Washington-based private equity firm Carlyle Group is buying a majority stake in the US government business of management consulting technology firm Booz Allen Hamilton Inc. for $2.54 billion, it was announced last Friday.

Under the deal, McLean, Virginia-based Booz Allen said it would split in two, separating its US government business from its global commercial businesses. The commercial business will be a stand-alone company. However, Carlyle will own the rights to the name Booz Allen Hamilton. The deal is expected to close in mid to late 2008, and is subject to shareholder and regulatory approval.

This is the biggest acquisition for Carlyle since its $4.9 billion buyout of US nursing home operator Manor Care in December, and represents a turnaround in its fortunes after its Dutch unit went bankrupt recently. (See: Carlyle heads for liquidation as creditors refuse bailout)

Booz Allen's board of directors unanimously recommended the deal, the company said. Credit Suisse and Latham & Watkins advised Booz Allen, while Debevoise & Plimpton LLP advised Carlyle.

When reports of a potential deal came out in January, the Service Employees International Union criticized such a union, saying it raised concerns about national security because Carlyle is minority-owned by an investment unit of the Abu Dhabi government. Carlyle in September sold a 7.5 per cent stake to the Abu Dhabi group. (See: Abu Dhabi's Mubadala invests in Carlyle)

The Carlyle Group is a global private equity investment firm, based in Washington, D.C., with more than $81.1 billion of equity capital under management. The firm operates four fund families, focusing on leveraged buyouts, venture & growth capital, real estate and leveraged finance investments.

The firm employs more than 575 investment professionals in 21 countries with several offices in North America, South America, Europe, Asia and Australia; its portfolio companies employ more than 286,000 people worldwide. Carlyle has over 1200 investors in 68 countries.

Nicknamed the Ex-President's Club, Carlyle's employees have included both President George H.W. and George W. Bush, former British Prime Minister John Major, former secretary of state James Baker, and former defense secretary Frank Carlucci. Amidst growing public scrutiny over its dealings, the company has recently scaled back its holdings in military contractors and its links to controversial political figures.

Booz Allen Hamilton, one of the oldest management consulting firms in the world, is a private corporation with headquarters in McLean, Virginia, and more than one hundred offices on six continents. Its approximately 300 officers wholly own the firm. Post this deal, the commercial and international firm will be known by a to be announced name and will continue to be owned by the commercial partners.

Booz Allen has been a major figure in the privatization of government intelligence. Current US National Intelligence director Mike McConnell was Booz Allen's director of defence programs before his appointment last year. Booz Allen has been deeply involved in some of the Bush administration's most controversial counterterrorism programs, including the infamous Total Information Awareness data-mining scheme.