Welcome, Canadian Capital7/23/2012 11:34 AM Eastern
The U.S. cable industry, for all the increased competition and agita over programming costs and youthful cord-cutting, is a proven money-maker for private investors.It has even inspired a new influx of Canadian capital, two centuries after our last war against the United Kingdom led U.S. troops to invade Canada, and vice versa.
Pension funds in Canada bankrolled much of last week’s $6.6 billion buyout of Suddenlink, led by current chairman and CEO Jerry Kent.
Suddenlink’s well-heeled investors, including Goldman Sachs, tripled their original $900-million investment, according to Kent.
Remarkably, that wasn’t the only Canadian-backed cable deal last week. Montreal-based Cogeco Cable, with about 870,000 subscribers, is buying 252,000-subscriber cable operator Atlantic Broadband for $1.36 billion in cash.
In our research, it appears to be the first direct acquisition of a U.S. cable company by a Canadian cable company since Rogers sold its U.S. cable holdings in 1988. Shaw sold its U.S. cable operations in 2003 to buyers including Suddenlink.
Cogeco Cable investors weren’t initially impressed by the acquisition, even though CEO Louis Audet said the deal would immediately add to earnings per share and cash flow when it closes later this year.
On an analyst call, Audet was asked why this deal should work out better than the last time Cogeco went international. It bought a cable company in Portugal in 2006 for $656 million, later selling it for $59 million.
Audet said ABB’s markets and products are similar to Cogeco’s in Canada, and there will be some savings in equipment and possibly programming buys.
The purchase price, he said, was “on the medium-to-low-side” of recent private-equity acquisitions of U.S. cable companies.
And ABB’s system upgrades create potential upsides within existing territories: Digital-video penetration is at 19% of homes passed versus 36% for U.S. cable companies overall, he said.
Crucially, while Canada’s cable consolidation is essentially over, there are ample opportunities to grow with “tuck-in” acquisitions around ABB service areas.
“This is a wonderful way to enter the U.S. market,” Audet said.
As longtime Canadian-based journalist James Careless told me last week: “For Canadians, the U.S. is where you go to make a living, our market being too small.”
Note to Canadians: Your dollars are welcome here.