For years, the Carlyle Group has shed its former reputation as a second home for government officials and a specialist in buying defense companies.
But the recent fracas over the National Security Agency‘s surveillance programs highlights the private equity giant’s remaining ties to government work: its majority stake in Booz Allen Hamilton, the employer of the whistleblower, Edward J. Snowden.
Shares of Booz Allen were down about 4 percent in midmorning trading on Monday, at $17.24. That values the government consultancy at about $2.6 billion. (That’s still above $17, the price at which the firm went public two-and-a-half years ago.)
Still, the controversy over Mr. Snowden and his leaks of highly confidential surveillance work at the N.S.A. â€" where he worked on assignment â€" has brought some attention to Booz Allen’s majority owner, Carlyle.
The buyout firm bought Booz Allen’s government contracting arm for $2.5 billion in 2008, when the consultancy separated the business from its commercial arm. The investment has worked out well for Carlyle so far, with Booz Allen having paid out more than $612 million in special dividends before its 2010 initial public offering.
Carlyle held a roughly 67 percent stake in Booz Allen as of March 31, and still holds three seats on the firm’s board.
The consultancy has posted fairly steady growth over recent years, including $219 million in net income on $5.8 billion in revenue for the year ended March 31. Nearly all of that has been because of its ties to a very important customer, the federal government.
As The New York Times noted:
The government has sharply increased spending on high-tech intelligence gathering since 2001, and both the Bush and Obama administrations have chosen to rely on private contractors like Booz Allen for much of the resulting work.
Thousands of people formerly employed by the government, and still approved to deal with classified information, now do essentially the same work for private companies. Mr. Snowden, who revealed on Sunday that he provided the recent leak of national security documents, is among them.
As evidence of the company’s close relationship with government, the Obama administration’s chief intelligence official, James R. Clapper Jr., is a former Booz Allen executive. The official who held that post in the Bush administration, John M. McConnell, now works for Booz Allen.
Yet Carlyle has worked hard over the past decade to put questions about its influence over the government to rest. The firm was once known for hiring former politicians like George H. W. Bush and James A. Baker III, the onetime secretary of state, as advisers and for focusing on government contractors.
Now Carlyle is known as a global investment powerhouse, with over $176 billion in assets under management in a wide variety of sectors. The private equity firm even devotes a portion of its frequently asked questions to addressing the firm’s past:
Do former senior government officials work at Carlyle?
From the late-1980s through the mid-1990s, several former senior government officials worked at Carlyle in various advisory and other capacities. Most have since retired from the firm. Today, Carlyle boasts a group of former C-level corporate executives, each with an average of 40 years’ experience, who serve as Operating Executives. These executives assist our investment teams in analyzing industries, sourcing transactions, creating value, mentoring portfolio company management and generating returns for our investors.
A Carlyle spokesman declined to comment on the firm’s Booz Allen investment.
