The Wall Street Journal-20080116-Booz Allen Is in Talks to Sell Government Unit to Carlyle- Defense Consultant Expected to Draw Price of --36-2 Billion
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Booz Allen Is in Talks to Sell Government Unit to Carlyle; Defense Consultant Expected to Draw Price of $2 Billion
Booz Allen Hamilton Inc. is in discussions to sell its government- consulting business to private-equity firm Carlyle Group, according to people familiar with the situation.
The deal would be centered on Booz Allen's influence in defense and intelligence contracting. If an agreement is reached, the sale price will likely be around $2 billion, the people say.
Booz Allen has held talks with other private-equity firms as part of a debate about the McLean, Va., company's future. For Carlyle, a deal would complement the Washington firm's extensive holdings in aerospace and defense.
Any deal would be significant for the Pentagon, the intelligence community and lawmakers, as well as the biggest firms in the defense sector. Booz Allen, once primarily a management consultant to corporations, now plays a major role in some of the costliest and most complex defense projects. The company has extensive government contracts -- totaling more than $2 billion a year -- with the Pentagon, intelligence services and various civilian agencies, including the Department of Homeland Security.
Booz Allen's executives have debated how to take advantage of the booming growth in its defense-consulting business. The government business now accounts for more than 50% of the company's $4 billion in revenue. The firm's past three chief executive officers have come from the government side of the firm. Booz Allen has more than 300 senior executives and 20,000 employees world-wide.
A Booz spokeswoman yesterday declined to comment about possible buyers for the government-services group.
The size and influence of Booz Allen's government-consulting practice has been on the rise since the Sept. 11, 2001, terrorist attacks, as the government has sought more outside help for projects such as setting up the Department of Homeland Security's management to engineering and integration work for advanced Air Force satellites.
Booz Allen employs numerous retired military officers and former intelligence-agency chiefs. Retired Navy Admiral J. Michael McConnell, former head of the National Security Agency, was a Booz Allen executive until President Bush named him director of national intelligence in 2007. James Woolsey, former head of the Central Intelligence Agency, is another high-profile executive.
The move comes at a time when the defense industry has been under fire for having too much control of government contracts. Lockheed Martin Corp., Northrop Grumman Corp. and Boeing Co. have taken the lead overseeing development of big military programs. That has alarmed critics in Congress and watchdogs worried about government ceding too much authority. Legislation in the 2008 Defense Authorization Act will end the practice of awarding contractors such overarching roles within a few years. The industry contends that the government lacks the expertise to handle complex projects.
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Joann S. Lublin contributed to this article.
