THE CARLYLE GROUP INC. 
By A potential sale of the HireRight division comes at a tough time for Altegrity, as another of the latter's units, USIS, faces a U.S. government investigation over its 2011 background check into Edward Snowden, the National Security Agency leaker.
Unlike USIS, which is the largest private provider of federal government background checks in the United States, HireRight focuses on private-sector employers and provides employee background checks, as well as drug and health screening for companies.
A successful sale of HireRight could help relieve financial woes for Altegrity, which has struggled to pay down debt as revenue and earnings take a hit from government spending cuts.
HireRight - one of the world's largest employment screening providers according to its website - has around $95 million in annual earnings before interest, tax, depreciation and amortization (EBITDA) and could be sold for roughly 10 times EBITDA, one of the people said.
Bank of America Merrill Lynch (>> Bank of America Corp) is advising on the auction process, which has attracted private equity interest and is advancing to the second round, the sources said, asking not to be named because the matter is not public.
Representatives for Providence Equity declined to comment. Altegrity did not immediately respond to requests for comment. Bank of America did not have immediate comment.
Altegrity, which Providence bought from Carlyle Group LP (>> Carlyle Group LP) and Welsh, Carson, Anderson & Stowe for $1.5 billion in 2007, also expanded its intelligence and security consulting business through its $1.13 billion acquisition of Kroll in 2010.
In April, Moody's Investor Service Inc downgraded Altegrity's debt deep into junk territory, warning that unless its revenue and earnings rebound significantly in the near term, its capital structure may be unsustainable.
Several private equity firms including Providence, KKR & Co LP (>> KKR & Co. L.P.) and General Atlantic LLC bought businesses in recent years on the assumption that areas such as cyber defense and intelligence remained relatively safe from government spending cuts.
The theory has turned out wrong so far for most of these firms, which came under increasing stress because of defense industry cuts, including the sequestration that began hitting in recent months.
A series of apparent security problems that allowed Snowden to leak details of secret U.S. surveillance programs could result in increased scrutiny of government contractors, and further pressure the companies' revenues and margins.
Irvine, California-based HireRight screens more than 6 million applicants annually and counts about 50,000 employers as customers, according to its website.
(Reporting by Soyoung Kim in New York, additional reporting by Greg Roumeliotis; Editing by Bernadette Baum, Bernard Orr)
By Soyoung Kim
