The Work

June 7, 2010 3:04 PM

Debevoise, Wachtell Lead on $1.13 Billion Deal for Kroll

Posted by Brian Baxter

Private security services firm Altegrity is hoping that its acquisition of risk consulting firm Kroll will make it the detective agency of choice for corporate clients and law firms. Kroll announced on Monday that it would be sold in a $1.13 billion all-cash deal.

Debevoise & Plimpton and Wachtell, Lipton, Rosen & Katz are advising Altegrity and Marsh & McLennan, respectively, on the deal. (Marsh & McLennan has owned Kroll since 2004.)

Altegrity's Debevoise team is led by M&A partner Kevin Rinker and includes finance partner Paul Brusiloff, IP partner Jeffrey Cunard, employee benefits partner Jonathan Lewis, and tax partner Peter Schuur.

Rinker says that Debevoise advised Altegrity earlier this year when it bought business intelligence and risk management firm Corporate Risk International. Altegrity, once known as U.S. Investigations Services (USIS), was sold to private equity firm Providence Equity Partners in May 2007 for $1.5 billion. Debevoise has advised the Providence-based PE shop on several major media and information deals in recent years.

The firm represented Providence on its $685.5 million acquisition of Casema Holding from France Telecom in February 2003, $242 million acquisition of the Hallmark Channel in February 2005, formation of a $12 billion buyout fund in February 2007, and $640 million investment in India's Aditya Birla Telecom in June 2008. When Providence created a new holding company for USIS called Altegrity in July 2009, Rinker says Debevoise was called upon to advise on several "follow-on" deals that added businesses to its portfolio.

Altegrity's new name got some much-needed publicity in August 2009 when the company hired former Los Angeles police chief William Bratton to head its security consulting unit. The move was part of Altegrity's effort to transition from being primarily a provider of preemployment background investigations to offering a wider array of security consulting and risk assessment services.

Providence and Altegrity beat out several other suitors vying for Kroll's specialty services, such as private equity firms The Carlyle Group, Apax Partners, and General Atlantic, according to the Financial Times. But it was Falls Church, Va.-based Altegrity, led by former Marsh & McLennan CEO Michael Cherkasky, which emerged as the winning bidder for Kroll.

Cherkasky, a former prosecutor and onetime president and CEO of Kroll, has vowed to remake Altegrity into a leader in the risk management space. Marsh & McLennan promoted Cherkasky to CEO in 2004 after the insurance broker bought Kroll that same year for $1.93 billion.

But an $850 million settlement with former New York State attorney general Eliot Spitzer's office in 2005 cost Marsh & McLennan valuable business, and lackluster returns from the Kroll acquisition eventually resulted in Cherkasky being forced out in December 2007. Now Kroll, one of the most well-regarded--and feared--private investigators in the business, must hope that its future is more certain with Altegrity. (Kroll's founder, attorney Jules Kroll, was profiled in The New Yorker last year.)

Wachtell advised Marsh & McLennan on its acquisition of Kroll six years ago and the firm reprised its role representing the New York-based professional services firm. M&A partner Daniel Neff, the cochair of Wachtell's executive committee, took the lead advising Marsh & McLennan along with corporate partners Gregory Ostling and James Cole, Jr., antitrust partner Ilene Gotts, executive compensation partner Michael Segal, tax partners Jodi Schwartz and T. Eiko Stange, real estate partner Stephen Gellman, and restructuring partners Eric Rosof and Joshua Feltman. (Neff was unavailable for immediate comment.)

Debevoise's Rinker says that his firm's own experience using Kroll's services was instrumental in helping Altegrity as the client conducted its own due diligence into Kroll's various business units--such as Kroll's Eden Prairie, Minn.-based electronic discovery subsidiary Kroll OnTrack.

"We actually involved some of my litigation partners so they could give their views of the market for litigation support services and expanse to various vendors," Rinker says. "That was an interesting twist in this transaction and Kroll OnTrack is a big piece of the Kroll business."

Then there were other issues outside of the firm's control, such as the European debt crisis, that threatened to scuttle any acquisition by Altegrity. "This was a just another classic LBO that took place despite the destabilizing financing markets," Rinker says, somewhat half-jokingly. "But at least we got it to this stage." (Click here for Wachtell's take on dealmaking in a distressed environment.)

Barring another economic calamity, the current transaction for Kroll is expected to close some time in the third quarter of this year.

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