Deal Prices Hold Fast

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Knology is in talks to acquire Lawrence,
Kan.-based Sunflower Broadband in a deal that provides
further evidence that private cable valuations are
holding fast.
Sources in the financial community said Knology is close
to a deal to acquire Sunflower — which has about 30,000 subscribers
in Lawrence, Eudora and Douglas counties in Kansas
— for between 8 times and 8.5 times annual cash flow of $15
million to $20 million. That would suggest the ultimate price of
the systems to be between $120 million and $170 million.

Sunflower has been on the block for the past few
months, sources in the investment-banking community
said last week. A handful of companies looked at the systems,
but sources said Knology quickly rose to the front.

“They are certainly the lead horse,” said one executive
in the cable banking community. Sunflower is owned by
The World Co., the Lawrence, Kan.-based publisher of the
Lawrence-Journal World newspaper.

“The World Company is complimented that a number
of companies have expressed interest in its Sunflower division
over the years,” chairman Dolph C. Simons, Jr., said
in a statement on July 29 after Multichannel News reported
the prospective sale. “This continues today. There is no
definitive agreement concerning Sunflower with any company
at this time.”

Publicly-traded Knology, with about 600,000 residential
customers in Florida, South Dakota, Georgia, South Carolina,
Alabama and Tennessee, has been in the middle of
an aggressive expansion plan. The company launched its
“edge out” program last year, extending cable and broadband
service to the fringes of its existing franchise areas.

It has also been acquisitive. In 2007 it bought Sioux
Falls, S.D.-based PrairieWave Holdings, with about 57,000
customers, for $255 million, and Dothan, Ala.-based
Graceba Total Communications for about $75 million.

Knology was said to be among the early bidders for
Bresnan Communications, which agreed to be purchased
by Cablevision Systems in June for $1.4 billion.

Miller Tabak media analyst David Joyce said Sunfl ower
makes sense for Knology because it has strong assets
in smaller towns that insulate the business model from
telco competition.

The price is an indication private cable valuations are
holding steady. The last several cable deals attracted multiples
of between 5.5 times and 10.7 times.

Wave Broadband recently kicked off an auction to replace
majority backer Sandler Capital, and that prospect is drawing
strong interest, according to several sources. Broadstripe
Communications, which filed for Chapter 11 bankruptcy
protection last year, has hired two investment bankers in the
last several months — DH Capital and El Molino Advisors —
to investigate selling its 93,000 subscribers.