Since its founding in 1987, The Carlyle Group’s name has been thrown around in conspiracy theories of all kinds, most of which are focused on the firm’s distinguished list of partners, both past and present. And while the firm hasn’t said it is trying to shed its image as a high-profile boys club for ex-politicos, it has made a number of moves to erase the perception of Carlyle as a landing pad for Republican politicians leaving public office.
But what Carlyle has been losing in political connections, it has been making up for in the expansion of its business circle. To start 2003, the firm brought in former IBM CEO Louis V. Gerstner as its new chairman, replacing Frank Carlucci, the former secretary of defense and deputy director of the CIA, who moved over to become chairman emeritus of Carlyle. In October, former President George Bush Sr. announced his retirement from the firm and a month later Carlyle hired former Northrop Grumman Chairman and CEO Kent Kresa.
Although Kresa said he doesn’t know what Carlyle’s motives were for his hiring, the move does confirm that the firm will stick close to its knitting as far as defense deals are concerned. During Kresa’s tenure as head at Northrop Grumman, the company made roughly $26 billion in acquisitions, including the Grumman Corp. purchase (giving the company its name used today) and the deal for Westinghouse’s defense business, as well as purchases of Logicon, Litton and Newport News.
“I certainly understand the dynamics of the [defense] industry and I understand value, and it’s important to understand what a new property or potential property might be worth,” Kresa said.
The apparent shift in Carlyle’s personnel, from government insiders to operational veterans, comes at a time when deals in the defense sector are receiving a new level of scrutiny from lawmakers. While making its investment in QinitiQ, Carlyle saw how harsh critics can be about defense deals. The British press claimed Carlyle’s influential payroll gave it too much authority over QinitiQ’s defense research. IBut Carlyle is not alone, and in the wake of the wars in Iraq and Afghanistan, a pervading nationalism has started to seep into the market, at least as far as defense deals are concerned. Apax Partners and Permira, through their bid for Inmarsat, have all had to fight with political opposition to their interests in these defense companies. Kresa, however, chose not to comment on the current climate for international defense deals or what its effect will have on private equity in the future.