Lincoln, Neb.-based encryption-technology and two-way radio manufacturer Transcrypt International Inc. submitted a $34 million letter of intent June 12 to assume the assets and certain liabilities of two-way radio manufacturer E.F. Johnson Co. A definitive acquisition agreement should move forward within several weeks.
Transcrypt, which garnered 1996 revenues of $13.8 million, will pay cash for Waseca, Minn.-based EFJ, a privately held manufacturing and network-services company with revenues of $79.3 million last year. The announcement boosted Transcrypt stock 75 cents at close of business Thursday.
According to Transcrypt Chairman John T. Connor, the deal will strengthen his company’s position both in the land mobile radio industry and in the APCO 25 digital radio environment.
“This is a natural fit,” Connor said. “We will gain a tremendous distribution network of 820 dealers, and we will open and expand the APCO 25 market. E.F. Johnson’s RF capabilities fit with our digital technology.”
Transcrypt, which has been the sole-source supplier of encryption components for EFJ’s two-way and public-safety products, also plans to point the newly merged entity in the direction of additional, unnamed markets on a global basis.
“It’s very exciting,” commented Scott Bocklund, EFJ’s president and chief executive officer. “Our relationship with Transcrypt is five or six years old, and this is really a natural. We’re focused on the same types of markets, and this is a real plus for us.”
Bocklund added that the buyout will be transparent to current EFJ customers. “They’ve seen us go through several management changes in the past 10 to 15 years, and they have not been affected,” he said.
In addition to the cash and assumed debt, Transcrypt and EFJ agreed on other arrangements that include a $2 million letter of credit issued to EFJ and a licensing agreement that allows Transcrypt access to “certain intellectual properties of EFJ as the first step toward acquiring substantially all of EFJ’s assets.”
Connor added that no decision has been made regarding any name changes, although Transcrypt does plan to maintain EFJ’s brand name. While he admitted that there probably will be some personnel crossover, Connor said Transcrypt instituted a “very extensive” hiring plan following its successful initial public offering, which netted the company between $16 million and $20 million earlier this year, and that some of the jobs “may be met by Johnson resources.”
While not able to comment on his own future with the company, EFJ’s Bocklund agreed with Connor, saying that he “can’t see people getting displaced.”
Connor told RCR that no decision has been made as yet regarding the future of E.F. Johnson Systems, a new division started by the company earlier this year. According to one EFJ staffer, the network buildout arm has the potential of becoming a cash cow, and seven new contracts were signed recently for projects in New Jersey. Bocklund believes EFJ Systems will continue as a piece of Transcrypt’s business plan.
