Carlyle Flips Another Government Services Company for Big $

The Carlyle Group announced the sale of U.S. Investigations Service Inc. to another private equity group for $1.5 billion. Providence Equity Partners is acquiring the leading provider of pre-employment screening solutions, the largest provider of security investigations for the federal government, and a global supplier of cleared personnel supporting critical federal programs. Welsh, Carson, Anderson and Stowe also owns a big chunk of USIS and will benefit mightily from the sale.

Did you know USIS used to be a government agency, the office of Federal Investigations? In a similar move to student loan vendor Sallie Mae, privatization turned it into a corporation in the 1996.

So how much did the boys from WCAS and Carlyle make on the deal? In January 2003 WCAS paid $545 million for the company, already partly owned by Carlyle since 1999. Carlyle reinvested $172 million in the transaction. The deal turned many ex-government employees into millionaires.

In four years USIS at least doubled, possibly nearly tripling in value to $1.5 billion. For conservativism I'll call the 2003 buyout at $717 million, the total investment of both WCAS and Carlyle. The private equity underwriters, PEU's made $787 million on their four year investment, nearly $200 million a year. In a move reminiscent of the Gipper, USIS gave 110% return to its investors.

How much will the sellers save in capital gains taxes as their assets were held for more than one year? WCAS and Carlyle save nearly $40 million from this transaction alone. Next time you hear Republicans or Democrats talk about the magic of privatization recall USIS and Sallie Mae.

Individuals, especially rich board members with significant stock holdings make out like bandits from what used to be a government services organization. Then after making millions, they don't share with their original benefactor! Sallie Mae's board members will save nearly $50 million with the Bush tax giveaway.

How much will the President's friend Tom Scully (ex-Medicare chief) make off this deal as a General Partner for Welsh, Carson, Anderson and Stowe? Will he voluntarily pay extra taxes as Tom is intimately aware of Republican efforts to throw people off Medicaid via increased cost sharing and proof of citizenship requirements? I'm not holding my breath.

Next time you hear your Congress person cite the need to throw people off Medicaid, nutrition assistance, or housing help, remember who can more than afford healthcare, a decent meal and fine accomodations. Then vote them out of office.