H.I.G. Collects On Phone Bills… In Jail –

In today’s cellular age, which features pocket-sized telephones that play live-action clips of sports games and the latest movie releases, it can take a lot of brain power to imagine that for some, placing a single outbound telephone call is the paramount privilege of their lives. Such is life in prison, however, where an inmate’s voice may be the only part of him that ever transcends the brick and barbed wire.

But just because the phones in prison are often bolted to a cinderblock wall, that’s not to say that they, too, don’t offer the latest of what technology has to offer. Today’s telephone systems in correctional institutions come complete with voice recognition access codes, voice activated pre-approved call lists, pinhole cameras and fingerprint identification. And just like the other areas of telecom, the corrections communications marketplace is one that is seeing growth and consolidation by private equity pros.

Miami, Fla.-based H.I.G. Capital is the latest buyout shop to complete a deal in this little slice of telecom with its recent acquisition of Evercom Holdings Inc., a provider of specialized telecommunications products and services to correctional facilities. Brian Schwartz, a managing director at H.I.G., told Buyouts that the transaction’s value is north of $100 million.

Financing for this deal included a high yield issuance from Credit Suisse First Boston, senior debt from ING and sub debt from D.E. Shaw Group. For the equity portion of the deal, the firm tapped H.I.G. Capital Partners III LP, a vintage 2002 vehicle that raised a total of $450 million.

Evercom, headquartered in Irving, Texas, provides collect and prepaid phone service to inmates in more than 2,000 city, county, state and private correctional facilities across the U.S. The nine-year-old company also handles billing and collection services for other providers of inmate phone services and offers software for jail and facilities management, records management and computer-aided dispatch services.

Evercom will be merged with T-Netix, an existing H.I.G. portfolio company in the corrections communications space, which was acquired last year in a $69.5 million going-private transaction that included $27 million in sub-debt financing from American Capital Strategies Ltd. The combined company will be become a subsidiary of Securus Technologies Inc., a newly formed entity, which will have revenues in excess of $350 million.

Schwartz said that prior to both acquisitions, Evercom and T-Netix were the number-one and number-two independent providers of corrections communications services in North America, respectively.

“We now touch about 3,300 out of 4,500 corrections facilities in the U.S. and Canada. Being in contact with about 75% of the market puts us in a favorable position when you consider the growing inmate population plus the prospect of [existing customers] adding upgrades and additional services,” Schwartz said.

Since 1993 the inmate population in U.S. facilities has grown at a rate of about 4.5% per year, he added.

H.I.G. has been watching the corrections communications space and Evercom in particular since 2001, when members of the firms were introduced to Dick Falcone, Evercom’s president and CEO. The firm’s connection with Falcone, who is now CEO of Securus, was used to source and acquire T-Netix. Rick Cree, the CEO of T-Netix, was named chairman of Securus.

To grow the new platform, H.I.G. will focus on expanding Securus’ services to other areas in the corrections space. “This is really an industry-as far as telecom is concerned-that is less about the telecom and more about transaction processing,” Schwartz said. “Securus is already positioned to expand into areas that require the processing of large transactions,” such as commissary systems and email.

Currently, inmates in North America are not permitted access to email, but if that changes, the new amenity would require “aggressive monitoring,” a service that Securus would jump at providing, Schwartz said.