Corrections Corp and others in private corrections industry could consolidate in light of government actions, sources say09 October 2006

Corrections Corp. of America, the owner and operator of private correctional facilities, could very soon participate in industry consolidation, stemming from recent and anticipated governmental actions, several industry sources said.
The NYSE-listed and Tennessee-based company that is involved in the operations of private correctional facilities, may likely expand as restrictions on housing state convicts out-of-state are lifted, the sources said.
Corrections Corp. the largest private corrections facilities provider in the US, declined comment, but a source close to the situation said the company may likely be looking to expand through acquisitions, given the recent government activity.
The first of the states to lift restrictions on housing prisoners out of state, was the State of California, whose governor yesterday issued an order allowing the housing of prisoners outside that state to ease severe overcrowding.
That condition is only expected to get worse, as studies predict, and not just in California, whose prison population is expected to increase significantly by 2011.
Almost half of the state’s prison systems are operating at 100% capacity, and some are under court orders to ease overcrowding.
As a result, other states are expected to follow California’s lead in allowing for the housing of prisoners out of state, according to industry and government sources.
And that, the industry sources say, is going to lead to an increase in the use of private correctional facilities and inevitably lead to consolidation in that industry.
“You aren’t going to ease state prison overcrowding by moving prisoners to other overcrowded state facilities, no state will take them,” said a government source, adding that California corrections officials said they would be using private corrections facilities to ease overcrowding there.
“Once you can take a prisoner from a state and house him where it is most cost-effective, and the border restrictions are removed, the efficiencies are going to demand that there be consolidation,” said an industry source.
“To be an effective alternative, you need to be able to do what the states currently do not do, and what the border restrictions up until now have kept the privates from doing--combine operations in the most efficient ways possible,” said another industry source.
Corrections Corp. operates 63 private correctional facilities, 39 of which it owns, in 19 states and the District of Columbia. Approximately 60,000 prisoners are housed in its units, including in juvenile detention facilities.
A very likely potential merger candidate for Corrections Corp. according to industry sources, is Oklahoma-based and OTC-listed Avalon Correctional Services. Avalon owns and operates facilities in areas where Corrections Corp. does not, and in a few areas where, according to the sources, they would be complementary.
Avalon owns and operates several facilities in Texas, where Corrections Corp., operates facilities, and in locations nearby in bordering Oklahoma, and in Colorado.
Another potential merger candidate identified by the sources is NYSE-listed and Texas-based Cornell Companies, which designs, builds, and manages correctional facilities.
It operates 79 facilities in 18 states and the District of Columbia, and its facilities tend to be smaller than those of Corrections Corp., and its population capacity is approximately 17,500.
“Those existing facilities could easily be expanded, and Cornell could provide key expertise in the designing and building of correctional facilities,” one of the industry source said.
Another likely potential merger candidate is NYSE-listed and Florida-based The GEO Group, which operates 41 facilities with a population of approximately 36,000, in the US, Canada, Australis, New Zealand, and South Africa, the sources said.
It also could provide design and building expertise to Corrections Corp., having within the past month agreed to purchase Centracore Properties, whose speciality is in acquiring and designing correctional facilities.
That NYSE-listed company within the last year changed its name from its original name of Correctional Properties Trust.
Corrections Corp's market capitalization is in excess of USD 2.8bn.

by Mark Eissman

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