With Export Finance Australia’s Overseas Direct Investment Guarantee, Varley Group were able to purchase a stake in a specialist US avionics and defence software provider and gain access to the billion dollar US defence industry.
In 1886, George Henry Varley brought his expertise in steam-powered locomotives from Sydney to Newcastle’s shipping yards. Over the years, his business grew and diversified, becoming a broad-based engineering and manufacturing firm.
Today, the Varley Group has offices in five Australian cities, and an offshore presence in Indonesia, through a joint venture. It works with clients across a range of industries, including aerospace, marine, rail, specialised and electric vehicles, power services – and defence.
While the Varley Group was a key player in supporting the Australian military during World War I, it wasn’t until the late 1980s that an opportunity arose to work with the defence industry again.
According to Business Development Manager Pierre Sidorow, “This led us to think strategically about defence as an industry to target.”
“Then in the early 1990s, we created a defence and aerospace operation division,” said Pierre.
The company signed a contract to manufacture transport cases for the Nulka missiles – smart decoy missiles designed to protect ships under missile attack.
“From 1998 onwards, we built about 1,400 Nulka transport cases for BAE Systems in Victoria, who then shipped them to the USA and Canada.”
Gaining a foothold in the US
Keen to strengthen their presence in defence, Varley Group actively networked with defence giants like Lockheed Martin, Northrup Grumman and Raytheon. This led to an opportunity to become part of the F35 Joint Strike Fighter program, winning three contracts in the F35 program.
At the same time, Pierre began visiting the US, attending conferences within the country’s massive defence industry.
“I took our CEO, Jeff Phillips, to a major US defence trade show, and he realised the extraordinary potential in US military space,” said Pierre. “I told Jeff – ‘I think the name Varley USA rolls very easily off the tongue!’ – and he agreed.”
Varley Group became incorporated in the US but was unable to secure US defence contracts – mainly due to its Australian ownership. The decision was made to buy a 45% share in Coherent Technical Services Inc, USA (CTSi), a specialist US avionics and defence hardware/software provider.
“This acquisition would give Varley Group the ability to work with the US defence and aerospace sector, and potentially benefit from its US$700 billion defence budget,” said Pierre. It would also mean that Varley Group could bring CTSi’s cutting-edge technology to its Australian business – strengthening its product offering at home.
But the plan hit a snag: Varley Group’s bank was unable to underwrite the transaction. This was largely because the acquisition was for an offshore entity – but also due to a lack of confidence in the sector.
Said Tim O’Brien, Varley Group’s Financial Director: “At the time, banks weren’t that supportive of Australian manufacturing. Because they had reduced their exposure to the sector based on negative reports, they were unwilling to lend us the funds we needed to make the acquisition.”
A guarantee – and a bright future
Both Tim and Pierre had heard about Export Finance Australia and approached us about providing a $5.3 million Overseas Direct Investment Guarantee to their bank. We were able to approve the guarantee, enabling the deal to go ahead.
Now, with the ability to access the lucrative US defence industry, the future looks very bright for the Varley Group.
Tim commented: “Export Finance Australia’s support was critical – without it, the acquisition simply wouldn’t have happened. We’re very grateful for their support.”