Carlyle pays £150m for Qinetiq stake

The US buyout house has agreed to acquire a controlling stake in Qinetiq for up to £150m.

The Carlyle Group, the US buyout house, has agreed to pay up to £150m in a 33.8 per cent stake in the state-controlled scientific research organisation, Qinetiq. The UK Ministry of Defence had named Carlyle as its preferred bidder in September this year. The transaction values QinetiQ at around £500m.

The sale follows the MOD's controversial decision in March this year to seek a strategic partner in the private sector to invest in QinetiQ. The government will receive between £140 and £150m from the transaction, in addition to £50m already received from QinetiQ as part of the purchase price for its assets.

A 3.7 per cent stake in Qinetiq will be made available for the employees, with the government retaining 62.5 of the shares. The MOD plans to sell its entire stake in QinetiQ within 3-5 years, probably through a flotation on the stock market.

Carlyle, which is well-known for investing in the defence sector, will acquire more than half of the voting rights in the firm’s board and appoint two of the nine directors.

Carlyle is believed to have established a special fund to make the purchase, the Financial Times said.

The UK government had announced earlier this year that it would offer a majority stake in the business to the private sector. This was in line with its plans to attract external funding for the former Defence Evaluation and Research Agency division’s development rather than relying on public sector funding. The government had originally planned to list the company but the collapse in stock market sentiment stopped this being an option.

Carlyle has close links with a number of international government agencies, in part resulting from a series of high profile appointments it has made of former top rank government officials. Last year, Carlyle appointed former UK Prime Minister John Major as the firm’s European chairman. The group also counts former US president George Bush and his US secretary of state James Baker among its special advisers. Frank Carlucci, US secretary of defence during the Reagan administration, is currently Carlyle Group chairman, but will make way for Louis Gerstner, the former IBM chairman, in January.