INDIANAPOLIS – With a handful of deals already done at double-digit multiples and more and more money-men circling the sector for opportunities, the M&A market for small cable operators should continue to show strength, according to a Tuesday panel at The Independent Show.
In the past several months the deals have racked up: TPG’s purchase of RCN and Grande Communications last year for $2.25 billion and its May agreement to buy Wave Broadband for $2.36 billion; and Cogeco Cable’s July agreement to purchase MetroCast for $1.4 billion.
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At the session Tuesday moderated by DH Capital co-founder and chairman Joe Duggan, a panel of bankers, cable operators and deal makers said the momentum should continue, fueled mainly by expected growth in broadband and commercial services.
That, coupled with a paucity of available properties has kept deal multiples high, said TDS Telecom vice president of cable development & integration Mark Barber.
Barber added that further narrowing the field for available deals is the disappearance of carve-out opportunities with larger operators. In the past, large operators would regularly put their less performing assets on the trading block, usually properties that needed plant upgrades or other tweaks to make them competitive. Barber said those opportunities have dried up for two reasons – with a low cost basis, any profit from a sale could be wiped out in taxes and fiber optic technology has made it cheaper and more efficient to connect disparate systems together.
But he still sees opportunities in the small cable market, especially in markets that have low broadband and commercial services penetrations.
“There are still properties out there,” Barber said.
Wave Broadband chief financial officer Wayne Shattenkirk said commercial services was the big difference in its deal talks. In the past five years commercial services has become an integral part of Wave’s business.
Still, he sees a wealth of opportunities for operators who are willing to invest in their networks and their business.
“We’re very bullish and everyone in this room should have a bullish attitude,” Shattenkirk said, adding that with broadband, commercial services and robust fiber networks operators can “chart a path to capture that opportunity.”