Booz Allen Hamilton Guns for a $300 Million IPO


About two years ago, private equity firm Carlyle Group shelled out $2.54 billion for Booz Allen Hamilton, a top defense contractor. On Monday Booz Allen filed the necessary papers for an initial public offering.

This is yet another filing from a major private equity firm in recent weeks. What's more, it's the second defense deal in the past few days: Cyber-security firm KEYW also just filed for an IPO.

Booz Allen Hamilton plans to raise as much as $300 million. The cash will be a big help in paring down the company's $1.5 billion long-term debt load.

The underwriters include Morgan Stanley (MS) and Barclays Capital (BCS).

Pioneers in Management Consulting

Edwin Booz started a small management consulting firm -- one of the first in the country -- in Chicago in 1914. The key to the firm's growth, however, came in 1940 when it was hired to advise the U.S. government as the country prepared to enter World War II. From there, Booz Allen Hamilton turned into a powerhouse.

A couple of years ago, in order to provide more focus, the companysplit in two: Booz & Co. would represent the traditional management consulting business and Booz Allen Hamilton would provide defense and intelligence services to the U.S. government.

All in all, it's worked out quite well. Booz Allen Hamilton's customers include the Department of Defense, all branches of the U.S. military, the Department of Homeland Security, the Department of Energy, key intelligence agencies and even the Department of Treasury.

The firm helps to deal with global threats like terrorism and cyber-security. It also has services to help transform the health-care system and improve government efficiency.

Over the past 15 years, Booz Allen Hamilton has grown its revenue at about an 18% compound annual rate. In fiscal 2010, revenues hit $5.1 billion and profits came to $25.4 million.

Prospects of the Offering

Given the timing of the registration process, the public offering of Booz Allen Hamilton is not likely to hit the markets until the fall. However, it will have to compete with many other private-equity backed deals like HCA, NXP Semiconductors, Toys 'R Us and Nielsen Holdings.

But Booz Allen Hamilton should stand out. After all, the firm is really a growth story -- and the growth should continue for some time as the U.S. government has committed to spending billions on intelligence and cyber-security. In other words, a double-dip recession or a general slowdown in the economy is likely to have minimal impact on the company -- making the IPO particularly attractive for investors.