The potential sale of Bresnan
Communications assets is moving forward,
with initial bids emerging in what many executives
in the cable financial community
believe will be a popular auction.
And though bidding is expected to be
strong, some of those executives fear that
Bresnan’s solid operating history and the
fear that Comcast — which owns 30% of the
MSO — may eventually exit, will pressure
deal multiples downward.
Sources familiar with the auction said preliminary
bids were still coming in last Friday
afternoon and that participation has
“They are getting a lot of bids,” said one member
of the financial community familiar with
the process, which is still in its first round.
While Bresnan bids were still coming in at
press time, it is expected that participants would
include major private equity players like Blackstone
Group and Bain Capital, as well as smaller
strategic players like Suddenlink Communications.
Comcast itself could bid on the rest of the
company it didn’t already own, but that is considered
to be highly unlikely. The bidders’ identities
were not known at press time.
Bresnan’s largest owner, Providence
Equity Partners, began investigating
its options regarding the cable assets
last month and, according to sources, hired
UBS and Credit Suisse as financial advisers.
The two investment banks have also
stepped up to offer debt financing of nearly
$1 billion to potential bidders that would
put the price of the deal, including equity,
well into the $1 billion territory.
Bresnan has about 320,000 subscribers
in Montana, Wyoming, Utah and Colorado.
The company has been a pioneer in offering
broadband and telephony service to
its mostly rural communities, which has
generated strong cash flow — estimated to
be about $160 million in 2009. But it is that
strong performance that may work against
the company in seeking a buyer.
“There is no upside [left],” said one cable
investment banker that asked not to be named.
“They’ve done such a good job managing it;
it’s already a really good asset. The question is,
how much more can you do with it?”
For example, according to the latest data
available, Bresnan in 2008 had high-speeddata
penetration of more than 31%, phone
penetration of 18% and 8,000 commercial
customers. That, some observers said,
doesn’t leave much room for growth.
In addition, some people in the financial
community added there is a risk that some
bids may come in low because potential buyers
cannot count on Comcast maintaining its
30% position in the company indefinitely.
The Comcast relationship is key, mostly to financial players who have no other cable assets,
because its arrangement with the nation’s largest
MSO provides Bresnan with programming
discounts. Without those discounts, Bresnan’s
programming costs would skyrocket, affecting
future cash-flow generation.
Comcast has given no indication that it
would exit the Bresnan partnership, but it
also is logical to assume that the company
may want to exit sometime in the future.
And it is that uncertainty that could affect
“You can’t model in to this valuation being
able to exit and sell the Comcast programming
discounts,” the cable finance executive said.
“Eventually, you are going to lose them.”
Comcast declined to comment.
While some executives in the cable community
said the Comcast relationship and
Bresnan’s operating history could keep deal
multiples down, others pointed to the UBS and
Credit Suisse staple-financing commitment
(which is about 6 times Bresnan’s 2009 cash
flow) as one factor that could push them up.
According to another cable executive who
asked not to be named, the 6 times staple
financing, coupled with the standard 30%
equity commitment in deals of this type,
would easily push sale multiples to about 9
times. That’s well above public-market valuations
of 5.5 times to 7.3 times and in line
with private-market targets of 8 times to 10
times cash flow.
As far as the Comcast commitment,
they point to past deals where the
loss of such a relationship was not
a deal killer. Carlyle Group paid about $2
billion in 2005 to take Insight Communications
private, fully aware that Comcast
intended to sever its 50-50 partnership (it
did in 2007). Earlier this month, Crestview
Partners and Mid Ocean Partners paid an
estimated $400 million (8 times cash flow)
for a 42% equity interest in Insight.
Another factor that might boost multiples
is that Bresnan has little or no competition
from telcos, which could lead to greater
growth potential in data services.
And any talk about lower-than-expected
pricing could be posturing on the part of potential
bidders, said one cable executive who
asked not to be named.
“They are all going to try to pay as little as
they can,” said one cable executive of potential