Carlyle Unit Buys Another Company

The Carlyle Group's venture-capital arm has purchased Dulles-based software firm Compusearch Software Systems Inc., the third company the unit has acquired in the past 15 months.

Typically, Carlyle Venture Partners infuses cash into early-stage technology companies in return for stakes in those firms. But recently it has been buying firms outright as well as investing in later-stage companies in its quest for more creative moneymaking approaches.

Today, D.C.-based Carlyle will announce its purchase of the 22-year-old, privately held Compusearch, which sells software that helps government agencies comply with federal rules when buying goods and services. The deal closed on July 7, company officials said. Terms were not disclosed.

In February, Carlyle acquired Wall Street Institute, an English-language-instruction company, for an undisclosed sum. In March 2004, it joined a group that collectively spent $125.5 million for Sonitrol Inc., which makes commercial security alarm and monitoring systems.

Robert E. Grady, head of Carlyle's U.S. venture team, said more than two-thirds of the $517 million invested from Carlyle's second U.S. fund was put toward later-stage firms and leveraged buyouts. "It's been a more important part of the strategy in the last year or two and I think you can expect it to be that way going forward," Grady said.

Carlyle and others are responding to increased pressure in the cutthroat venture market, said Arthur J. Marks, general partner of Valhalla Partners and a 25-year industry veteran. In the early 1990s, venture firms started 500 companies a year, he said. But later in the decade, the amount of money invested increased at least fivefold and the number of new projects jumped to about 3,000 a year, he said.

The result was too many companies doing the same thing, too much money in those companies, and a collapse in returns, Marks said. The market has bounced back, but venture firms have learned that throwing a lot of money at a lot of new companies is not productive.

"So some people have cut back on funds and some people have transformed, and that's what Carlyle has done to some degree," Marks said. "They now have a more mixed portfolio."

Working in Carlyle Venture Partners' favor are the vast connections of its parent company, which is one of the world's largest private equity firms with nearly $30 billion under management and investments in more than 150 companies.

"What we're trying to do is take advantage of the asset that the Carlyle venture fund has because it's part of a larger Carlyle Group," which is able to help find lenders to fund buyouts and executives to run newly acquired firms, said Charles O. Rossotti, senior adviser to the Carlyle Group and member of Compusearch's board of directors.

In the case of Compusearch, the five founding members were well beyond retirement age. Reid Jackson, a federal procurement consulting expert at Booz Allen Hamilton who was familiar with Compusearch, approached the owners about selling the company. When they agreed, Jackson contacted Carlyle through an investment banker and Carlyle bought the firm. Jackson has moved to Compusearch as president and chief operating officer.

Peter DiGiammarino, a 27-year veteran of the software and services industry, took over as Compusearch's chairman and chief executive, replacing one of the outgoing founding members. There are no plans to cut any of the 110 jobs at Compusearch, DiGiammarino said.