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The UK Defence Industry in the 21 Century
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The Five Forces of Americanisation

Appendix 3

CASE STUDY III
The expanding influence of US private equity: what happened to Sparton Corporation?

“Ultra has had a long-standing interest (held through a wholly-owned subsidiary) in a 50/50 joint
venture with ECP (Sparton Corporation Engineered Components & Products), known as ERAPSCO. This
US Navy-encouraged business relationship was originally formed in 1987 with Ultra subsequently
acquiring its original interest in the ERAPSCO joint venture from Raytheon in 1998”, according to Ultra
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Electronics plc’s Chairman in a Circular to Ultra Shareholders on 10 August, 2017
Ultra had in fact supplied sonobuoys to the US Navy since the 1940s and it is instructive to note that
the US Navy had “encouraged” the relationship at its outset, presumably with the support of the
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Department of Defense. In April 2016, Sparton “put itself up for sale” , creating uncertainty about
ERAPSCO’s future. We might speculate that this decision was also, albeit several years later, supported
by the US DoD.
In July 2017, Ultra announced that it had discussed an offer to acquire its JV partner: an offer that had
been accepted in principle. The US$234m acquisition would increase US revenues and, importantly,
enable Ultra’s Maritime & Land Division to move up a tier on the US Navy supplier list and both protect
and increase its contribution to overall group sales: from 41% to 48%. Sparton’s sonobuoys were a
significant component of the US Navy’s Anti-Submarine and Undersea Warfare capability, critical to
operations in the Pacific. It was also crucial to the UK’s underwater defence systems capability which,
in the Government’s 2023 IR Refresh six years later, was formally identified as a critical UK asset to be
kept onshore.
Buying Sparton was, however, a relatively complex transaction: a substantial portion of the acquired
business (manufacturing and refurbishment of printed circuit card assemblies and integration of
medical devices) did not fit with Ultra’s portfolio and was to be divested as soon as possible after the
deal’s completion, to be achieved during the first quarter of 2018. Ultra’s board approved the
company’s use of a £137m share placing to raise part of the acquisition finance, the remainder to be
funded by debt. However, after a lengthy investigation, the US Department of Justice ultimately
refused to sanction the proposed Sparton sale and Ultra’s Board had to return the funds to
shareholders. As recounted earlier in this paper, returning funds (through a share buyback announced
in March 2018) due to an expensive and time-consuming miscalculation, suggested shortcomings in
the company’s decision-making. Any positive shareholder sentiment was undermined by subsequent,
unexpected pause in MoD spending in November 2017, clipping 21% off Ultra’s faltering share price.
The episode led to the replacement of most of the Ultra Electronics Board, including its Chairman and
Chief Executive.

There are some instructive footnotes to this episode:
• In 2019, Sparton was sold to US Private Equity Firm, Cerberus Capital Management, chaired
by former US Vice President, Dan Quayle. Cerberus immediately de-listed Sparton from the
US public equity market and sold the contract manufacturing business in 2020 (proceeds
undisclosed). It then sold the remaining business (the unit partnered by Ultra), Sparton
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Defense, a year later (6 April, 2021) to Israeli defence group, Elbit Systems, for US$380m
• Cerberus’ “Integrated Investment Platform” comprises Direct Lending, Corporate Credit,
Operational Private Equity and Non-Performing Loans as well as Real Estate, Commercial
Mortgage-Backed Securities and Cerberus Frontier, investing in projects in emerging markets
in South East Asia, Africa and the Middle East. It has a range of technical and functional
specialists supporting its investments, notably through an operations and advisory company.
In other words, this is an important player in a changing world of investment and business

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