Insight Seeks Buyer, Again

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Insight Communications
is testing the deal waters, hiring a
pair of investment bankers last week
to seek a buyer for the mid-market
MSO, about three years after abandoning
sale plans in the midst of a
down economy.

Sources confirmed published reports
last week that Insight has hired
Bank of America Merrill Lynch and
UBS to seek a buyer. While still in its
early stages, the MSO is expected to
attract strong interest from both strategic
and financial players.

According to sources familiar
with the company, the most likely
buyer is Time Warner Cable, which
surrounds Insight in Ohio and Indiana.
Other strategic buyers, such
as Charter Communications, Cablevision
Systems, Suddenlink
Communications and even Mediacom
Communications, are also
possibilities.

“I wouldn’t rule anything out,”
said Miller Tabak media analyst
David Joyce, adding that private-equity players like Providence
Equity or ABRY Partners also could participate.

Reuters first reported last Tuesday that Insight had hired
the two investment bankers to run the auction process.

Insight spokeswoman Sandy Colony declined to comment,
noting the company policy not to comment on rumor
and speculation.

This would be the second time in about three years
that Insight has hit the auction block. After going private
in 2005, Insight was knee-deep in the auction process in
late 2007, reportedly attracting several bids but none at
the price its primary owners — private-equity boutique
Carlyle Group — had in mind. In 2008, as the economy
tanked and the debt markets seized up, making it almost
impossible to finance a deal, Carlyle took the property off
the block.

In 2010 Carlyle sold 42% of its equity in the MSO (it retained
another 42%) to Crestview Partners and MidOcean
Partners, two private equity groups that include cable pioneer
Jeff Marcus, for an undisclosed sum. Joyce added
that given Marcus’ operational history — he founded
Marcus Cable the largest privately held MSO in the country
before selling it to Paul
Allen in 1998 for $2.8 billion
— it is also possible that
Crestview and MidOcean
could increase their stakes
in Insight.

Marcus declined to
comment.

But the return of the
debt markets, and recent
small-cable deals at attractive
multiples, have apparently
lured Insight back to
the auction block. Cablevision
Systems closed on its
$1.4 billion acquisition of
Bresnan Communications in December at a cash-flow
multiple of about 8.3 times. Several smaller deals have
been done at multiples ranging from 6 times to 7 times
cash flow.

According to Reuters, Insight could attract between
$3.5 billion and $4 billion, which would imply a 10-to-
11.5 times multiple of 2010 cash flow,
or 9.5 times to 10.8 times estimated
2011 cash flow of $369 million.

“That [$3.5 billion to $4 billion]
would be a rich price,” Joyce said.

Insight has a stellar reputation as
one of the best-run cable companies
in the industry. It is the ninth-largest
MSO in the country with 761,400 customer
relationships in Kentucky, Indiana
and Ohio.

Insight has been on a roll for the
past several years — it added basic
subscribers from 2005 to 2009, as its
peers have been bleeding customers.
Led by vice chairman and CEO Michael
Willner, a 37-year industry veteran
who co-founded Insight in 1985;
president and chief operating officer
Dinni Jain and executive vice president
and chief financial officer John
Abbot, the company has consistently
been one of the top performers in
the country.

In 2010, Insight lost about 24,700
basic video customers — it finished
the year with 691,700 basic-video customers
— but revenue rose 7% for the
year, to $1.1 billion, and adjusted operating income before
depreciation and amortization (a measure of cash flow) increased
11%, to $344.4 million.

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