For those of you that don't know, Carlyle Group purchased the vast majority of Booz Allen Hamilton's public sector practice in 2008. Booz & Co. does most of the work now in the corporate world, though Booz Allen still does some through carve outs in the non-compete agreement the firms have with one another.
I heard a rumor earlier today that Carlyle Group was going to use a portion of the funds it receives in the IPO it's planning for Booz Allen to repurchase Booz & Co. Does anyone know anything about this?
It wouldn't be the worst move. Here are the salient points: Booz & Co. has continuously lost money throughout the financial crisis. As with all consulting firms focused on the commercial sector, they have had a hard time winning business in the past two years. They were considering a merger with A.T. Kearney, but that fell through last month.
Carlyle paid $2.54 billion to buy out the commercial partners at Booz Allen Hamilton. Those partners used that money to start Booz & Co. Booz & Co. is not worth anywhere near $2.54 billion now. The brand name is still worth some money, but they could use the stability the public sector practice brings to the table. Moreover, the public sector practice (from what I understand) has no idea how to go after commercial contracts, or how to do business in the corporate world. In order for it to continue to expand, it needs to either become an ever-increasing presense within the US government or it needs to look towards the commercial sector (since it can't do public sector work for foreign governments without jeopardizing its contracts with the US government). Simultaneously, the commercial practice would add to the public practice's margin--an important data point for Carlyle Group as it looks to exit its stake in Booz Allen (81% of the company, by the way).
My source is a reporter for a major daily (think NYT/Washington Post), and the argument makes sense, so I thought I'd throw it up here to see what people think. Any comments appreciated.
Booz Allen Hamilton splitting up was one of the dumbest moves ever...seriously what a bunch of dumbasses
normally one to just read threads and not post, but am popping in on this one since i have a strong conviction that the rumor is most likely false. know a couple people there from university and think i would have heard this one. also, i know for fact that the company is planning to launch its own private equity fund: http://business.timesonline.co.uk/tol/business/industry_sectors/banking…
it is likely that your reporter friend heard this rumor but it was somehow misrelayed (both involve large PE funds). clearly both rumors cant be true (never heard of a PE adding a company with a competing PE arm to its portfolio).
also, i see some fuzzy logic in your post. it doesnt matter whether booz is worth $2.54bn, because carlyle paid that amount for the government arm not the private arm. and no one used any money to start booz & co, it was already in existence. (i suppose there were some nominal rebranding costs but these probably hardly ran into the millions, let alone the billions.) its also important to remember that these two decided to separate, providing an opportunity for carlyle´s investment. it´s not as though carlyle just decided to pick up BAH and passed the private arm over. as i understand it, there were lots of reasons that the two really desperately needed to separate, and i dont think carlyle would want to become entangled in the mess of trying to reconcile those. seems like a bad investment.
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