San Marcos, Texas-based overbuilder Grande Communications made it official last Friday, saying it has hired New York-based cable investment banker Waller Capital to advise it in “exploring all of its strategic alternatives to enhance shareholder value.”
As first reported by Multichannel News last Thursday, those options could include a sale of the overbuilder, or video provider that competes against franchised incumbents.
In the press release, Grande said its board of directors will work with its management team and legal and financial advisers to evaluate all available alternatives. Grande added that “there can be no assurance that the exploration of strategic alternatives will result in the company approving any strategic alternative.”
Grande has about 145,000 residential and business subscribers and provides voice, video and high-speed Internet services to customers in several communities in Texas, including Austin, San Antonio, Corpus Christi, Waco, Midland, Odessa and parts of Dallas. It competes against a handful of incumbent cable operators in those markets including Suddenlink Communications (in Midland and Austin), Time Warner Cable (in Austin, San Antonio, Corpus Christi and Waco), Cable One (in Odessa) and Comcast (in Dallas).
According to executives in the cable and financial communities, Grande could fetch a price of more than $500 million, based on past deals.
Apparently fueling Grande's decision to test the deal waters was the sale of a similar overbuilder — Everest Broadband — last year. Everest, which operates in suburban Kansas City and has about 37,500 subscribers, agreed to be purchased by Sacramento, Calif.-based SureWest Communications in December. The purchase price for Everest — $173 million — translates into $4,600 per subscriber, an almost unheard of price for an overbuilder.
Based on that valuation, Grande could be worth more than $600 million, although executives in the cable financial community said the company would likely fetch a price in the $500 million range.
According to Grande's financial statements — it is privately held, but has public debt — the overbuilder had about 98,000 video customers, 114,000 telephone customers and 93,000 high-speed Internet subscribers as of Sept. 30. Revenue for the third quarter was $49.3 million while cash flow was $8.9 million. For the nine months ended Sept. 30, Grande reported revenue of $147.6 million and cash flow of $27.7 million.
Grande has been growing consistently. Revenue rose from $96.1 million in 2001 to $189.9 million in 2006; cash flow rose from a negative $811,000 in 2001 to positive $31.1 million in 2006.
According to executives in the cable financial community, in addition to its direct competitors, other possible bidders for Grande could include overbuilders Knology and WideOpenWest and St. Louis-based cable operator Broadstripe.