Altegrity to buy Kroll for $1.13 billion in cash

Altegrity, a privately held Falls Church company which provides security and screening services, said Monday that it will buy Kroll, a corporate intelligence unit of Marsh & McLennan Cos., for $1.13 billion in cash.

Altegrity does a range of contract work, mostly for the federal government, including security clearance investigations for the U.S. government and training and consulting for police departments in such places as Afghanistan, Colombia, Iraq, and Pakistan. The deal for Kroll, which is expected to close in September, would give it more access to commercial work, executives said.

Washington Post’s Dana Hedgpeth writes that New York-based Kroll, best known for its corporate investigations and security business, helped track down hidden assets of Saddam Hussein and of Philippine president Ferdinand Marcos and his wife, Imelda, in the 1990s. Established in the 1970s, it has 3,000 employees in sixty-five offices around the world and had revenue last year of about $600 million. It was bought by Marsh in 2004. Michael Cherkasky, a former prosecutor in the Manhattan district attorney’s office, ran Kroll from 2001 until 2004 and then Marsh for about three years. He became Altegrity’s chief executive in 2008.

With this deal, Cherkasky said, Altegrity will go from being “U.S.-centric with 70 percent of its revenue coming from government contracts and 30 percent from commercial business, to being in 30 countries with revenue being 60 percent commercial and the rest government business.”

Travis Sharp, a defense industry analyst at the Center for New American Security, said that Kroll will give Altegrity a “stronger foothold in the services market,” allowing them to compete more with the likes of SAIC, DynCorp and Lockheed Martin.

“It gives us more capabilities and makes us more international,” Cherkasky said. “It helps us compete in more ways with the big-four accounting firms by doing a range of services, from helping lawyers do electronic discovery to worldwide information-gathering for companies that need to do due diligence on the customers they’re working with. We can now do these things.”

Hedgpeth notes that the deal comes as credit markets and banks are showing increasing willingness to lend and private equity firms are ready to invest after a two-year slowdown. According to Bloomberg, buyout firms have announced transactions valued at $30.3 billion this year, five times the figure for the same period a year ago.

Altegrity was started in 1996 when the U.S. federal government privatized the investigative branch of the Office of Personnel Management. The company began with 600 employees and was originally called U.S. Investigations Services. Among its first contract work were security clearance background investigations. It has grown to 8,000 employees across the United States, with 300 employees at its headquarters in Falls Church and annual revenue of $900 million.

The Carlyle group invested in the company in October 1999 as a financial and strategic partner. In 2003, USIS employees cashed out and another investment firm, Welsh, Carson, Anderson and Stowe, acquired a majority stake in the company. Providence Equity Partners, a large, Rhode Island-based private equity firm, bought USIS in August 2007.

Altegrity also has other business units, including one that supplies background and drug screening for companies and another that monitors driving records for auto insurance companies.