The Carlyle Group, one of the world’s largest private equity funds, may soon acquire the $2 billion government contracting business of consulting giant Booz Allen Hamilton, one of the biggest suppliers of technology and personnel to the U.S. government’s spy agencies.

Carlyle manages more than $75 billion in assets and has bought and sold a long string of military contractors since the early 1990s. But in recent years it has significantly reduced its investments in that industry. If it goes ahead with the widely reported plan to buy Booz Allen, it will re-emerge as the owner of one of America’s largest private intelligence armies.

Reports of a potential Carlyle acquisition of Booz Allen’s government unit began circulating among U.S. military contractors in December 2007, after Booz Allen’s senior partners and board members – a group of 300 vice presidents who own the privately-held firm – gathered at company headquarters in McLean, Virginia, for an extraordinary two-day meeting.

According to a December 15 letter to Booz Allen employees from CEO Ralph W. Shrader that was released by the firm, the vice presidents signed off on a “new strategic direction” that would involve separating the company’s commercial and government units and operating them as separate companies. That was widely seen, both inside and outside the company, as a sign that a sale of one or both of the units was imminent. Shrader said the company hoped to come to a resolution of the issues involved by March 31, 2008.

In January 2008, major newspapers – each quoting unnamed people close to the situation – reported that discussions between Booz Allen and Carlyle about the sale of the government unit were underway. According to the Wall Street Journal, the deal will be “centered on Booz Allen’s influence in defense and intelligence contracting. If an agreement is reached the sale price will likely be around $2 billion.”

Christopher Ullman, Carlyle’s chief spokesman, could neither confirm nor deny that a deal was in the works, and declined to comment to CorpWatch about the reports. Because of Carlyle’s long experience in the defense sector, he added, such companies “would be a priority for us when the price is right and it’s the right fit for us.” George Farrar, a Booz Allen spokesman, said his company “has refused to discuss particulars of any ongoing discussions” and would not comment beyond what Shrader wrote in his December 15 missive to Booz Allen’s workforce.

Who Is Booz Allen Hamilton?

In 2006, Booz Allen Hamilton, a privately held company based in McLean, Virginia, had a global staff of 18,000 and annual revenues of $3.7 billion. Its work for U.S. government agencies accounts for more than 50 percent of its business. Notably Booz Allen is a key adviser and prime contractor to all of the major U.S. intelligence agencies – the Central Intelligence Agency (CIA), the Defense Intelligence Agency (DIA), the National Geospatial-Intelligence Agency (NGA), the National Reconnaissance Office (NRO), the National Security Agency (NSA), and – as well as the Department of Homeland Security (DHS), the National Counterterrorism Center, the Department of Defense and most of the Pentagon’s combatant commands.
Shadow Intelligence Agency

Booz Allen prides itself on the long-term personal relationships it has forged between its personnel and their government clients. “We stay for a lifetime,” Mark J. Gerencser, the senior vice president in charge of Booz Allen’s government contracting division, remarked in 2006. A quick study of their biographies posted on Booz Allen’s Website suggests that this is indeed true – the senior management have shuttled back and forth between the company and the government for their entire lives.

As the director of Booz Allen’s U.S. government business, for example, Gerencser serves in “several broad-based roles,” including “representing industry” to the Office of the Secretary of Defense and the Joint Chiefs of Staff, which manage the Pentagon’s vast intelligence operations. He is also a member of Booz Allen’s leadership team that sets the strategic direction of the company, and has run many of the war games staged by Booz Allen for its government clients.

Just below him in the company’s intelligence hierarchy is Ken Wiegand, another senior vice president. Weigand came to Booz Allen in 1983 after working for a decade in Air Force intelligence, and now leads the firm’s work for national intelligence and law enforcement agencies and the Department of Homeland Security. His specialty, the Website says, includes imagery intelligence operations, which are managed by the NGA, one of Booz Allen’s most important clients.

Senior vice president Joseph W. Mahaffee, a veteran of naval intelligence, is the leader of Booz Allen’s Maryland procurement office business, which puts him in charge of the company’s contracts with the NSA in Fort Meade. He focuses on “meeting the Information Assurance mission objectives” of the NSA with various technology services, including systems engineering, software development and “advanced telecommunications analysis.”

Another key Booz Allen figure at the NSA is Marty Hill, who came to the company after a 35-year career in signals intelligence and electronic warfare and previously served as an expert on “information operations capabilities and policy” for Donald Rumsfeld’s Pentagon. He leads of team of 1,200 professionals engaged in all aspects of “signals intelligence” including technical analysis, systems development and operations.

Vice President Pamela Lentz is a former cryptology officer with the Navy and once worked as a program manager for TRW, one of the nation’s oldest intelligence contractors (it is now owned by Northrop Grumman). She is Booz Allen’s “client service officer” for the DIA and other military intelligence markets, which includes intelligence units within the Navy, Air Force, Army, the unified combatant commands and the undersecretary of defense for intelligence. Among other tasks, Lentz manages a 120-person Booz Allen team that supports the NRO, the Pentagon agency that manages the nation’s military spy satellites. She also runs a task force that supports human intelligence collection efforts at the DIA.

Vice President Laurene Gallo, a former intelligence analyst at the NSA, leads a Booz Allen “intelligence research and analysis” team that support several agencies, including the CIA, the DNI and the National Counterterrrorism Center. Vice President Richard Wilhelm, whose job at Booz Allen is to work with the CIA and the ODNI, came to the company after a long career in U.S. intelligence that included stints directing the Joint Intelligence Center for Iraq during Operation Desert Storm and the NSA’s first director of information warfare.

Vice President William Wansley, a former Army intelligence officer, leads a team of experts in “strategic and business planning” who support the CIA’s National Clandestine Service, the part of the CIA that conducts covert operations and recruits foreign spies, as well as the DNI. Another vice president Robert W. Noonan, a retired Army lieutenant general who once served as the Army’s deputy chief of staff for