Sunday, March 20, 2011

Carlyle Group's Red Light District

AZCentral reported on traffic cameras makers, whose products are used to detect red light runners and speeders.  The Carlyle Group, a private equity underwriter (PEU), will buy industry leader Redflex:

Redflex Holdings Ltd., an Australian company with its North American headquarters in Phoenix, also is growing fast. Three-quarters of its business is in the U.S., and it serves Phoenix-area communities including Chandler. Redflex reported $136 million in revenue last year, up about 4 percent from 2009.

Australia's Macquarie Group Ltd. and U.S. finance company the Carlyle Group have proposed buying the company for about $300 million, apparently confident that despite some backlash, the industry is likely to grow.
Redflex's board endorsed the bid.  It is complying with requests, including the provision of audit working papers. 

The first half of the year saw revenue rise to $71.6 million, an increase of 10%.  The Half Year report went on to say:

Redflex continues to support “grassroots” efforts in several states, including Illinois, Ohio, New Jersey, Tennessee, Virginia, Arizona and Texas with other states like Louisiana and Washington to join in coming months.

Redflex continues to lead the industry in proactively seeking to enable and improve the statutory basis for road safety systems as well as defend against adverse developments. During 2010, all efforts to limit or ban Redflex’s programs through state legislation were defeated. Redflex is supporting the filing of bills in many current markets and in certain new states seeking enablement and enhancements for red light and speed traffic safety programs. The 2011 legislative season has started with a number of negative bills filed in Arizona, Washington, Virginia, Texas, and California.
Do I detect a new statewide revenue source for Texas?  Senator Robert Duncan is looking for $5 billion for the coming biennium.  Will Carlyle affiliates continue their cozy relationship with Governor Rick Perry?  Macquarie Group specializes in toll roads, another possible revenue generator for Texas.  Keep an eye on Senator Duncan's committee.  What will it set up the PEU boys?

Update:  Carlyle's due diligence team may want to brush up on apps.

Update 5-5-11:  Carlyle upped its offer to $2.75 a share for Redflex.

Update 5-8-11: Last minute resistance from major shareholders could put the brakes on Carlyle's bid for Redflex.

Update 7-7-11:  Municipalities counting on revenue from red light cameras are highly disappointed.

Update 3-3-13:  Redflex wrestles with corruption charges, i.e. bribing Chicago officials.  Based on this behavior, Redflex would've had good company in The Carlyle Group family, alongside bribers Synagro Technologies and ARINC.  Carlyle itself has a history of bribes and settling bribe related cases.

Update 8-15-14:  Redflex was deep into bribing officials when Carlyle made its play for the company.  Xerox now has the Chicago red light camera franchise.