Sentinel Locks Down Prison Products Co.

Target: Trussbilt LLC

Price: Less than $50 million

Sponsor: Sentinel Capital Partners

Sellers: Management and private investors

Financial Advisor: Sellers: Bayview Capital Group

Legal Counsel: Sponsor: Kirkland & Ellis LLP; Sellers: Winthrop & Weinstine P.A.

Research on the U.S. prison population suggests that Sentinel Capital Partners has made a smart bet with its investment in Trussbilt LLC, a maker of security products used in the construction of jails and prisons.

One in every 178 U.S. residents—more than 1.7 million men and women—will be living in a prison by 2011, according to a report released last month by The Pew Charitable Trusts. That’s nearly 200,000 inmates more than there were at the close of 2006. Meanwhile, with overcrowding already a big problem, states are likely to spend billions of dollars on the construction of new prisons.

“No matter what your personal views are, nobody wants to see prison overcrowding,” Sentinel Partner Paul Murphy told Buyouts. “By helping build new facilities with the highest quality materials, we can help ensure the safe operation and cleanliness” of the next generation of jails and prisons.

The enterprise value of the deal weighed in at less than $50 million, included senior notes given to Trussbilt lender M&I Bank, said Murphy.

Equity for the deal came from Sentinel Capital Partners III LP, a $319 million fund, vintage 2005. Sellers included the company’s management and a number of private investors, all of whom still have minority stakes in the business.

Headquartered in New Brighton, Minn., Trussbilt made a name for itself in the corrections industry as a manufacturer of inexpensive security products like doors and door frames. Rather than constructing solid metal products, the 80-year-old company manufactures steel products that, if bisected, resemble corrugated cardboard—with two steel face sheets on the sides and a steel truss in the center.

Recently, the company developed an interior wall, using the same hollow-metal technique, that’s used to separate prison cells. The TrussWall, as it’s marketed, is thinner, less expensive, and easier to install than the old standby, concrete walls.

“While there’s every indication that spending is going to increase in [the jail and prison construction industry], it’s not an area where people want to put a lot of money,” said Eric Bommer, a partner at Sentinel. “They’d rather invest in schools and social programs.”

Susan Urahn, managing director of state policy initiatives at The Pew Charitable Trusts, agreed: “As states continue to struggle with tight budgets and competing priorities among health, education and safety, they are beginning to question whether huge additional investments in prisons are the most effective and economical way of combating crime.” She added, “The challenge for state policy makers is to ensure that taxpayers are getting a strong return on their investment in corrections: safer communities, efficient use of public dollars, and ex-offenders who become productive, law-abiding members of society.”

Sentinel is not the first buyout shop to put its money into prison-related deals. In 2004 and 2005 H.I.G. Capital acquired T-Netix and Evercom Holdings Inc., respectively, for more than a combined $170 million. The two companies, which subsequently have been merged, provide telecom products and services to correctional facilities. Also in 2004, Gores Technology Group acquired a company that provides similar services, Global Tel*Link, for an undisclosed amount from Schlumberger Ltd.

The Trussbilt opportunity was presented to Sentinel in the form of a “limited auction” by Wayzata, Minn.-based investment bank Bayview Capital Group, Murphy said. The firm plans to keep an opportunistic eye open for add-on acquisitions.—A.N.