WideOpenWest (WOW!), a broadband provider offering Internet, video, and telephony services, today announced that it has agreed to sell five service areas, in two separate transactions to Atlantic Broadband and Astound Broadband, with total gross proceeds of $1.786bn. Firstly, Atlantic Broadband, which is a subsidiary of Cogeco Communications, is acquiring WideOpenWest’s Cleveland and Columbus (Ohio) service areas for $1.125bn. Secondly, Astound Broadband, which is backed by Stonepeak Infrastructure, is acquiring WideOpenWest’s Chicago (Illinois), Evansville (Indiana), and Anne Arundel (Maryland) service areas for $661m.

Finally, the transactions are expected to close between the second-half of 2021 and Q1 2022.

Transaction Overview – WideOpenWest (WOW!) Two Units

WideOpenWest’s Ohio, Illinois, Indiana, and Maryland markets pass a total of 1.4 million homes and businesses. Of these passings, the company has 326k total subscribers and 318k high-speed data (HSD) customers. In turn, this implies that WideOpenWest has a penetration rate of 23% in these markets.

WideOpenWest WOW Atlantic Broadband Astound Coverage Map

Valuation – Overall

WideOpenWest’s Ohio, Illinois, Indiana, and Maryland units generate ~$162m of adjusted EBITDA. Therefore, the collective transaction value for WideOpenWest’s deal with Atlantic Broadband and Astound Broadband of $1.786bn reflects an implied multiple of 11.0x adjusted EBITDA.

Collectively, these four WideOpenWest units are being valued by Atlantic Broadband and Astound Broadband at $1.3k per passing and $5.5k per subscriber.

Ohio – Atlantic Broadband and WideOpenWest

WideOpenWest is selling its Ohio broadband system in Cleveland and Columbus to Atlantic Broadband, a subsidiary of Cogeco Communications. In Ohio, WideOpenWest passes 688k homes and businesses.

WideOpenWest WOW Atlantic Broadband Ohio Segment

Of these passings, the company has 198k subscribers and 196k high-speed data (HSD) customers. In turn, this implies that WideOpenWest has a penetration rate of 29% in these markets. Additionally, WideOpenWest has 61.2k video and 35.3k telephony customers in Ohio. Overall, this means that WideOpenWest has 1.5x primary service units (PSUs) per customer in Ohio.

Valuation – Ohio

WideOpenWest’s Ohio unit generated revenue of $244m and pro forma adjusted EBITDA of $103m during the twelve months ended March 31, 2021. Therefore, Atlantic Broadband’s transaction value of $1.125bn reflects an implied multiple of 10.9x adjusted EBITDA.

Overall, the Ohio unit is being valued at $1.6k per passing and $5.7k per subscriber.

Atlantic Broadband notes that after adjusting for certain tax benefits and synergies, the purchase price for WideOpenWest’s Ohio operations reduces to a multiple of 9.6x adjusted EBITDA.

Network

WideOpenWest operates a network in Ohio by serving 100% of its homes passed with hybrid fiber-coaxial (HFC) DOCSIS 3.1 technology. As a result, the company offers speeds of 1 gigabit per second throughout its entire footprint. Furthermore, WideOpenWest’s network is supported by an active 100 gigabit per second ring.

Competitive Positioning

Historically, WideOpenWest has positioned itself as a price challenger in its Ohio markets, keeping its pricing closer to DSL services. In terms of competition, WideOpenWest competes in Ohio with two primary providers, namely Charter Communications and AT&T.

Atlantic Broadband – Transaction Impact

Atlantic Broadband’s acquisition in Ohio extends its footprint into the Midwest from its existing East Coast stronghold. Indeed, WideOpenWest’s Ohio broadband system is geographically proximate to Atlantic Broadband’s current Pennsylvania operations.

Atlantic Broadband Coverage Map Including Ohio

Following completion of the transaction, Atlantic Broadband’s Internet service customers will increase by 38%, from 511k to 707k.

Finally, Atlantic Broadband intends to finance the Ohio acquisition through a $900m committed secured debt financing (Term Loan B), from Credit Suisse and Wells Fargo, and excess cash on hand.

Illinois, Indiana, and Maryland – Astound Broadband and WideOpenWest

WideOpenWest is selling its Illinois, Indiana, and Maryland broadband systems in Chicago, Evansville, and Anne Arundel to Astound Broadband, which is backed by Stonepeak Infrastructure. Notably, Astound Broadband operates under the brands RCN, Grande Communications, and Wave Broadband. In Illinois, Indiana, and Maryland, WideOpenWest passes 700k+ homes and businesses.

Of these passings, the company has 128k residential and business subscribers and 121k high-speed data (HSD) customers. In turn, this implies that WideOpenWest has a penetration rate of 18% in these markets.

Finally, Astound Broadband notes that it is acquiring 5.7k miles of plant (i.e., hybrid fiber-coaxial) in Illinois, Indiana, and Maryland.

Valuation – Illinois, Indiana, and Maryland

WideOpenWest’s Illinois, Indiana, and Maryland units generated adjusted EBITDA of ~$59m during the twelve months ended March 31, 2021. Therefore, Astound Broadband’s transaction value of $661m reflects an implied multiple of 11.1x adjusted EBITDA.

Overall, the Illinois, Indiana, and Maryland units are being valued at $0.9k per passing and $5.2k per subscriber.

Astound Broadband – Transaction Impact

Astound Broadband’s acquisition of WideOpenWest’s Illinois, Indiana, and Maryland markets provide the company with the opportunity to broaden its network footprint in areas largely adjacent to the company’s existing operations:

  • Chicago (Illinois): WideOpenWest’s footprint is adjacent to RCN’s existing service area. In turn, this allows RCN to expand its presence in the Chicago market
  • Evansville (Indiana): separate property, not adjacent to Astound Broadband’s existing footprint, but one that provides consistent growth
  • Anne Arundel (Maryland): WideOpenWest’s footprint is adjacent to RCN’s Washington, D.C. service area. In turn, this allows RCN to expand its presence in the mid-Atlantic. Specifically, Astound Broadband will target areas south of Baltimore and close to the Baltimore/Washington Airport, for commercial and residential opportunities to grow

WideOpenWest (WOW!) – Post-Transaction Overview

Upon completion of the transactions, WideOpenWest will operate in 14 service areas in Alabama, Florida, Georgia, Michigan, South Carolina, and Tennessee. In these markets, the company will pass 1.9 million homes and businesses.

WideOpenWest WOW Coverage Map Post-Transaction

Of these passings, the company will have 532k total subscribers and 506k high-speed data (HSD) customers. In turn, this implies that WideOpenWest will have a penetration rate of 29% in these markets.

For the trailing twelve-month period ended March 31, 2021, WideOpenWest would have generated total revenue of $731m and adjusted EBITDA of $288m. Therefore, the company’s adjusted EBITDA margin equates to 39%.

Transaction Rationale – WideOpenWest (WOW!)

Debt Reduction

WideOpenWest is pursuing the sale of its Ohio, Illinois, Indiana, and Maryland segments to primarily reduce its debt. Upon completion of the transaction, the company expects its leverage ratio will decline to 2.5x adjusted EBITDA. Indeed, this represents a significant reduction from the company’s leverage ratio of 5.0x adjusted EBITDA, as of Q1 2021.

Edge-Out Strategy

Post-transaction, WideOpenWest intends to invest in edge-outs and focus on increasing penetration in its markets, from its current rate of 29%. Additionally, the company expects to invest in new greenfield markets to build-out its fiber broadband network. WideOpenWest’s greenfield strategy enables the company to extend its footprint beyond adjacent market growth, with possible expansion into new markets.

Transaction Advisors – WideOpenWest, Cogeco (Atlantic), Astound Broadband

WideOpenWest’s financial advisor was Bank of America. Additionally, WideOpenWest’s legal advisors were Wachtell, Lipton, Rosen & Katz and Honigman.

Cogeco Communications, the parent company of Atlantic Broadband, is using financial advisor Credit Suisse for the WideOpenWest transaction. Additionally, Cogeco’s legal advisor was Morgan, Lewis & Bockius. Finally, Cogeco’s legal advisor on the financing was Kirkland & Ellis.

Astound Broadband’s financial advisors were J.P. Morgan and Morgan Stanley. Additionally, Astound Broadband’s legal advisor was Simpson Thacher & Bartlett.

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