The acquisition strategy of Kanders & Co. can best be described as lying somewhere between that of a strategic and a private equity investor. So says Gary Julien, vice president of corporate development for Kanders & Co., the private investment management firm of Warren B. Kanders. Julien helped Kanders build a small body-armor company into Armor Holdings, a New York Stock Exchange-traded manufacturer of safety and military equipment, through an aggressive rollup strategy. Now Julien, who formerly led corp dev at Armor, is working with Kanders to pursue a similar strategy in other industries. Julien spoke with Corporate Dealmaker's Suzanne Stevens. Excerpts:

Corporate Dealmaker: What is the Armor Holdings story?

Gary Julien: In 1996, following a successful exit of the publicly traded optical care company, Benson Eye­care, Warren Kanders invested in a distressed body armor company called American Body Armor with the intention of pursuing a targeted acquisition-based growth strategy in the law enforcement equipment market. Ten years and approximately 30 acquisitions later, Jacksonville, Fla.-based Armor Holdings has become a diversified, global manufacturer of safety products, systems and equipment serving law enforcement, the aerospace and defense market (which has become the largest piece of the Armor pie) and other commercial markets. During this time, it has grown from $11 million in revenue to approximately $2.4 billion based on its guidance for 2006. Additionally, Kanders & Company has developed investment vehicles from prior failing technology-oriented operating businesses, one being Clarus Corporation and the other being Net Perceptions Inc., to try and achieve similar success.

Can you describe the investment strategy in more detail?

We take decisive oversight of a publicly traded company whose original business model has failed. That was the case for both Clarus and Net Perceptions. We cleansed the operations so they weren't losing money, developed them into pristine investment vehicles and preserved the remaining cash. Our objective now is to create shareholder value by redeploying that capital into a new operating business via acquisition. Although for Clarus we are not targeting specific industries, we are seeking businesses with substantial cash flow and experienced management that are operating in growth markets. There is approximately $84 million in cash sitting on the balance sheet along with $220 million in net operating loss carryforwards, which can be used to offset future taxable income, making them a very attractive asset. When we find the opportune acquisition, we'll use that cash plus the ability to raise debt and equity capital to pursue a strategy similar to the one used to build Armor Holdings.

Can you compare and contrast your approach to that of a traditional private equity investor?

What we tell intermediaries and potential sellers is that we use private equity-style investing through public-market companies. Initially we come in without an operating business. Like a financial sponsor as it relates to Clarus we don't really bring synergies to bear. We leverage our banking relationships to help finance the purchase and to develop an optimal capital structure just like a PE firm would.

What is your exit strategy?

This is perhaps where we differ most from a PE investor. Since our investment focus is through publicly traded businesses, we take a long-term investment approach. When we seek to invest in a business, our investment thesis doesn't include consideration for an exit as we intend to own that business 10-plus years from now. Our strategy is to continue to grow both organically and through tuck-in type acquisitions leveraging the net operating losses and our access to the capital markets. The existing management will have the opportunity to pursue acquisitions and build this business for the long term, and in a competitive M&A market, we think this gives us an edge over other buyers. CD

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