Northrop Grumman unloads government consulting unit

       Northrop Grumman agreed on Sunday to sell its TASC government consulting unit to the private equity firms Kohlberg Kravis Roberts and General Atlantic for $1.65 billion in cash, in another sign that private equity firms are back to their core business of deal-making.
       The sale follows last year's deal by the Carlyle Group for Booz Allen Hamilton's government consulting business.
       Northrop began talking about selling TASC, which provides technology con-sulting services, several months ago to satisfy stricter requirements on conflicts of interest facing military contractors,according to a person briefed on the matter. These companies cannot provide consulting services to the government while also trying to sell it products.
       Northrop's options included arranging an initial public offering of the unit,selling it to a strategic buyer or striking a deal with private equity firms.
       Of those, the last option emerged as the most attractive, allowing TASC to reap additional investment for expansion and for holding onto its management team, led by Wood Parker, the business'general manager and prospective chief executive.
       "This transaction is in the best interest of Northrop Grumman's customers, employees and shareholders," Ronald D.Sugar, Northrop's chairman and chief executive, said in a statement."It reflects Northrop Grumman's desire to align quickly with the government's new organisational conflict of interest standards,while preserving TASC's unique organisational culture and its status as the advisory services employer of choice."
       Based in Chantilly, Virginia, TASC has about 5,000 employees. Northrop said the unit expected to earn about $1.6 billion in revenue this year.
       Northrop said it expected to reap about $1.1 billion of net cash proceeds through the sale. It will use that money to buy back stock.
       The deal is expected to close by the end of the year.
       Several other big private equity firms have announced leveraged buyouts over the last month, including the Blackstone Group's purchase of Anheuser-Busch InBev's theme parks and TPG and Canada Pension Plan Investment Board's acquisition of IMS Health.
       With the improvement of the credit markets over the last year, private equity firms have been able to put their billions of dollars in capital to use. Their investors,who had previously been reluctant to provide the money for new takeovers,are now pressing for more deal-making to see better returns on their capital.
       However, even the largest leveraged buyout this year, the $4 billion takeover of IMS, was dwarfed by the sweeping takeovers of TXU and Equity Office Properties in 2007. That is partially because private equity firms can borrow less debt for their deals.
       KKR and General Atlantic will receive financing from Barclays Capital,Deutsche Bank and RBC Capital Markets and the Canadian Pension Plan Investment Board.
       Sunday's deal demonstrated some of KKR's efforts to expand its business and become less reliant on outside banks for help. Its KKR Capital Markets unit will arrange a sale of bonds supporting the transaction, having already lined up Highbridge Mezzanine Partners, a unit of Highbridge Capital Management, as the lead investor.