GEO Group (GEO) to Acquire LCS Facilities in $312M Deal

GEO Group (NYSE: GEO) announced the signing of a definitive agreement to acquire eight correctional and detention facilities (the “LCS Facilities”) totaling more than 6,500 beds from LCS Corrections Services, Inc., a privately-held owner and operator of correctional and detention facilities in the United States, and its affiliates (collectively, "LCS"). The LCS transaction will be an asset purchase.

Pursuant to the terms of the definitive agreement, GEO will acquire the LCS Facilities for approximately $312 million, or approximately $48,000 per bed, in an all cash transaction, excluding transaction related expenses. Additionally, LCS has the opportunity to receive an additional payment if the Facilities exceed certain performance targets after the closing over a period of approximately 18 months (the "Earnout Payment"). The aggregate amount of the purchase price to be paid at closing and the Earnout Payment, if achieved, will not exceed $350 million. LCS will use the proceeds to repay approximately $302 million in outstanding net debt. GEO will not assume any debt as a result of the transaction. GEO will finance the acquisition of the LCS Facilities with borrowings under its $700 million Revolving Credit Facility. Following the LCS transaction, GEO will have approximately $260 million in available borrowing capacity under its Revolving Credit Facility. The transaction is expected to close by the end of February 2015, subject to the fulfillment of customary closing conditions.

LCS Asset Portfolio

LCS owns and operates eight correctional and detention facilities located in Louisiana, Texas, and Alabama, totaling more than 6,500 beds. The LCS Facilities, which currently house offenders on behalf of federal, state, and local correctional and detention agencies, have been historically underutilized with current average occupancy rates of approximately 50 percent. More than two-thirds of revenues for LCS are generated under contracts with Federal correctional and detention agencies. Following the acquisition, GEO will own and/or manage 106 facilities totaling approximately 85,500 correctional, detention, and community reentry beds worldwide with a growing workforce of approximately 19,000 professionals.

Financial Impact

On an annualized basis, the acquisition is expected to immediately increase GEO’s revenues by approximately $75-80 million and be initially $0.10-$0.12 accretive to Adjusted Funds from Operations (“AFFO”) per share, excluding one-time transaction-related expenses. Additionally, GEO expects to achieve substantial improvements in the utilization of the LCS Facilities which is expected to create additional accretion to AFFO per share over the next 12-24 months.

George C. Zoley, Chairman and Chief Executive Officer of GEO, said: “This important transaction represents a compelling strategic fit for our company. The recently announced reactivation of a significant portion of our beds in inventory is indicative of the growing need for beds around the country, and this important strategic transaction will further position GEO to meet the demand for correctional and detention bed space in the United States. We are enthusiastic to have the opportunity to create shareholder value with this important acquisition as we have done with several previous GEO acquisitions.

“GEO is the largest provider of correctional and detention bed space to the Federal government, and in the last 18 months we have activated contracts or have announced new contract awards for approximately 5,000 federal beds, including recent announcements for the reactivation of our company-owned, 1,940-bed Great Plains Correctional Facility under a new ten-year contract with the Federal Bureau of Prisons in Hinton, Oklahoma and a 626-bed expansion of our company-owned Karnes County Residential Center under an expanded public-private partnership with U.S. Immigration and Customs Enforcement. The valuable assets we are acquiring from LCS already have existing contracts primarily with federal correctional and detention agencies; however they have been historically underutilized. GEO has a three decade long partnership with the Federal government and a successful track record of integrating acquired correctional and detention facilities. Consistent with our prior acquisitions, we expect to achieve substantial improvements in the utilization of these important assets to drive material revenue and earnings growth and create significant value for our shareholders,” Zoley added.

Financial and Legal Advisors

J.P. Morgan Securities LLC provided the GEO Board of Directors with a fairness opinion. Akerman LLP served as GEO’s legal advisor. Shutts & Bowen LLP served as LCS’s legal advisor.

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