SureWest Communications, an independent telecommunications company based in Roseville, Calif., has agreed to buy Lenexa, Kan.-based overbuilder Everest Broadband for $173 million in cash.
New York-based cable investment banker Waller Capital Corp. advised Everest in the transaction. SureWest was advised by UBS Investment Bank. The deal is expected to close by the end of the first quarter.
The purchase price works out to be $3,700 per subscriber, well above those paid for overbuilders in the recent past – WideOpenWest, which was sold to Avista Capital in 2006 for an estimated $800 million, was valued at about $2,200 per subscriber. The price also represents a healthy cash flow multiple – at 9.1 times Everest’s estimated third quarter 2007 annualized cash flow, compared to past overbuilder deals that have been valued at about 8.5 times cash flow.
Everest, owned by New York private equity fund Seaport Capital, went on the block in September. It has about 37,500 customers and is an overbuild of Time Warner Cable in Kansas City.
One of the reasons for the high valuation, according to SureWest, is Everest’s strong presence in the commercial phone and data market. Everest currently has about 1,600 commercial customers, but they generate about six times more monthly revenue than a residential subscriber. According to SureWest, Everest’s average monthly revenue for a residential customer is $107; the average monthly revenue for a commercial customer is about $670.
Publicly traded SureWest currently offers its own video, voice and data services in Sacramento, Calif. The company has about 20,000 video subscribers and more than 100,000 revenue generating units – a combination of voice, data and video customers.
According to SureWest, after the Everest transaction is completed, the combined company will have 54,000 video customers, 95,000 high-speed Internet subscribers and 53,000 voice customers, or about 202,000 RGUs.
“Over the past two years, we have made great strides in transforming SureWest into a premier triple-play provider that delivers a superior customer experience,” SureWest CEO Steve Oldham said in a statement. “The Everest transaction significantly accelerates our growth and geographic diversification strategy by adding Everest’s rapidly expanding customer base in the greater Kansas City area to our northern California service territory.”
The deal also represents a healthy return for Seaport, which purchased the systems in 2006 from Kansas City utility company Aquila for about $86 million.