Northrop to Sell $1.65 Bln Unit to Private Equity

NEW YORK (Reuters) - Defense contractor Northrop Grumman has agreed to sell its TASC consulting unit to two buyout firms, General Atlantic and Kohlberg Kravis Roberts & Co , for $1.65 billion, the companies said on Sunday.

The deal is the latest in a spate of buyouts, as the financing markets improve. On Thursday, the biggest leveraged buyout of the year was signed, when private equity firm TPG and the Canada Pension Plan struck a $4 billion deal to buy IMS Health Inc .

Northrop hired investment banks to sell the unit, which advises government military agencies, a few months ago, drawing interest from a number of private equity firms.

Sources told Reuters in September that a sale, originally expected to fetch about $2 billion, would more likely be around $1.5 billion.

The deal price is "in line with expectations" for that sub-sector, said an investment banker who declined to be identified.

The deal is expected to be completed in the fourth quarter.

Neither General Atlantic nor KKR have portfolio companies that focus primarily on providing technology services or platforms to the U.S. government, the companies said, ensuring compliance with government rules.

Northrop's TASC business sells systems engineering and mission analysis services to the U.S. military, the intelligence community, federal and state governments and commercial industry.

Many defense companies, including Northrop, offer services that include advising government agencies on programs that they end up bidding for, creating a conflict of interest. For example, Northrop makes satellites while also advising the government on the next generation of satellites.

That conflict prompted the U.S. Congress to pass a law in May that requires the Department of Defense to tighten rules on potential conflicts at such companies.

Investment bankers expect more U.S. defense contractors to sell such units because of the new rules.