Consulting firm says sale of government operations won’t affect business

The sale of Booz Allen Hamilton's government consulting shop will not affect the firm's employees or its federal business in the near term, said a company spokeswoman on Friday.

"Certainly for the foreseeable future, as far as any of us can see, for quite a number of years, there will be no changes whatsoever," said Marie Lerch, a spokeswoman at Booz Allen Hamilton. "The same corporation, contracts and clients will remain entirely intact and there will literally be no changes."

Booz Allen Hamilton, one of the largest consulting and contracting firms in the government market, announced on Friday that it will sell its government sector to the Carlyle Group for $2.54 billion. The deal is expected to close in mid-to-late 2008, subject to shareholder and regulatory approvals and other standard closing conditions.

"The partners of Booz Allen have built a world-class business and brand focused on providing critical services to government clients," said Peter Clare, managing director and head of the global aerospace, defense and government services sector team at Carlyle. "We are excited about partnering with the firm and supporting the continued growth of the business and will maintain the unique culture that has made Booz Allen so successful."

The split of the McLean, Va.-based firm's commercial and government operations has been expected for months. In December, after a meeting between the two firms' shareholders and executives, Booz Allen Hamilton chairman and chief executive officer Ralph Shrader wrote to employees about the possible "strategic realignment."

"Our global commercial consulting practices and our U.S. government business have very different needs for operating and people models, regulatory requirements and capital funding.... we believe that, going forward, the long-term success of our two major businesses -- and our clients and people -- could be enhanced by complete focus on their distinct markets," Shrader wrote in the Dec. 15, 2007, e-mail.

Lerch said that Carlyle will be involved only at the board of directors level, not in the daily management of the firm. As a result, there will not be a novation process wherein Carlyle would replace Booz Allen Hamilton as the relevant party on its existing contracts. Lerch said senior employees have kept clients informed and reassured them that operations will continue as usual.

Observers said they didn't expect to see any changes in the short run with respect to Booz Allen Hamilton's federal contracts. "Under the Carlyle model, as I understand it, Booz Allen will stand as they do today as a full-blown entity that does business with the government, and all those contractual relationships should continue on for some time," said Ray Bjorklund, senior vice president and chief knowledge officer at the McLean, Va.-based market research firm Federal Sources.

The players in this acquisition are giants in their field. Booz Allen Hamilton, which has more than 18,000 employees in 80 offices worldwide, generates annual net revenues in excess of $2.7 billion and was ranked 24th on Government Executive's Top 200 Federal Contractors list in 2007. According to USASpending.gov, the firm did more than $2.3 billion in business with the government in fiscal 2007 alone.

According to a ranking performed by Private Equity International, an industry magazine, the Washington-based Carlyle Group is currently the largest private equity firm in the world. The list of the top 50 private equity firms, released last May and based on the amount of capital companies raised in a five-year window, showed Carlyle as having raised $32.5 billion in the years assessed.

Bjorklund said a consultancy sale of this magnitude was unusual and was indicative of economic realities.

"When the national economy gets a little weak, a lot of people with capital, whether that be institutional investors, large equity firms like Carlyle or investment banks, tend to look out of the corner of their eye and say, 'There's government again, we used to spend some money with government, maybe we'll spend some more money with government,'" he said.

While the federal budget may not grow with the same robustness that private equity firms are accustomed to, it is fairly consistent and removed from the state of the national economy. "It's a pretty good place to be for your investments, particularly if you've got a more long-term view and, certainly, Booz Allen is a very attractive property," Bjorklund said.

In selling its government business to the Carlyle Group, Booz Allen Hamilton's commercial and international business will become an independent company focused on global 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.