Booz Allen Split Is Official

By Zachary A. Goldfarb

Booz Allen Hamilton said today that it had completed the separation of its government and commercial businesses, selling a majority stake in the government unit to District private-equity giant Carlyle Group for $2.54 billion.

The government business, based in McLean, does billions of dollars of work each year for some of the nation's most sensitive agencies, such as the Pentagon and the National Security Agency. The commercial business, which has a heavy roster of international offices, is now known as Booz & Co.

Booz Allen acknowledged last December it was contemplating a division and announced in May that Carlyle Group would purchase the government business. The split-up has its roots in the vast differences that have surfaced this decade between the two units at the firm, which is more than 90 years old. The government unit has enjoyed rapid growth because of post-Sept. 11 spending. The commercial unit grew but did not keep pace.

"Completing this separation of our two core businesses is an important milestone in our history," said Ralph W. Shrader, chairman and chief executive of Booz Allen, who has forgone retirement to stay with the newly constituted government business.

"Looking ahead, we are excited about Carlyle's investment and the ability to leverage their experience in our growing U.S. government consulting business," Shrader said in a statement.

Carlyle, which usually buys companies, shakes them up and then tries to sell them for a much higher price, has said it plans to leave Booz Allen largely alone. It has said it believes Booz Allen's growth will be sufficient on its own to make the deal worth it. But Carlyle, with long experience in mergers and acquisition and raising the cash and debt needed to finance transactions, may also help Booz Allen acquire companies that are deemed necessary for faster growth.

"We look forward to supporting Ralph Shrader and his management team as we enter this new and important phase of Booz Allen's leadership in the government services sector," managing director Peter J. Clare said in a statement.

Booz & Co. chief executive Shumeet Banerji, who is based in London, said in a statement, "This is an exciting time for us, as an independent company and also as a leader in global management consulting."

Shrader and Banerji both said they hope their firms will continue to work together when possible.
Booz Allen said the separation and investment was backed overwhelmingly by Booz Allen's shareholders. Booz Allen was owned by about 300 top executive.

By Terri Rupar  |  July 31, 2008; 3:07 PM ET  | Category:  Private Equity
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Please email us to report offensive comments.

"nation's most sensitive agencies, such as the Pentagon and the National Security Agency."

Can somebody, please, tell Terri Rupar that "Pentagon" is not an agency.

Posted by: Anonymous | August 1, 2008 6:21 AM

This is good news. The cultural problems with the company made it an unattractive employer in too many cases.

Both companies need to get to work now on mitigating the toxic aspects of their internal operations now.

I'm not so sure the Carlyle Group will be any big improvement. They're not exactly known for being good to work for.

Posted by: Nym | August 1, 2008 6:37 AM

Carlyle has a mean rep for using its stable of political insiders to grow business for its affiliates from Uncle Sam. Add a big government consulting division and dream the possiblities!

Booz, Allen can recommend their corporate siblings as the best option for federal purchases. If anyone thinks otherwise, recall Carlyle co-founder, William Conway's hate for a level playing field.

Posted by: Alan | August 2, 2008 9:42 AM

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