Booz Allen to Sell Government Unit to Carlyle
By Zachary A. Goldfarb
Booz Allen Hamilton, the giant McLean consulting company and government contractor, announced this morning that it will separate its U.S. government and commercial businesses, selling a majority stake in the government business to the Carlyle Group, the District-based private equity behemoth, for $2.54 billion.
The government unit, based in McLean with 18,000 employees worldwide, is one of the largest private contractors for the U.S. government, doing work for the Department of Defense, National Security Agency and Centers for Disease Control. The commercial unit, based in New York, will become a separate company under the arrangement.
Booz Allen is one of the area's largest local employers, with 13,000 employees.
The announcement culminates sixth months of discussions among senior Booz Allen executives about the future of the company. Motivating the split have been growing differences between the government and commercial units over the past few years: They recruit from different places, have different internal structures and serve vastly different clients. Perhaps most importantly, the two units have had diverging business success: The government unit's revenues surged after the post-Sept. 11 boom in government spending. But the commercial side did not grow as fast.
The transaction must meet shareholder and regulatory approvals and is expected to close by the end of the year.
"This separation of our core businesses marks a dynamic new chapter in our history," Ralph W. Shrader, chairman and chief executive of Booz Allen, said in a statement. "For 94 years, Booz Allen has adapted and evolved as market realities have changed and our areas of expertise have grown."
Splitting up is one of the most significant events since Edwin G. Booz founded the firm in 1914. It is on the scale of the 1976 decision by senior partners to buy back the company, which had gone public six years earlier. Shrader will remain in charge of the government unit, though he is expected to retire in 2009.
The majority stake in Booz Allen represents the most high profile investment in a government contractor by Carlyle Group, which has about $81.1 billion under management and has taken interests in other government contractors. Close observers expect Carlyle to pursue an initial public offering for the government unit within several years.
The deal, while not huge in numbers, also represents a continued thawing of the buyout market, which froze when the economic downturn started last year.
"Booz Allen provides its clients with an unparalleled breadth of domain expertise and technical capabilities. With a strong, diverse portfolio of customer relationships, we believe that Booz Allen is well positioned to continue its market leadership," said Ian Fujiyama, the Carlyle managing director who led the transaction.
The commercial business -- which will include Booz's international government work -- will continue its focus on management consulting.
"As a stand-alone company, the new commercial and international business will have greater agility to meet the needs of its client base, maximize its potential, and realize significant growth across the globe," Shrader said.
By e-mail, Shrader informed Booz Allen employees in December that top executives were pondering a split. Booz Allen is owned by about 300 senior executives.
Most of the company's top executives are concentrated in the commercial unit. That has created tensions as the government business has boomed and the commercial unit has lagged. When profits were divvied up among the owners at the end of the year, many executives in the government division felt an inordinate share was going to executives in the commercial division.
The commercial unit competes with rivals McKinsey and Boston Consulting Group in helping companies set strategy. It recruits from Harvard Business School, Wharton and other top schools and assembles agile groups of seven to 10 consultants to work with clients.
The government unit, by contrast, recruits a broader range of people: recent college graduates, veterans, engineers and many others. Some teams working on government contracts can include 100 or more people.
Last year the government unit generated more than $2.7 billion in revenues and the commercial unit generated about $1.3 billion.
The split will help free the commercial side, which now labors under some of the regulatory strictures required by Booz Allen's government work. Employees in both divisions must follow stringent spending and security guidelines, and they need always to prominently display their nationality -- on identification cards and in e-mails. For Booz Allen's business abroad, that's been particularly frustrating, especially in places that frown on U.S. involvement in Iraq.
The commercial side has other challenges. Years ago, it prospered as companies needed the help of consultants to manage logistics, supply chains and manufacturing plants. But as the service sector grew in prominence, Booz Allen has lagged behind competitors such as McKinsey and Bain that focus primarily on corporate strategy.
Please email us to report offensive comments.
Posted by: BAH | May 16, 2008 10:47 AM
Posted by: Mike Sorce | May 16, 2008 11:25 AM
Posted by: OhPlease | May 16, 2008 12:28 PM
Posted by: twohoos | May 16, 2008 12:36 PM
Posted by: BAH2 | May 16, 2008 12:50 PM
Posted by: Alan | May 16, 2008 12:52 PM
Posted by: Hilarious | May 16, 2008 1:54 PM
Posted by: Former BAH guy | May 16, 2008 2:09 PM
Posted by: 3 Kinds of People | May 16, 2008 2:13 PM
Posted by: Former WTB Employee | May 16, 2008 2:24 PM
Posted by: Work / Life Balance | May 16, 2008 2:44 PM
Posted by: ex boozer | May 16, 2008 2:55 PM
Posted by: WTBguy | May 16, 2008 3:15 PM
Posted by: Beastie Boys | May 16, 2008 3:44 PM
Posted by: baher | May 16, 2008 5:14 PM
Posted by: Another Ex-Boozer | May 16, 2008 5:16 PM
Posted by: VA chick | May 16, 2008 10:55 PM
Posted by: Booz Employee | May 16, 2008 11:33 PM
Posted by: exBooz | May 17, 2008 5:46 AM
Posted by: Arr-lington | May 17, 2008 12:33 PM
Posted by: Core Values | May 18, 2008 10:15 AM
Posted by: All That Glitters | May 19, 2008 12:46 AM
Posted by: Ex-Booz Employee | May 19, 2008 11:33 AM
Posted by: JustLeftBAH | May 19, 2008 6:07 PM
Posted by: lollers | June 1, 2008 12:52 PM
The comments to this entry are closed.