Costar Technologies buys CohuHD for $10m cash

Combined company has closed three deals already
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Wednesday, July 9, 2014

COPPELL, Texas—In the month since it closed a $10 million cash deal to buy CohuHD, Costar Technologies and CohuHD have closed three deals together.

“These are opportunities that we would not have had [as separate companies]. The products [of the two companies] are complementary but not competing,” Tom Kampfer, president of CohuHD Costar, told Security Systems News. “We don’t need to reconcile sales teams or product lines, [tasks that can] create a distraction and be disruptive to business. There’s none of that here because we’re completely complementary.”

Costar Technologies, based here, manufacturers IP and analog cameras, monitors, lenses, DVRs and NVRs for retail, financial and commercial markets. Its largest customers are Walmart and the integrator Diebold, which does a lot of business in the financial sector.

Before the acquisition, it had 30 employees. In 2013, it reported $26 million in revenue. Costar is publicly traded and listed on the Pink Sheets.

CohuHD makes outdoor video cameras for mission-critical applications that are highly ruggedized for extreme environments. Based in San Diego, it has 80 employees and did $16 million in revenue in 2013. All of its products are manufactured in the United States.

One of the deals that the new entity closed in the last 30 days is with Lawrence Livermore National Laboratory, a government research facility in Livermore, Calif.  “We provide perimeter security, but we have not been in a position to provide indoor cameras previously,” Kampfer said. “We bid the deal with Costar. It’s not a huge deal, but nonetheless, Costar is now selling to a government research lab, and we can now offer a complete solution, not just the outdoor solution."

Both companies have many longstanding customers who will be interested in both product lines, said Scott Switzer, CFO for Costar.

“We do not plan to merge the sales force; we see this as a complementary approach,” Switzer said. “If a salesperson needs expertise [on the other product], we will bring in the resources as needed.”

Combined, the company will have about $40 million in revenues and both Switzer and Kampfer expect the new entity to grow.

In addition to cross-selling opportunities, the companies now have more R&D resources. CohuHD has a 15-person R&D operation and Costar has “significant sourcing capabilities, Switzer said. “We’ll have a much more robust product road map over the long term,” he said.

Costar was founded in 1997 by former employees of a video surveillance company called Ultrak. Ultrak was ultimately sold to Honeywell. James Pritchett, former president of Ultrak. joined Costar in 2001 and moved it into the security business, according to Switzer. Prior to that time Costar worked in the “niche industrial market.” Costar had some lean years around 2009 when it delisted from NASDAQ and it merged with access control provider Sielox.

It sold Sielox in 2010 and “since that time Costar Video has really been the only operating entity for Costar Technology,” Switzer explained. It showed a profit in 2011, 2012, and 2013, Switzer said.

“Five years ago we could not have completed this deal, but with Cohu we were able to do it without issuing any stock,” he said. Costar financed the transaction with proceeds from a new credit facility with Bank of Texas.

The deal is accretive and the company is “making money from day 1,” Switzer said. “We see more opportunity out there, whether it’s investing in organic growth or looking at M&A activity.”