Cable One said it has agreed to purchase mid-sized cable operator NewWave Communications from private equity group GTCR for $735 million in cash. The deal is expected to close in the second quarter of this year.
Buying NewWave, headquartered in Sikeston, Mo., will add about 214,000 residential primary service units (PSUs, a measure of video, voice and broadband customers) in Arkansas, Illinois, Indiana, Louisiana, Mississippi, Missouri and Texas to Cable One. Phoenix-based Cable One had 315,589 residential video customers, 466,668 residential broadband customers and 100,510 residential telephony customers at the end of the third quarter.
“We are excited about our acquisition of NewWave, which operates in non-urban markets similar to ours and has significant high-speed data and business services opportunities that we are well-positioned to execute on,” said Cable One CEO Julie Laulis in a statement. “The transaction represents an attractive opportunity to utilize Cable One’s existing balance sheet capacity for a value-enhancing acquisition.”
NewWave was formed by one of cable’s pioneering families – the Gleasons – after the demise of its Galaxy Communications in 2001. The Gleasons built NewWave to about 90,000 subscribers before selling it in 2013 to Rural Broadband Investments, then a new entrant to the space backed by GTCR. Terms of that deal were never disclosed but sources in the financial community at the time said it could have sold for as much as $300 million. That would mean with the recent sale, GTCR more than doubled its money.
The 2013 deal with RBI was the second for the Gleasons – in 2011 they sold about 70,000 subscribers to Time Warner Cable for $265 million. And the family wasn’t out of the business just yet. In 2013 former NewWave president Jim Gleason formed Vast Broadband, a provider of video, voice and data service to about 50,000 customers in South Dakota, northwestern Iowa and southwestern Minnesota, with longtime backer Pamlico Capital.
With the addition of NewWave, the combined company will serve more than 1.2 million PSUs. NewWave has fully-upgraded systems and a high capacity plant, including more than 10,500 network plant miles and over 3,700 fiber miles. That seems to fit in with Cable One’s broadband-centric strategy, which has favored high-speed Internet customer growth over video subscriber gains.
“It has been my great pleasure to lead the NewWave team these past several years, and I am proud of the hard work of our employees and their many accomplishments,” said NewWave CEO Phil Spencer in a statement. “Over the last four years we have invested significant capital to upgrade our networks, roll out 100 Mbps internet service and enhance our business services. We are excited to become a part of the Cable One team. We both share a common vision and commitment to bring high-quality products and services to the communities we serve.”
The deal is valued at about 11.5 times NewWave’s last quarter annualized (LQA) cash flow of $64 million for Q4 2016, before cost synergies and 8.4 times after cost savings of about $24 million are realized and 6.6 times after estimated tax benefits, according to Cable One.
Cable One estimates that the combined company would have annual revenue of more than $1 billion and cash flow margins of about 41% before cost synergies. The purchase is expected to provide estimated tax benefits of about $152 million on a present value basis.
Cable One said it plans to finance the deal with $650 million of senior secured loans and cash on hand.
J.P. Morgan acted as financial advisor, and Cravath, Swaine & Moore LLP acted as legal advisor to Cable One on the transaction. SunTrust Robinson Humphrey, Waller Capital and Garrett M. Baker Advisors served as financial advisors to RBI and GTCR. Kirkland & Ellis LLP served as legal counsel and PriceWaterhouseCoopers served as accounting advisor to RBI and GTCR.