Atlantic Broadband to Buy Metrocast for $1.4B

Deal expected to close in January

About two years after purchasing MetroCast’s cable system in Connecticut, Atlantic Broadband has agreed to buy the entire company from parent Harron Communications in a deal valued at $1.4 billion.

Atlantic Broadband parent Cogeco Communications said it will finance the deal through a combination of bank debt and an equity investment by Canadian institutional investor Caisse de dépôt et placement du Québec (“CDPQ”).

MetroCast passes about 236,000 homes in New Hampshire, Maine, Pennsylvania, Maryland and Virginia and serves about 120,000 high-speed Internet, 76,000 video and 37,000 telephony customers. Its 2017 revenue is expected to be about $230 million and its adjusted cash flow $121 million.

“The acquisition of the MetroCast cable systems allows Atlantic Broadband to increase its presence in the growing and lucrative U.S. cable market,” Cogeco CEO Louis Audet said in a statement. “The MetroCast systems are a strong strategic fit for Atlantic Broadband. With this acquisition, we are increasing our customer base in attractive markets adjacent to the ones we currently serve. Under the guidance of Atlantic Broadband’s best-in-class management team, we are in a unique position to grow our customer base, revenues and profits.”

Cogeco purchased Atlantic Broadband in 2012 and had been expected to go on a U.S. buying spree that never materialized. It purchased MetroCast’s Connecticut systems in 2015 for about $200 million, but so far has been relatively silent on the deal front. That could change with this deal.

“We are delighted to be partnering with CDPQ in this transaction, providing us with a long-term partner with a similar vision. The partnership will enable us to pursue our growth objectives in the U.S. cable market in the future. CDPQ’s investment also highlights the value of these assets and our U.S. business, as well as the growth opportunity embedded in these businesses,” Audet continued in his statement.

The deal will increase Atlantic Broadband’s personal service unit (PSU) total, a mix of video, broadband and telephony customers, from about 602,000 to 835,000, Cogeco said in a press release announcing the deal.

“After our highly successful acquisition and integration of the MetroCast Connecticut system almost two years ago, we understand first-hand the sizable residential and business growth potential that we can expect with the remaining MetroCast systems. We have a proven integration plan and a track record of successfully migrating our platforms and service offerings,” said Atlantic Broadband CEO Richard Shea in a statement. “These well-maintained systems deliver attractive demographics which make them ideal for our suite of residential video, Internet and telephony services as well as our business services. We look forward to welcoming MetroCast customers and employees to Atlantic Broadband.”

CDPQ is an institutional investor that primarily manages funds for pension and insurance plans. As of Dec. 31 it had about $270.7 billion in assets and invested mainly in real estate, infrastructure and private equity.

“As a long-term investor, CDPQ seeks opportunities to invest in businesses that are resilient to economic cycles, are led by experienced teams and have the ability to sustain growth over time. Cogeco is a good example of this, and we look forward to investing by its side as it pursues its North American expansion,” says CDPQ executive vice president Christian Dubé in a statement.

According to the deal, CDPQ will contribute about $315 million for a 21% equity stake in Atlantic Broadband’s holding company. The balance of the purchase price and transaction costs will be financed through a committed secured debt financing provided by two banks at Atlantic Broadband. CDPQ’s equity interest represents an implied multiple of about 8.8x times estimated 2017 cash flow at Atlantic Broadband pro forma for the acquisition of MetroCast, and adjusted for the present value of various tax benefits. The transaction is subject to regulatory approvals along with other customary closing conditions and is expected to close in January 2018.

Credit Suisse is acting as exclusive financial advisor to Cogeco Communications Inc. Credit Suisse and BofA Merrill Lynch are providing the committed debt financing for the transaction. Stikeman Elliott S.E.N.C.R.L., s.r.l. and Kirkland & Ellis LLP are acting as legal advisors to Cogeco Communications Inc. Morgan, Lewis & Bockius LLP is acting as legal advisor to Harron Communications, L.P. CIBC Capital Markets and Osler, Hoskin & Harcourt LLP are acting as advisors to CDPQ.

Atlantic Broadband is the ninth largest cable operator in the United States, based on the number of television service customers served. The company currently provides video, Internet and telephony services to approximately 239,000 television service customers located in five operating regions: western Pennsylvania, Miami Beach, Maryland/Delaware, Aiken, S.C. and eastern Connecticut. Atlantic Broadband is headquartered in Quincy, Mass.