CRIME PAYS

Paul Murphy, a general partner at Sentinel Capital, along with other executives from the New York-based firm, recently ventured behind bars to have a look at the products of Sentinel's newest portfolio company, Trussbilt.

With its February acquisition of the 80-year old steel security product manufacturer, Sentinel has effectively entered the $37 billion (€28 billion) US prison market.

“We began analysing the deal and we came to the conclusion that this is an industry undergoing some very significant growth,” says Murphy. “The prison population is increasing steadily but the growth of prison construction has lagged.”

America's prison population is projected to grow 13 percent by 2011, and subsequently require as much as $27 billion in federal and state spending to accommodate prison expansions and operations, according to research conducted by The Pew Charitable Trusts, a non-partisan, non-profit US policy analyst and advocate.

Already, Murphy points out, many states have chronically overcrowded prisons. In California, the state plagued with the most extreme case of overcapacity, 171,000 inmates are housed in facilities built for 100,000. Part of Governor Arnold Schwarzenegger's proposed prison reform package – in addition to declaring a court-contested state of emergency – includes the allocation of $10.9 billion toward facilities expansion.

The New Brighton, Maryland-headquartered Trussbilt, which already has products in all 50 states, is poised to capitalise on states' needs to build new and remodel existing prisons and detention centers.

“We have a product – a steel wall – that is replacing traditional cast in place concrete walls,” Murphy says. “It saves [facilities] money and space.”

Sentinel is one of the first US private equity firms to enter the prison-related space, Murphy says. “It's nice to be at the forefront,” he says, noting that other firms are likely to follow suit.

There's already substantial global precedent for the practice.

In a May 2004 deal worth £207.5 million, European private equity firms Electra Partners Europe and Englefield Capital purchased the UK division of Global Solutions Limited, a worldwide security firm whose products and services include running prisons and detention centres.

And more recently, in January, a newly formed black economic-empowered private equity fund – Kagiso Infrastructure Empowerment Fund – said it was eyeing prisons in South Africa and the region.

KKR UNVEILS $7.3BN US RETAIL BUYOUT
Global private equity firm Kohlberg Kravis Roberts has agreed to buy Dollar General, the publicly traded Tennessee discount retailer, for approximately $7.3 billion (€5.5 billion). Goldman Sachs and Lehman Brothers are providing the debt financing for the transaction, which is expected to close in the third quarter of this year. Under terms of the agreement, shareholders will receive $22 per share in cash, a 29 percent premium over its average closing price in the 30 days prior to the 12 March announcement. Dollar General was founded in Kentucky in 1939 and has more than 8,000 stores throughout the US. Its products include food, snacks, health and beauty aids, cleaning supplies and housewares.

FORTIS MAKES US WIND FARM INVESTMENT
The Dutch financial services provider will advance its energy conservation portfolio with a $26 million (€20 million) investment in the US-based Locust Ridge wind farm, which is owned by Bilbao-based energy company Iberdrola. Located in Mahoney, Pennsylvania, Locust Ridge is a 26 megawatt facility which will produce enough energy to supply approximately 20,000 homes. Fortis' global energy and utilities group has been active since 1997 in both Europe and the US; it has committed a total of about $2 billion to 25 wind energy projects worldwide.

MADISON DEARBORN BACKS BASEBALL CARDS DEAL
The Chicago-based firm and The Tornante Company have agreed to pay $385 million (€292 million) for The Topps Company, a manufacturer of iconic American sports trading cards and classic confections like Bazooka bubblegum. Madison Dearborn and Tornante, Michael Eisner's investment firm, agreed to pay $9.75 per share in cash; the deal is subject to shareholder and regulatory approvals, and is expected to close in the third quarter of this year. Founded in 1938, Topps recently reported third quarter earnings for 2006 reflecting an 8 percent rise in revenue compared to the same quarter in 2005, and a 462 percent rise in net operating income for the third quarter 2006 compared to the third quarter 2005.

CENTERBRIDGE CAPITAL UNVEILS FIRST DEAL
The New York-based Blackstone and Angelo Gordon spin-out has agreed to take part in the $1.2 billion (€908 million) buyout of EGL, a Houston-headquartered transportation and logistics company. Its investment – along with that of EGL's founder and senior management – salvages the previous takeprivate deal for EGL, from which General Atlantic withdrew. Under terms of the deal, EGL's outstanding shares will be purchased for $36 per share; Merrill Lynch, Pierce, Fenner & Smith and Woodbridge will provide approximately $1.2 billion in debt to finance the transaction. EGL has more than 400 offices worldwide and more than 10,000 employees.

STONE POINT CAPITAL TO BUY FORD DIVISION
The Greenwich, Connecticut-based firm has agreed to purchase the troubled automaker's service contract provider, Automobile Protection Corporation, for an undisclosed price. Dearborn, Michigan-based Ford, which makes and distributes vehicles in 200 markets worldwide, purchased the company in July 1999. Stone Point, which spun out of Marsh & McLennan's MCM Capital, invests in the global insurance and financial sectors. It currently manages about $8 billion in capital across its Trident Funds.

APAX, MORGAN STANLEY TO BUY US INSURANCE FIRM
Chicago-headquartered Hub International agreed to be acquired for $1.8 billion (€1.4 billion) by private equity firm Apax Partners and Morgan Stanley Principle Investments, a capital investment arm of the financial services firm. Senior management team members at Hub have also committed more than $65 million in equity toward the transaction, of which approximately $145 million is assumed debt. Under terms of the agreement, Hub shareholders will receive $40 per share, equivalent to a 28 percent premium. The deal is subject to regulatory approvals, and is expected to close at the end of the second quarter. Hub has more than 4,000 employees located at 220 offices in 30 US states and four Canadian provinces.

LARGEST EVER BUYOUT PROPOSED BY KKR, TPG
A consortium led by Kohlberg Kravis Roberts and Texas Pacific Group announced plans to acquire Dallas, Texas based energy utility company TXU for $45 billion (€34.3 billion). The company is led by CEO John Wilder. TXU's board gave tentative approval to the deal, which included key environmental concessions to reduce carbon emissions and squelch plans in the pipeline for eight coal-fired power plants. Though the deal was lauded by environmental groups, the firms' promise to reduce rates by 10 percent through 2008 drew criticism from consumer advocacy groups and state lawmakers. Lawmakers expressed additional concern that debt in the deal would be allocated to consumers, and introduced a bill that, if passed in time, would give the state's Public Utility Commission power to review and reject the bid.

APAX, MORGAN STANLEY TO BUY US INSURANCE FIRM
Apax Partners and Morgan Stanley Principle Investments, the capital investment arm of financial services firm Morgan Stanley, have agreed to acquire North American insurance broker Hub International in a deal worth about $1.8 billion (€1.4 billion) in late February. That value includes $145 million of assumed debt. Shareholders will receive $40 per share. The deal is expected to close in the second quarter of this year. Members of Hub's senior management team have already committed $65 million in equity for the transaction. The company's products include property, casualty, risk management, life and health insurance, as well as employee benefits, investment and wealth management.

HILCO MAKES FASHION STATEMENT
Chicago-based private equity firm Hilco Consumer Capital has partnered with multi-media company The Weinstein Company to buy global fashion house Halston from Neema Clothing for an undisclosed amount. The company will now be called Halston Company. “Halston is one of the truly iconic brands of the last centure,” Tamara Mellon, the founder and president of Jimmy Choo and a new board member of Halson, said in a statement. “I have long believed that the glamour, elegance and timeless modernity of the clothes he created are as relevant today as they were when he stood at the epicenter of the fashion world thirty years ago.” In addition to Mellon, new board members include Hilco's chief executive officer, James Salter; the chairman of Hilco's parent company, Hilco Trading, Jeffrey Hecktman; Weinstein's co-chairman, Harvey Weinstein; founder and principal shareholder of Neema Clothing, James Ammeen; and Weinstein's senior vice president of business development John Semel.

COLONY TO ACQUIRE CASINOS
Los Angeles-based private equity real estate firm Colony Capital is leading a management buyout of Las Vegasbased gaming company Station Casinos. The deal is valued at $8.8 billion (€6.8 billion). Frank Fertitta III, the company's chairman and chief executive officer, and his brother Lorenzo Fertitta, vice chairman and president, are joining Colony in the transaction. The brothers have built Station into the fifth-largest gaming company in the US. Under the terms of the agreement, Colony's acquisition vehicle, Fertitta Colony Partners, will offer $90 per share for the company, which is an increase of 10 percent from the vehicle's initial offer in December of $90 per share. Included in the consortium are Delise and Blake Sartini, the Fertitta's sister and brother-in-law. Together the four control about 25 percent of the company's stock.

‘ACTIVIST’ FUND BACKS $1.7BN BUYOUT
San Francisco-based hedge fund ValueAct Capital has agreed to buy St. Petersburg, Florida-based Catalina Marketing Corporation for about $1.7 billion (€1.3 billion) in cash. That transaction value includes the assumption of $135 million in debt. The deal is expected to close “in the next several months”, Catalina said in a statement. Shareholders will receive $32.10 per share in cash, which is a premium of about 32 percent over its closing price on 7 December 2006. ValueAct has been an investor in Catalina since 2003. Catalina focuses on consumer behaviour to develop in-store marketing materials, including incentives, loyalty programs and sampling. Jeffrey Ubben, co-founder, managing director and principal owner of ValueAct, led the deal. The former BLUM Capital Partners executive has been Catalina's director since last May.

CRESTVIEW MAKES AUTOMOTIVE INVESTMENT
New York-based private equity firm Crestview Partners bought Key Safety Systems, a developer of automotive safety systems, for an undisclosed amount in March. The company's sales for 2006 totaled more than $1 billion. Sir Nick Scheele will become chairman of the board. Scheele is the former president and chief operations officer of automotive giant Ford Motor Company, as well as the former chairman of Ford Europe. Michigan-based Key Safety Systems invented airbags and crash sensors in the 1960s. It has about 150 customers in more than 300 vehicle models and across 60 automotive brands worldwide. Its current production line includes airbags, seat belts, steering wheels and position and movement sensors. Former Goldman Sachs investment bankers Barry Volpert and Tom Murphy founded Crestview in 2004.

IVERSTONE-LED CONSORTIUM IN ENERGY DEAL
A consortium of private equity firms led by Riverstone Holdings agreed to acquire Dresser, a producer of infrastructure products for the global energy industry in March. Also taking part in the deal were First Reserve and Lehman Brothers Co-Investment Partners. Terms of the transaction were not disclosed. Founded in 1880 and based in Dallas, Dresser is led by its chairman and chief executive officer Patrick Murray. Its products include valves, actuators, meters, switches, regulators, piping products, natural gas-fueled engines and retail fuel dispensers. Clients come from the oil and gas, coal, refinery and petrochemical processing, electrical power generation, natural gas, water and waste-water utilities industries. It has manufacturing and customer service facilities in 20 countries and a sales presence in about 100 countries.