Sunday, April 10, 2016

Death of Former Carlyle Group Beltway Bandit CEO

Washington Business Journal reported:

Earle Williams, the late longtime president and CEO of what was once known as BDM International, wasn't just a leader in the government services industry. He was one of its creators.

On March 25, Williams died in Springfield at the age 86 of pneumonia and myelodysplasia, The Washington Post reported.
In many ways, the story of Williams and the company he presided over for 20 years was the story of government contracting — the "Beltway bandits," as the companies came to be known.
Williams moved BDM's headquarters from El Paso to Virginia in 1973 to position the company for defense contracts.  

In an industry constantly in flux with dealmaking, BDM was one of those companies that saw itself caught in the crossfires of consolidation. In 1988, the aerospace and defense arm of Ford Motor Co. bought BDM for $425 million. Ford Aerospace was then sold to Loral Corp. in 1990, who in turn divested BDM as a part of that deal and sold it to Washington private equity firm Carlyle Group for $130 million.

The Carlyle Group held BDM until December 1997, when it was sold to TRW Inc. for $942 million
Carlyle's co-founders chose Washington, D.C. for their private equity firm for much the same reason as Mr. Williams.  WaPo reported on Carlyle's buying BDM in 1990.  Their piece said Williams was critical in steering BDM towards The Carlyle Group.

A 1993 New Republic piece suggested Williams did more than steer.

The CEO of BDM, a close friend of Carlucci's named Earle Williams, threatened to walk out with his top management unless his owner sold him.
Private equity utilizes leverage to enhance its investment returns.

Carlyle said it agreed to pay $115 million of the $130 million acquisition price in cash and the rest in debt and warrants.

Of the $115 million in cash, a Carlyle source said, nearly $80 million would be borrowed and the balance would come from the company's own reserves and its institutional investor partners, such as the Mellon family and the Equitable Life Assurance Society.
The Carlyle Group was only three years old at the time.  Somehow WaPo's business reporter couldn't see nearly $95 million of BDM's purchase price was borrowed.   

LATimes reported on the 1990 deal:

BDM is a well-known defense think tank that performs policy analysis, computer software services and consulting for defense projects. It had 1989 sales of $342 million and earnings of more than $20 million. It employs 3,100 people.
Bloomberg had this to say about Carlyle and BDM in February 2007:

(Carlyle's) fortunes turned when they wooed former Defense Secretary Carlucci to the firm in 1989. He delivered a sweet deal in his first year--a defense think tank called BDM International that was involved in large projects like manned space stations and, eventually, the deployment of Operation Desert Shield. "All these little jewels were coming available from larger companies that were looking to [pare their holdings to] find their core competencies," recalls D'Aniello. Carlyle was able to sell BDM in 1997 and make its investors 10.5 times their initial stake. The firm went on to become a force in the defense industry: Carlyle was one of the nation's 15 biggest defense contractors from 1998 to 2003, according to the Pentagon.
The Army's Strategic Studies Institute wrote in 1997:

The participants in the mergers, investments, and buyouts are not only defense firms. US financial entities, such as venture capital firms or buyout companies, have also entered the defense industry sector via outright purchases, mergers, and other types of acquisitions of defense contractors. The Carlyle Group made investments in 1991 and 1992 in several large defense contractors, among them BDM International, Vought Aircraft Company, GDE Systems, and Magnavox Electronic Systems. In 1994 and 1995 Carlyle resold Vought and Magnavox to Northrop Grumman with average annual gains on the transactions of 90 and 208 percent respectively.  
Carlyle diversified beyond defense but loves the predictability of Uncle Sam's trillion dollar budgets.   That's why Beltway Bandits help the feds with more than aerospace and defense.  From technology to healthcare Carlyle Group affiliates serve Uncle Sam.

Earle Williams' death provides an opportunity for a walk back in time to when private equity underwriters (PEU) were known as "Access Capitalists."  Carlyle's co-founders no longer need political heavyweights to give them access to halls of power.   Doors open with a phone call.