Consolidated Communications (NASDAQ: CNSL), a fixed broadband provider in 22 states across the U.S., today announced that it has agreed to sell its Kansas City operations, in an all-cash transaction, to Alinda Capital Partners, a middle-market infrastructure private equity firm. Specifically, the company’s subsidiary Consolidated Communications Enterprise Services, Inc., will sell its hybrid fiber-coaxial (HFC) assets to Alinda-backed funds, with the firm’s most recent investment vehicle being the Alinda Infrastructure Fund IV.
Presently, Consolidated Communications estimates the sale price, which is subject to certain adjustments, will generate net proceeds of ~$90m at closing. Finally, closing of the transaction is expected to occur in the second-half of 2022, with Consolidated guiding to a date of September 30, 2022.
Kansas City Operations – Consolidated Communications Sells to Alinda Capital Partners
Consolidated Communications’ Kansas City operations comprise a hybrid fiber-coaxial (HFC) network, using DOCSIS 3.1 technology. Through this network, Consolidated delivers broadband and network solutions to residential, commercial, and carrier customers in Kansas City.
Overall, in Kansas City, Consolidated serves ~19k consumer subscribers, 13k consumer broadband subscribers, and 1.9k commercial subscribers.
Financials
In fiscal 2021, these operations contributed ~$50m of revenue. Also, Consolidated Communications states that the Q4 2021 impact from the sale will be $3m to $4m of adjusted EBITDA. Indeed, this implies, on an annualized basis, the unit generates $14m of adjusted EBITDA and ~28% adjusted EBITDA margins, at the mid-point.
Rationale
Consolidated Communications’ divestiture of its Kansas City HFC network enables the company to focus on its fiber expansion plans in its core regions. Notably, Kansas City was not within the scope of Consolidated’s plans to upgrade 1.6 million total passings to fiber infrastructure. As such, the Kansas City divestiture fits within the company’s strategic market review, which contemplates either investing for fiber expansion or pursuing monetization of assets.
Additionally, Steve Childers, Consolidated’s Chief Financial Officer noted that “the Kansas City market is our most competitive market where we have a hybrid DOCSIS and fiber network”.
Transaction Advisor
Consolidated Communications’ financial advisor was Bank Street Group.
Prior Disclosure – Alinda Capital Partners
As part of Alinda Capital Partners’ planned (and ultimately pulled) £350m initial public offering (IPO) of a closed-end investment trust on the London Stock Exchange, known as Alinda Capital Infrastructure, the firm disclosed its near-term pipeline of investment opportunities.
Within this pipeline, Alinda referenced an investment opportunity in fiber broadband connectivity, in the United States, with a $45m total equity commitment. At the time of disclosure, in late October 2021, Alinda noted that it was in exclusivity for this investment opportunity.
Particularly, the transaction was within a single U.S. market (e.g., Kansas City) and was a 100% carve-out of an owned network from a national telco company (e.g., Consolidated Communications). Overall, the fiber network comprised 3.1k miles (5.0k kilometers), connecting 140k households and 15k businesses.
Alinda Infrastructure Fund IV – Alinda Capital Partners
Alinda Infrastructure Fund IV is the flagship private equity fund of Alinda Capital Partners. As part of its ongoing fundraise, Alinda Infrastructure Fund IV has set a target size for the fund of $1.5bn, with a maximum size of $2.5bn. As of December 2021, Alinda Infrastructure Fund IV had raised over $270m in equity.
Alinda Infrastructure Fund IV is targeting a gross IRR of 15% per annum, a gross multiple of invested capital (MOIC) of 1.7x, and an average annual gross cash yield to investors of 7%. Finally, the fund targets investment weightings of 70% North America and 30% Europe, with 1/3rd of its portfolio in digital infrastructure.
