Sagewind Capital buys Sabel Systems, bets on DoD’s digital push

This investment represents the eighth platform investment for Sagewind Capital.
PE Hub

By Obey Martin Manayiti

Sagewind Capital expects to announce later Wednesday morning the acquisition of Sabel Systems, a provider of digital engineering research and development services, PE Hub can reveal. The deal is an example of private equity firms leveraging opportunities stemming from the US Department of Defense’s 2023 strategy to “integrate and modernize operations in the information environment.”

To learn more about the deal and the trends it embodies, PE Hub spoke with Steve Lefkowitz, a founding partner of Sagewind, and Raj Kanodia, a managing director at the New York-based firm.

Sabel was founded in 2001 and is headquartered in Dayton, Ohio. The company’s Digital Engineering Cloud is aimed at helping the DoD to accelerate research and development, and enhance agility, scalability and connectivity needed to work more effectively and efficiently, according to Sagewind.

“Sabel’s marquee digital engineering solution integrates disparate, third-party commercial software applications, such as Siemens Teamcenter, PTC Windchill, among dozens of others, to support product lifecycle management,” Lefkowitz said. “This solution replaces legacy document-based processes, creating massive benefits through digital models to accelerate design, development, production and maintenance/sustainment and reducing costs.”

This system “saves costs, is more secure and is more efficient,” he said.

Instead of designing a prototype and building it, Lefkowitz said you can have something called a digital twin – a virtual model of a physical object, process or service that uses real-time data to simulate its behavior and performance.

This investment represents the eighth platform investment for Sagewind Capital.

“We try to find companies that are helping further national security or the mission of other government agencies to help implement technologies faster and more efficiently,” said Kanodia, adding that the company’s strong success and growth, in part driven by the DoD’s mandate on digital engineering, is one of the reasons why Sagewind is interested in Sabel.

“We seek to partner with businesses which have demonstrated the ability to grow and have a clear runway for continued growth, and this is true for Sabel,” Kanodia said.

The company was for sale, through an action process run by KippsDeSanto, a boutique investment bank that is part of Capital One.

Both Sagewind and Sabel’s management were familiar to each other prior to this deal. The previous interaction came through Axient, a former Sagewind portfolio company, which was a customer of Sabel, where it used the company’s digital engineering cloud services.

Sagewind acquired Axient in May 2020 and exited the business in September this year to Astrion, a portfolio company of Brightstar Capital Partners.

“Sabel has been growing at meaningful double digits a year, having established itself as a thought-leader in digital engineering and a true partner to the DoD,” Lefkowitz said. “We expect this rapid growth to continue, driven by the fact that the company is delivering a mandated digital engineering solutions focused on the modernization and sustainment of mission critical programs, like the XM30 Mechanized Infantry Combat Vehicle that replaces the M2 Bradley.”

Sabel is a pioneer in a technology that is still in the early stages of adoption by the the military ecosystem, Lefkowitz explained.

“The team has more than tripled the revenue organically in the last four years, and we believe that through investing in the existing company infrastructure and targeted acquisitions, we can continue that growth trajectory,” Lefkowitz added.

Lefkowitz said Sagewind is among a handful of firms that have the focus, the experience, the network and the understanding to invest in technology services for the government.

“Our reputation and our pedigree is very important to both the executives leading these innovative technology companies and to the government customers,” he said. “If the Army, the Navy or Space Force is doing something really important, they don’t want a fly-by-night firm.”

Sagewind plans to hold this business between five and 10 years – a longer time than the typical hold period of many PE-backed deals – to allow its “patient capital” to scale the company to the desired levels.

“We see a lot of really interesting opportunities to complement what management has already accomplished,” said Kanodia. “There are also a number of strategic add-on acquisitions that we’re tracking.”

The Sagewind leaders said 2024 has been very active for the firm, which will likely finish the year with around $1 billion worth of deal transactions, Lefkowitz said.

Earlier this year, the firm acquired Aechelon, a San Francisco-based company that serves the Department of Defense.