Macquarie Capital media analyst Amy Yong predicted a strong round of consolidation as the weather heats up, as new IPOs from WideOpenWest and Altice USA provide new currencies for deals.
“Get ready for a hotbed of activity in the space, brought on by the back-to-back debut of WOW and Altice [USA] on the NYSE and cable-hungry Charter and (maybe) Verizon,” Yong wrote in a note to clients. “We expect Charter, along with overbuilder WOW, to have the most to gain as they drive the next round of consolidation.”
Charter started the consolidation frenzy in 2013 with its relentless pursuit of Time Warner Cable. Despite a 14-month sideline – when Comcast stepped in with a bid for TWC that was accepted by the company but abandoned after it became apparent regulatory approval would not come – Charter ended up with the prize, purchasing TWC and Bright House Networks in two deals with a combined value of more than $90 billion. That deal was followed by the entrance of European telecom company Altice into the U.S. market, purchasing Suddenlink Communications in 2015 for $9.1 billion and following that up with the $17.7 billion purchase of Cablevision Systems last year. In the meantime, several smaller deals were completed – TPG Capital spent $2.25 billion on RCN and Grande Communications in August, and followed up that deal with an agreement to buy Wave Broadband for $2.36 billion in May.
In April, Liberty Interactive announced it would purchase Alaskan telecom and cable operator GCI for $1.1 billion.
WOW, which received a $125 million cash infusion from Crestview Partners in 2015, went public in May at $17 per share, raising about $310 million. Altice USA, the domestic cable arm of Altice N.V., went public on June 22 at $30 per share and is after a period of focusing on organic growth is expected to be aggressive on the deal front.
In her note, Yong wrote that after Comcast and Charter’s one-year wireless partnership expires (at about mid-2018) a “cable-wireless combo is next.” She added that at the same time a T-Mobile/Sprint merger could occur and possible M&A combinations that year could include “Comcast/Charter/Altice for Verizon/T-Mobile/Sprint.”
On the cable side, possible targets include Cox Communications, Cable One, Mediacom Communications and Frontier Communications, according to Yong. Altice has made no bones about its desire to won Cox – even as Cox has repeatedly insisted it is not for sale. Earlier this week the NY Post reported that Charter was also interested in a Cox deal, although no formal talks have started. Yong seems most encouraged by a possible Cox/Charter combination, adding in her report that it would boost Charter’s overall broadband presence to 28.5 million customers, larger than Comcast.
“Charter’s aggressive approach to leverage (currently at 4-4.5x) combined with management’s proven track record puts them in the driver’s seat for consolidation,” Yong wrote.
She added that with its new deal currency Altice could acquire smaller reginal players and double its size (currently at 4.9 million total customers) in a sort period. WOW also could be “opportunistic,” she wrote, but will probably focus on reducing leverage in the next 12-18 months.