Cable Overbuilder Rumored for Sale


Fast one as of late that I discussed in brief in my Mid-12 months submit as a watchlist thought.

WideOpenWest (WOW) ($1.6B marketplace cap) is a cable/broadband overbuilder essentially taken with secondary and tertiary markets within the southeast that trades for 7.5x EBITDA, whilst it bought property ultimate 12 months for 10-11x EBITDA (right here and right here).  WOW is rumored to be in a overdue degree procedure to promote itself with each Morgan Stanley Infrastructure Companions and World Infrastructure Companions reported as bidders (price noting that the 2 asset gross sales had been to strategic patrons, either one of those corporations can be monetary patrons).  Totally recognize that we are not in the similar 2021 M&A surroundings, however the PE bid and financing are nonetheless there for virtual infrastructure like companies.  Even a takeout at a 9.5x EBITDA more than one would equate to $24.30/percentage or 35% upper than as of late’s $18.00/percentage worth.  After the asset gross sales, WOW is these days underneath levered at 1.9x web debt/EBITDA (a PE purchaser would most probably lever a cable corporate as much as 5-6x); taking WOW out at a cheapish worth with a reasonably small fairness take a look at because of the facility to lever it up additional, this deal would most probably be a house run for the consumer.

A little extra in regards to the industry, as an overbuilder, WOW is the “challenger” cable supplier that enters established markets which usually already integrated both Comcast’s (CMCSA) Xfinity logo or Constitution’s (CHTR) Spectrum logo (which I am lengthy by the use of LBRDK).  With a view to persuade consumers to change from an incumbent supplier, WOW has to provide some mixture of quicker speeds, decrease costs and higher customer support.  Moreover, WOW lacks the dimensions and buying energy of a Comcast or Constitution on the subject of negotiating with content material suppliers, additional squeezing margins within the already declining video industry.  All including as much as an overbuilder like WOW having decrease penetration charges (28% of houses handed), thus decrease margins and usually seen as an detrimental industry type in comparison to the incumbents.

Alternatively, instances are converting, as extra folks minimize the wire and transfer clear of the broadband/video cable package deal to simply looking for out a broadband web supplier, WOW’s worth orientated proposition begins to seem lovely just right, providing an identical speeds at a cheaper price.  With a recession doubtlessly at the horizon, WOW may also take pleasure in the wire slicing pattern accelerating and their place as a worth providing as shoppers glance to chop prices.  To offer some standpoint, 90% of WOW’s new consumers are handiest purchasing broadband.  Cable valuations have come down just lately, partly because of emerging pageant, new pageant is much less most probably to sign up for the fray into WOW’s already aggressive markets, quite fiber-to-the-home overbuilders are much more likely to concentrate on markets the place the incumbents are liable to new pageant.

At the problem, WOW is these days buying and selling at just a slight cut price to Constitution and the suffering Altice USA (ATUS), the place CHTR/ATUS have higher industry fashions as a incumbent cable suppliers.  So there’s some deal top rate baked into WOW, perhaps a flip price.  I pulled the above public comparables from TIKR, I understand each and every is slightly other, particularly throwing DISH in there.  I do not love the theory of including some other speculative merger place to my portfolio, however this one simply turns out to make an excessive amount of sense for a PE purchaser to take non-public.

Disclosure: I personal stocks of WOW


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