Carlyle to buy part of Booz Allen Hamilton

After months in the doldrums, the buyout market is staging a modest recovery with Carlyle, the private equity group, agreeing to buy part of Booz Allen Hamilton for $2.9 billion.

The leveraged buyout of Booz Allen Hamilton's political consultancy business, announced yesterday, is being part-financed by Bank of America and Credit Suisse.

It brings the total value of private equity deals announced in America this month to $11 billion, the highest level since July, when $87 billion of buyouts were agreed, according to Thomson Reuters, the research group.

The acquisition of the consultancy, which works with the Department of Homeland Security and the World Bank, will boost Carlyle's long list of past and present political connections that have helped some of the companies it owns to secure defence contracts. Arthur Levitt, a former chairman of the US Securities and Exchange Commission, is a senior adviser to Carlyle, which has employed Sir John Major, George Bush senior and George Bush junior in the past.

The deal appears to signal a broader response to the credit crunch, according to Josh Lerner, private equity professor at Harvard Business School.

He said: “The old-economy buyout model, involving an industrial company, cost cutting and low growth magnified by high debt levels is becoming unsustainable because of the difficulty of raising debt. The range of companies that private equity is looking at is expanding quite dramatically as private equity needs to find deals where it can achieve significant growth. Financial services, high-tech and high-end services are some examples.”

The $11 billion of US private equity deals recorded so far this month compares with only $3.76 billion in February and $7.8billion for all of April.

This month there has also been a surge in high-yield bond issues - a key source of private equity funding - providing evidence that credit markets are thawing after a 12-month freeze.