U.K. Defense Researchers Pick U.S. Partner: Washington-Based Carlyle Group to Seek Investors for London's New Military Technology Firm
Kennedy, Harold, National Defense
The United Kingdom's Ministry of Defence has chosen a U.S. firm--the Carlyle Group--as a strategic investment partner for its QinetiQ Group plc, a spin-off of the former Defence Evaluation and Research Agency.
DERA--one of Europe's largest scientific research organizations--was the U.K.'s version of the U.S. Defense Advanced Research Projects Agency. It pioneered the development of such technologies as liquid-crystal displays, carbon fiber, flat-panel speakers, infra-red sensors and microwave radar.
In 2001, the MOD split DERA into two organizations, the Defence Science and Technology Laboratory and QinetiQ, a company spokesperson, Fiona J. Lewinton, told a symposium sponsored by the Precision Strike Association, in Laurel, Md.
DSTL remains an integral part of the MOD, but QinetiQ--pronounced "kinetic"--has been spun off as a company that currently is wholly owned by the government, Lewinton said.
With some 9,000 personnel and an annual income of approximately 800 million pounds, QinetiQ includes about three quarters of the old DERA. It has a small headquarters in London, with major facilities in Farnborough and Malvern.
Strapped for cash, however, the MOD wants to attract more private investment to QinetiQ. In September 2002, it selected the Carlyle Group from a field of 40 companies that had expressed an interest in acquiring a stake in the firm.
Based in Washington, D.C., Carlyle is a global investment company with a portfolio of nearly $14 billion and investors in 55 countries. Its board of directors is packed with retired, but still-influential U.S. and U.K. political figures.
Carlyle's chairman, for example, is former U.S. Defense Secretary Frank C. Carlucci. Ex-Secretary of State James A. Baker III is the firm's senior counselor. John Major, a previous U.K. prime minister, is chairman of Carlyle Europe, with offices in London.
"The Carlyle portfolio makes it a good match for QinetiQ's breadth and depth of science and technological expertise," said QinetiQ's chief executive, Sir John Chisholm, in a published statement. "Not only is Carlyle well known for its understanding of the defense world, but it has interests that extend into the broader fields of innovative science and technology."
At press time, the MOD and Carlyle were engaged in negotiations over terms of the partnership. The two were reluctant to discuss the negotiations in any detail, because they were "at a sensitive stage," according to Daniela Zuin, director of corporate communications for Carlyle Europe. Nevertheless, she told National Defense, an agreement was anticipated by early January.
Initially, the MOD plans to retain a majority interest in QineriQ, Chisholm said. This will ensure that British taxpayers share in any early growth in the firm's growth, and it will protect the U.K.'s wider defense interests over the long term, he said.
As a junior partner, Carlyle will act as agent for "a broader spectrum of investment funds and private investors, who are the direct investors in the business," Chisholm explained. He also sought to ease concerns that the United Kingdom might be surrendering control of its primary defense-related research and development program.
"Carlyle has undertaken to select investors who are predominately U.K. or European, so economic ownership remains overwhelmingly British," he said. In addition, he said, QinetiQ wilt continue to be run by its existing management team and board.
Seeking a Global Market
The investment partnership will enable QinetiQ to "have greater freedom and access to capital, allowing the company to greater exploit its technologies and capabilities, and diversify the wealth of knowledge it has built up over the years to the benefit of the wider U.K. economy," said Defence Minister Lewis Moonie. Eventually, he said, QinetiQ can become a globally recognized brand and the world's leading technology provider. …