Booz Allen Hamilton stock makes strong debut in IPO

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By Marjorie Censer
Capital Business
Wednesday, November 17, 2010; 9:01 PM

Government consulting giant Booz Allen Hamilton made a promising debut on the New York Stock Exchange on Wednesday as its shares closed 13.2 percent above their initial-public-offering price in a test of the IPO market's strength.

The McLean firm's newly issued stock traded at least 10 percent above its initial per-share price of $17 for much of the day and closed at $19.25. The offering raised $238 million for the company, which plans to use the proceeds to repay outstanding debt.

Booz Allen chief executive Ralph W. Shrader said Wednesday that his firm does not expect to change its strategy or management team, but he acknowledged the heightened scrutiny of being publicly listed.

"We have more visibility to our performance now, and we have a broader group of folks who are going to pay attention to that performance," he said.

One of the Washington region's largest private-sector employers, Booz Allen Hamilton earns virtually all of its revenue through government contracts. The company reported revenue of $5.1 billion in fiscal 2010, according to a recent regulatory filing. In 2008, Booz Allen separated its government and commercial businesses and sold a majority stake in the government unit to Carlyle, which owns 79 percent of the company.

"We knew when we executed the transaction with Carlyle . . . that we were embarking on a trail that would have us become a public company at some juncture down the road," Shrader said. "We were expecting that, and we've spent the last two years preparing for that."

Booz Allen's offering comes as the IPO market is beginning to heat up. Shares of General Motors are set to begin trading Thursday in what will be one of the largest initial public offerings in history.

"I think [Booz Allen Hamilton] came out of the gates very strong," said John Hagan, co-head of the defense and government services unit of BB&T Capital Markets/Windsor Group. "Booz has a phenomenal reputation in the market for having very talented people, and anytime you have outstanding talent, there's going to be great demand for your capabilities."

Michael R. Steed, managing partner at Paladin Capital Group, said the stock's performance Wednesday bodes well for Booz Allen's future.

"I think that investors now understand that there's some great companies coming into the IPO market, and this is one of them," Steed said. "I think it's well positioned to do very well into the future, and you should see the market take the stock up even further."

Shrader expressed confidence that the company will continue to grow, despite concerns that federal spending will be cut sharply. He said Booz Allen has grown in previous years when the defense budget declined and added that the company's expertise will prove useful in helping government clients find new efficiencies.

Carlyle, which did not sell its stake as part of the initial public offering, said it expects Booz Allen's business to grow. The initial share price is more than three times the average per-share price that owners such as Carlyle paid.

"We believe Booz Allen is well positioned for long-term growth as the company continues to address its clients' most important and complex problems," said Carlyle spokesman Chris Ullman.

Staff writer Thomas Heath contributed to this report.


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