KKR guns for a military deal -- buys Northrop Grumman's TASC

Posted Nov 9th 2009 8:20AM by Tom Taulli
Filed under: Deals, Private Equity, Northrop Grumman (NOC)

Could it be that private-equity buyouts are making a comeback? There are certainly signs of a return. Just last week, TPG and the Canada Pension Plan agreed to shell out $4 billion for IMS Health (RX).

This week, we have another interesting deal: KKR and General Atlantic will buy TASC for $1.65 billion. TASC is the consulting unit of Northrop Grumman (NOC).

Actually, the military giant had little choice but to unload the division because of a conflict of interest. How can you provide unbiased consulting to the U.S. government as well as sell weapons to it?

Yet, TASC is a solid business, focusing on advance systems engineering and other sophisticated analysis. Some of the things the company deals with include weapons of mass destruction, the collection of critical intelligence and even the development of transportation systems. In all, there are about 5,000 employees (of which 57% are engineers, scientists and analysts).

As for the deal structure for TASC, it is certainly much different from the go-go years in private equity. Roughly half the value is in equity and KKR will use its own platform to place the mezzanine debt. In fact, the valuation comes to a conservative five times EBITDA. A few years ago deals were fetching multiples of 8 to 10 times EBITDA.

Tom Taulli is the author of various books, including The Complete M&A Handbook.

Tags: featured, KKR, noc, private equity, PrivateEquity, tasc