Private Equity is Back

Private equity firms appear to be getting back into the leveraged buyout game, with the second billion-plus dollar deal being announced in less than seven days on Sunday.

On Sunday private equity firms General Atlantic LLC and Kohlberg Kravis Roberts & Co. agreed to buy Northrop Grumman's TASC consulting unit for $1.65 billion.

Last week, TPG and the Canada Pension Plan engineered the largest leveraged buyout of 2009 when they agreed to pay $4 billion for pharmaceutical data firm IMS Health Inc.

Sunday's announcement also signals increased interest in defense and defense consulting businesses by private equity firms, as the government increasingly turns to private contractors to help supply national security functions. Last year, Carlyle Group bought Booz Allen & Hamilton's defense consulting unit.

Northrop Grumman will use at least part of the proceeds of the sale to increase its share buyback program. The defense giant will increase the buyback program by $1.1 billion, the amount it expects to raise from the sale, after taxes.

"The transaction is in the best interest of Northrop Grumman's customers, employees and shareholders," said Northrop CEO Ronald D. Sugar, in a release.

TASC, part of Nothrop Grumman's Information Systems sector, has about 5,000 employees and expects 2009 revenue of about $1.6 billion.

The private equity purchase is a welcome sign that private equity firms, after nearly a year of very reticent behavior, are beginning to get back to the business of buying companies, or at least pieces of companies.

But these latest purchases are a far cry from the over-the-top buyouts of the credit bubble era, when private equity firms swallowed such companies as Hilton Worldwide, Harrah's Entertainment and Clear Channel Communications.

Instead, most of the deals announced in the past couple of months have been more like Sunday's purchase--acquisitions of pieces of major corporations in the $1 billion to $3 billion range.

Last month, Blackstone Group agreed to buy Busch Entertainment Group from Anheuser-Busch InBev for up to $2.7 billion. And in May, KKR bought the Oriental Brewery Group from A-B Inbev for $1.8 billion. General Atlantic and Colony Capital last month bought First Republic Bank from Bank of America for about $1 billion. The Carlyle Group announced this morning that it and TA Associates are buying software developer OpenLink Financial; terms of that deal weren't disclosed.

And private equity firms aren't borrowing nearly as much to do their deals as they were in the credit bubble heyday.

The Wall Street Journal reports that about 50 percent of the purchase price in the TASC deal will come from buyers' equity, a far cry from the 10 percent to 20 percent contributed back in the bubble days.