics expanded its areas of operation, and it owns a number of subsidiaries, which develop and manufacture a series of ancillary defense and security products, including communications solutions (Commtact), bomb fuses (Orion Advanced Systems), electro-optic tools (Controp), intelligence-gathering blimps (RT), and advanced navigation tools (Al Celio).
Aeronautics has a unique UAV called the Dominator, a dual-engine civilian aircraft, which has had its original systems removed, and replaced with intelligence gathering surveillance systems and remote operation capabilities, effectively converting it into a UAV.
This aircraft has some drawbacks, but it is easier to maintain, and its primary advantage is that it can carry out intelligence-gathering activities in areas where the customer does not want a military presence to be felt. Over the last five years, Aeronautics only succeeded in selling flight time for this UAV, but, in the past year, the company succeeded in selling two such systems for the first time, to a defense entity in Mexico.
As part of its increased activity, over the past year, Aeronautics has recruited 60 new workers to its UAV unit, which today has 300 workers. With its subsidiaries, the company employs a total of 700 workers.
Published by Globes [online], Israel business news - www.globes-online.com - on May 12, 2014
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