(Reuters) - Buyout firm Platinum Equity LLC is nearing a deal to acquire Securus Technologies Holdings Inc, the second-largest provider of phone services to U.S. prisoners, for close to $1.5 billion, including debt, people familiar with the matter said on Tuesday.
The deal illustrates private equity firms' strong appetite for investments in prison phone service operators because of the strong cash flow they generate from facilitating phone calls, even as they attract criticism over the rates they charge.
The acquisition would come after the U.S. Federal Communications Commission (FCC) decided earlier this year, under its new chairman, U.S. President Donald Trump appointee Ajit Pai, not to defend in court part of the caps that it placed in 2015 on the rates of prison inmate phone calls.
A deal between Securus' existing owner, ABRY Partners, and Platinum Equity could be announced in the coming weeks, the sources said, asking not to be identified because the matter is confidential.
Platinum Equity declined to comment, while Securus and ABRY Partners did not respond to requests for comment.
Securus, based in Dallas, provides phone services to more than 1.2 million inmates across North America. In exchange it charges prisoners and the families hefty fees, which it justifies by pointing to the costs of the technology to keep the calls secure, such as call monitoring and voice recognition. It also pays a commission to the prison operators.
Following controversy over the prices Securus and its larger peer, Global Tel*Link Corp, charge for phone calls to prisoners, which end up costing many of their families hundreds of dollars every month, the FCC in 2015 placed a cap on the rates.
Interstate phone calls to contact prisoners are now capped at 21 cents per minute for debit and prepaid calls, and 25 cents per minute for collect calls.
Caps for intrastate calls, however, are currently under a court stay, so 15-minute phone calls in many U.S. states can cost between $10 and $20. The FCC told the U.S. Court of Appeals in Washington, D.C. in January that it would drop its defense of the intrastate phone call rate caps, leaving prisoner rights advocates to defend them on their own.
ABRY Partners acquired a majority stake in Securus in 2013 from another buyout firm, Castle Harlan Inc, in a $640 million deal. Global Tel*Link is also owned by a private equity firm, American Securities LLC.
Reporting by Greg Roumeliotis in New York; Additional reporting by Jonathan Stempel in New York; Editing by Steve Orlofsky