After months of negotiating and a handful of bidders that have come and gone, the auction for Insight Communications continues to be in flux, with the last two strategic bidders dropping out of the running and chances that the mid-market MSO will find a buyer at it's hoped-for price becoming increasingly dim.
Insight went on the block in March, after the company hired UBS AG and Bank of America Merrill Lynch to serve as advisers. The New York City-based cable operator, with about 693,000 customers in Indiana, Ohio, Kentucky and Illinois, initially hoped to fetch between $3.5 billion and $4 billion.
According to sources familiar with the matter, Mediacom Communications and WideOpenWest, which had made it through to the last round of bidding, have dropped out.
The remaining last-round bidder, Cablevision Systems, apparently did not make a final offer.
According to several people familiar with the matter, the formal auction process has ended with no buyer selected.
That leaves Insight's owners - The Carlyle Group, MidOcean Partners and Crestview Partners - in a bit of a quandary. Do they shut down the auction and continue to run the MSO as before, or do they try to attract a new player at a potentially lower price?
"Anything that happens now is outside of the [auction] process entirely," said one member of the cable-investment community who asked not to be named.
Another executive in the cable investment community said one possible option is for Carlyle to sell its interest to MidOcean and Crestview (which includes cable pioneer Jeffrey Marcus), similar to a deal it cut in 2010 with the private equity players. Carlyle sold half of its 84% interest in Insight to the private equity players in 2010 for an undisclosed sum.
Carlyle had attempted to sell Insight in 2008 for about $3 billion, but pulled that auction when the credit markets collapsed.
According to sources in the cable financial community familiar with the auction, Insight now is attempting to have individual conversations with potential suitors, including Time Warner Cable, which sat out the auction process.
Those same sources said that any transaction now would likely be for much less than $3.5 billion.
Time Warner Cable declined comment. Officials at Insight were unavailable for comment.
The apparent failure of the auction process is a big change from earlier in the year when optimism was high that a deal would be done.
The auction attracted heavy interest from the start. Early-round bidders included several private equity players and strategic bidders (cable operators) including Charter Communications and Suddenlink Communications.
The auction began to break down because bidders couldn't make the numbers work, people familiar with the process said.
At $3.5 billion to $4 billion, Insight was valuing itself at 11 times forward looking cash flow. Although the company has been on a growth run over the past five years - with revenue rising at a 13.6% average annual clip and cash flow up an average of 10.8% per year between 2005 and 2009 - results stumbled a bit in 2010, with revenue up 7% and cash flow up 11% for the year.
More telling was a basic video subscriber loss (of 24,700) in 2010, the first such annual subtraction since 2004.
Insight added 1,600 basic customers in the first quarter of 2011, but revenue and cash flow growth slowed substantially to just 2%.
"People just didn't believe their growth projections," said one cable executive familiar with the auction process.