Cable One (NYSE: CABO) disclosed details on its previously announced $113m acquisition of CableAmerica’s Missouri operations, which comprise a broadband, video, and voice services provider in central Missouri. Specifically, Cable One is purchasing the entity Cable America Missouri, LLC from CableAmerica’s original principals/founders, including Christopher Dyrek.
Notably, Cable One closed the acquisition of CableAmerica’s Missouri operations on December 30, 2021. At this time, Cable One financed the transaction with cash on-hand.
CableAmerica Missouri Operations – Overview
CableAmerica’s Missouri operations offer high-speed internet, cable, and telephone services to residential and business customers. As of Q3 2021, these operations passed 53k homes and had 14k high-speed data (HSD) customers in rural markets throughout central Missouri. More precisely, CableAmerica’s subscriber base, split by residential and business customers was as follows:
- Residential: ~13.5k residential high-speed data (HSD), ~2.4k residential video, and ~500 residential phone subscribers
- Business: ~1.25k business services subscribers
Cable One – Network Map – Pre-Acquisition
Additionally, CableAmerica’s assets are adjacent and complementary to Cable One’s existing Fidelity Communications footprint (see above), which provides services to residential and business customers throughout Arkansas, Illinois, Louisiana, Missouri, Oklahoma, and Texas.
Transaction Rationale
As a bolt-on acquisition, CableAmerica provides Cable One opportunities for footprint expansion in Missouri, margin growth, and potential cost synergy realization. Particularly, synergies will effectively bring CableAmerica’s Missouri operations in-line with Cable One’s operating margins.
Also, CableAmerica’s low customer penetration represents an opportunity for Cable One to grow the business with minimal corresponding network investment.
Financials and Key Metrics
As of Q3 2021, on an annualized basis, CableAmerica’s Missouri operations generate $19m of revenue. Of this total, ~77% or $14.6m derives from residential high-speed data (HSD) and business services revenue.
Based on Cable One’s $113m valuation of CableAmerica’s Missouri operations, the company is paying $2.1k per passing or ~$8k per high-speed data (HSD) subscriber. Additionally, assuming the CableAmerica business can achieve ~50% EBITDA margins post-synergies, Cable One would be valuing the business at ~12x post-synergies (operating, excluding tax).
Tax Benefits
Cable One has structured the CableAmerica transaction such that it will achieve a step-up in tax basis. Ultimately, this structuring is expected to provide tax benefits estimated at a net present value (NPV) of $20m.
Cable One – Recent M&A Transactions
Cable One also disclosed further details regarding its 58%/42% Clearwave Fiber joint venture with private equity firms GTCR, Stephens Capital, and the Pritzker Organization (TPO). Specifically, these investors have committed to provide $320m of aggregate equity capital towards Clearwave Fiber’s expansion strategy. In aggregate, Clearwave Fiber’s operations represent ~74k homes and businesses passed, with ~14k residential and business customers, in Southern Illinois, Georgia, and Florida.
Separately, in May 2021, Cable One acquired the remaining ~85% equity interest in Hargray Communications that it did not already own at an implied $2.2bn total enterprise value.
