Altice USA today announced it has agreed to acquire Morris Broadband, a broadband communications services company, for an enterprise value of $310m, equating to 24.1x Morris Broadband’s current EBITDA. The Morris Broadband transaction will expand Altice USA’s footprint in North Carolina, where it already has a presence with its Suddenlink business. Notably, the company has been owned by the William S. Morris III family since 1945.
Morris Broadband provides high-speed data, video, and voice services to 36.5k residential and business customers in western North Carolina. As of December 31, 2020, Morris Broadband passed 89.0k homes in the North Carolina communities of Hendersonville, Franklin, Sylva, Nebo, and West Jefferson. In aggregate, the company has a broadband penetration of 35%, across these North Carolina markets.
Transaction Rationale – Altice USA and Morris Broadband
Following the acquisition of Morris Broadband, North Carolina will represent the sixth largest state for Altice USA out of its 21 states of operations in terms of number of residential customers. Indeed, this transaction demonstrates Altice’s commitment to invest in the region with additional resources and network investments.
Morris Broadband fits Altice USA’s strategy to accelerate its network expansion with increased investment in edge outs, upgrades of underdeveloped systems, and fiber-to-the-home (FTTH) deployments. Overall, Altice anticipates that this strategy will enable it to drive customer, revenue, and cash flow growth.
Firstly, Altice USA will provide broadband, video, mobile, and news offerings to Morris Broadband’s 36.5k residential and business customers. Secondly, there is a significant opportunity to further penetrate Morris Broadband’s existing homes passed (e.g., broadband penetration of 35% currently) and expand more into adjacent areas.
As part of Altice, Morris Broadband will benefit from scale, operating efficiencies, and investment support, including accelerated new homes build.
Financial Information – Morris Broadband
Morris Broadband generated $12.9m in Adjusted EBITDA, on an annualized basis, for the quarter ended December 31, 2020. Post-closing, Altice USA expects to realize certain annual run-rate synergies, within two years of closing the Morris Broadband transaction. Additionally, Altice anticipates that it will accrue tax benefits as part of the combination with Morris Broadband.
Key valuation metrics for the transaction are as follows:
- Current Morris Broadband EBITDA of $12.9m, equates to a multiple of 24.1x EBITDA, on the $310m enterprise value from Altice
- After accounting for annual run-rate synergies and adjusting for the present value of anticipated tax benefits, the transaction equates to a multiple of 7.4x EBITDA in 2022
Altice USA intends to finance the transaction with available liquidity and complete the deal during the second quarter of 2021. Additionally, Moorgate Partners acted as financial advisor to Morris Broadband in connection with this transaction.
Precedent M&A Transactions
Today’s agreement to acquire Morris Broadband follows Altice USA’s announcement, in February 2020, of its Service Electric acquisition in New Jersey for $150m. Indeed, Service Electric represented a similar footprint extension for Altice, adding 35.2k subscribers, of which 34.4k were residential customers.
Altice USA notes that it acquired Service Electric for a valuation of 10x EBITDA pre-synergies. For further comparable transactions, check out our comprehensive list of fiber precedent M&A transactions here.
Altice USA – Overview
Altice USA provides broadband, video, and telephony services to more than 5.0 million residential and business customers. Specifically, the company operates under two brands: Optimum, in New York, and Suddenlink, in the south-central U.S. Importantly, Altice passes 1.0 million homes with fiber and has 26k fiber-to-the-home customers.