This report examines whether the privatisation of the defence technology business QinetiQ was a good deal for the taxpayer. QinetiQ was created out of the Defence Evaluation and Research Agency (DERA) in 2001 specifically to allow the majority of DERA's activities to be privatised. In 2003 a minority stake in the business (33.8 per cent) was sold to a strategic partner, Carlyle Group, and 3.7 per cent was sold to management and employees. Carlyle and the Ministry of Defence (MoD) used share incentives to align their interests and to incentivise management to increase the value of the business. The MoD did not want management to make very large returns purely as a result of the privatisation, but it accepted that management could make significant sums of money if this was linked to the growth in the value of the business. The structure of the deal gave QinetiQ an equity value of £125 million. This increased to £1.3 billion between the 2003 sale and the 2006 stock market flotation, due to improved business performance, expansion into the US defence market and the UK civil market. The value of the shares of the top ten managers at flotation was £107 million from an initial investment of £537,250. The National Audit Office (NAO) believes the returns in this case exceeded what was necessary to incentivise management to deliver growth in the value of the business. Although privatisation has realised some £800 million for the taxpayer, net of costs, NAO considers that more money could have been raised from the sale, but it praises the business strategy that increased the value of QinetiQ and maximised the proceeds at flotation.