This morning Booz Allen Hamilton announced the split of its commercial and government business, with Carlyle Group buying a majority of the government business for $2.54 billion (roughly 1x federal FY07 prime contract obligations).
This move has been expected for some time. In February 2008, the Washington Post explored the impending breakup.
Why the break-up? According to the Post article, part of the reason has been attributed to the success of the government unit and an imbalance in profit-sharing. The government business has been growing at a faster rate than the commercial practice but profits are split between the two groups and most of the owners are on the commercial side.
Booz Allen's federal contracts
Booz generates over three-quarters of its federal work from defense and homeland security agencies (not including work for non-defense intelligence agencies). Booz's top federal contract, the Operation of the Information Assurance and Technical Analysis Center for the Air Force, brings in over 10% of its federal business and is up for recompete this year. A strong presence in the intelligence community flies below the radar of reported spending.
Like most of the top services vendors, Booz wins positions on many of the largest contract vehicles. On May 1 Booz was one of fourteen awarded a prime contract on DISA's $12.2 billion full and open ENCORE II (along with EDS, just acquired by HP). Booz also holds prime positions on DHS EAGLE, Army's ITES-2S, and Navy's SeaPort-e.
Booz's top customers
| Customer (excludes intelligence community) | FY07 Prime Obligations | % of Booz FY07 Total Prime Obligations |
| 1. Air Force | $692 million |
30% |
| 2. Army | $432 million |
19% |
| 3. Navy | $332 million |
14% |
| 4. Homeland Security | $241 million |
10% |
| 5. Office of the Secretary of Defense | $87 million |
4% |
Booz's top contracts
| Program | Contract Number | FY07 Prime Obligations | % of Booz FY07 Total Prime Obligations |
| 1. Air Force IATAC | SP070098D4002 | $244 million |
11% |
| 2. Defense Logistics Agency SURVIAC | SP070003D138 | $200 million |
9% |
| 3. GSA Schedule | GS35F0306J | $187 million |
8% |
| 4. Navy SeaPort-e | N0017804D4024 | $149 million |
6% |
| 5. Air Force NETCENTS | FA877104D0006 | $98 million |
4% |
Carlyle + Government Contractors
Carlyle Group's long history of investments in government contractors shows a possible new trend with what is now its largest move into services. Most investments have been on the manufacturing side of the aerospace and defense (A&D) market. Below is a representative list of Carlyle's contractor investments, with many of the A&D manufacturer investments left out.
| Representative List of Government Contractor Investments | Investment Status | Date of Status Change | Current Owner |
| ARINC | current | October-07 | Carlyle |
| DHS Technologies, LLC | current | July-04 | Carlyle |
| EG&G Technical Services, Inc. | exited | August-99 | URS Corp. |
| Lear Siegler Services, Inc. | exited | September-97 | URS Corp. |
| QinetiQ | exited | February-03 | Unknown (Carlyle had a 34% stake, buyer unknown) |
| Sippican, Inc. | exited | April-02 | Lockheed Martin |
| United Defense Industries, Inc. | exited | October-97 | BAE Systems |
| United States Marine Repair, Inc. | exited | November-97 | BAE Systems |
For more information on recent government M&A deals, see our recap of transactions announced or closed in April 2008.
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