Thursday, June 24, 2010

Carlyle's Impact on Booz

The Carlyle Group purchased Booz Allen Hamilton, the huge government contractor, in July 2008. Carlyle plans an independent public offering, filing with the SEC. The S-1 document shows Carlyle's imprint on BAH.

Interest expense soared from roughly $2 million to $150 million.

Management fees are $1 million per year plus expenses. Also, BAH made a one time $20 million payment to Carlyle for investment banking, financial advisory and other service.

Under two years of ownership BAH paid $290 million more in interest and $22 million in management fees. Their S-1 filing states:

We derived 98% of our revenue in fiscal 2010 from services provided to over 1,300 client organizations across the U.S. government under more than 4,900 contracts and task orders.

For fiscal 2010, we derived 50% of our revenue from cost-reimbursable contracts.

Those costs were passed onto Uncle Sam. Taxpayers ponied up $312 million as a result of Carlyle ownership.

Due to net operating losses, BAH didn't pay income taxes. Their S-1 states:

Our NOL carryforward, which as of March 31, 2010 was $367.6 million
It will take years to work through this deficit at BAH's current levels of profitability. Carlyle milked Booz for more than management fees. It took dividends. BAH took on debt to pay $612 million in special dividends.

Carlyle's milking of Booz shows how private equity underwriters (PEU's) work. Elected officials believe PEU's are the answer to America's ills in public infrastructure, health care, education, banking and underfunded pensions. More than one party is downing the booze.