Cable One today announced it has entered into an agreement to acquire the 85% stake in Hargray Communications that it does not already own, from Quadrangle Capital Partners, at a whole-company enterprise value of $2.2bn. Indeed, Cable One has been a minority investor in Hargray since a transaction in October 2020, when the company contributed its system serving Alabama and surrounding areas to Hargray, in exchange for 15% of the equity in Hargray. Overall, Hargray Communications generates EBITDA of $128m, which equates to a transaction multiple of 17.2x EBITDA, on the $2.2bn enterprise value.

Hargray Communications – Overview

Hargray Communications will expand Cable One’s presence into the Southeastern U.S. Specifically, Hargray is a regional telecommunications provider of internet, television, and voice communications services in South Carolina, Georgia, Alabama, and Florida.

The company serves both residential and business customers in 14 markets across Alabama, Florida, Georgia, and South Carolina. Importantly, Hargray offers 1 gigabit per second-capable services to 99% of its customers. In 2020, 60% of Hargray’s total revenues were from residential data and business services customers.

Digital Infrastructure

The acquisition of Hargray will also enable Cable One to capitalize on Hargray’s fiber infrastructure.

Hargray Communications Fiber Network Map

Specifically, Hargray has more than 2.0k route miles and 131k strand miles of fiber throughout South Carolina and Georgia. Indeed, Hargray’s network also includes 10k on-net/near-net locations, 34 on-net points-of-presence (PoPs), and 200+ on-net towers.

Financial Information – Hargray Communications

Hargray generated ~$128m in Adjusted EBITDA, on an annualized basis, for the quarter ended December 31, 2020. Post-closing, Cable One expects to realize ~$45m in annual run-rate synergies, within three years of closing the transaction.

Key valuation metrics for the transaction are as follows:

  • Current EBITDA of $128m, equates to a multiple of 17.2x EBITDA, on the $2.2bn enterprise value
  • Run-Rate EBITDA of $173m, after accounting for the $45m in annual run-rate synergies, equates to a multiple of 12.7x EBITDA, on the $2.2bn enterprise value

Transaction Rationale – Cable One

With the acquisition of Hargray Communications, Cable One continues its M&A roll-up strategy of rural broadband and business service providers in the U.S. Indeed, the Hargray deal closely follows Cable One’s acquisition, in September 2020, of a 45% interest in Mega Broadband from GTCR. For Mega Broadband, Cable One paid $1.7bn, which represented a valuation of ~15x EBITDA for the business, before synergies.

Hargray Communications Contribution to Cable One

Based on Cable One’s Q3 2020 annualized EBITDA of ~$700m, the $128m of pre-synergies EBITDA contribution from Hargray Communications is meaningful, at ~18% of Cable One’s total. Indeed, Hargray’s EBITDA contribution rises to ~25% of Cable One’s EBITDA, once synergies are realized. Therefore, Hargray Communications represents a sizeable and meaningful acquisition to grow Cable One’s rural broadband platform.

Notably, with a larger transaction such as Hargray, comes a higher valuation multiple paid by Cable One. Indeed, the 17.2x EBITDA multiple being paid by Cable One is higher than the ~15x EBITDA multiple which it paid for Mega Broadband. However, the transaction multiple is similar to the 17x EBITDA valuation ascribed to Clearwave, by Cable One, in November 2018. For further comparable transactions, check out our comprehensive list of fiber precedent M&A transactions here.

Transaction Financing and Advisors – Cable One

Overall, Cable One intends to finance the Hargray Communications transaction with a combination of existing cash, revolving credit facility capacity, and proceeds from new indebtedness and/or equity capital. Indeed, Cable One has received $900m of bridge loan commitments from J.P. Morgan and Credit Suisse to finance a portion of the purchase price. Finally, the transaction will close during the second quarter of 2021.

Cable One was advised by Credit Suisse as lead financial advisor, J.P. Morgan as financial advisor, and Cravath, Swaine & Moore as legal advisor.

Cable One – Overview

Cable One provides broadband services to 950k+ residential and business customers in 21 states through its Sparklight and Clearwave brands. Sparklight provides consumers with internet services, cable television, and phone service. Sparklight Business and Clearwave provide products for businesses ranging in size from small to mid-market. In addition, these brands offer services to enterprise, wholesale, and carrier customers.

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