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Apollo Global Management (APO.N) has halted plans to sell U.S. military security services business Constellis after talks with Canada’s Garda World Security Corp [GWSC.UL] broke down, according to people familiar with the matter.

The New York-based private equity firm bought Constellis, founded in 1997 as Blackwater, for about $1 billion in 2016 and had been pursuing a so-called dual track sale process looking at an outright sale or an initial public offering (IPO), sources said this week, asking not to be named because the matter is private.

A representative for Apollo declined to comment. Garda and Constellis did not respond to requests for comment.
Rising U.S. government defense spending has fueled dealmaking in the government services industry, and Apollo, hoping to tap that momentum, was aiming for Constellis to fetch between $2 billion and $2.5 billion, including debt, in a potential sale, the sources said.

However, Garda and at least two private equity firms that considered buying Constellis, did not meet this number.

Apollo has also cooled on an IPO, in part because Constellis management preferred to remain a private company, one of the people said.

Instead, Apollo may now consider a dividend recapitalization, according to the sources. Dividend recapitalizations are funded by loans or bonds and are often used by private equity firms to make a cash return on an investment if they are unable or unwilling to exit a position at a given time.

Apollo will now exit Constellis at a later date. A sale at this point would have marked a quick exit for Apollo, as private equity firms typically sell investments after three to five years.

Headquartered in Reston, Virginia, Constellis provides training and security services focused on counter terrorism, force protection, law enforcement and security operations.

The company was founded by former U.S. Navy SEAL officer Erik Prince and changed its name to Xe Services LLC in 2009 after the deadly 2007 shootout in Iraq tarnished the Blackwater brand.

In 2010, Prince sold the company to two private equity firms, Forte Capital Advisors and Manhattan Strategic Ventures, who renamed the business ACADEMI and pledged to run it with better governance. A Forte managing partner had also been a co-manager of Prince’s family office.

In 2014, its financial owners took another step to distance themselves from the Blackwater brand by merging the company with another private security firm, Triple Canopy, to form Constellis Holdings. Under Apollo’s ownership, the company has expanded through further acquisitions.