French telecom firm Altice announced on Monday, May 20^th that it had agreed to buy a 70 percent stake of Suddenlink Communications valuing the company at $9.1b.  The deal marks the first purchase of a U.S. based cable property for the acquisitive Altice, a move spearheaded by founder and cable veteran Patrick Drahi.  Through the deal, Altice acquires a controlling stake in the seventh largest cable provider in the U.S. with operations largely concentrated in the south and midwest.

Valuation Analysis and Deal Metrics

Transaction Facts

• Altice to acquire 70 percent stake of Suddenlink from BC Partners, CPP Investment Board and Suddenlink management valuing the company at $9.1b 
• Existing shareholders retain 30 percent ownership (had acquired Suddenlink for $6.6b in 2012)
• Deal financed with $5.10b in existing debt, $1.76b in new debt issued, a $500k vendor loan from BC Partners and CPP Investment Board and $1.2b in cash from Altice
• $215m in annual synergies anticipated  
• Total leverage including full synergies of 6.1x 2014 EBITDA
• Expected close 4Q15

Strategic Considerations

• Grants Altice entry into the U.S. cable market, laying the groundwork for future cable acquisitions and increased scale in the states   
• Enhances geographic diversity of Altice’s revenue mix: France 64%; Portugal 14%; US 12%; Israel 5% and Other 5%
• Balanced customer and revenue mix with 1.13m cable, 1.25m broadband and 600k telephone subs
• Investments in fiber network over last several years provides Suddenlink with strong in-footprint competitive positioning to improve penetration, reduce churn and increase bundling

JSICA’s Take

Altice’s deal for Suddenlink continues the strong momentum of large-scale M&A in the U.S. cable market.  At 3.9x revenue and 10.0x trailing OIBDA, Altice appears to have paid a good premium for its entrance into the U.S. cable scene.  While Altice touts the potential for synergies at Suddenlink, its lack of existing network infrastructure and staff in the U.S. will make realizing these cost savings more difficult.  Drahi has been vocal that Altice is on the hunt for bigger deals in the U.S. that would grant it the scale to deliver meaningful cost savings.  Charter’s take out of Time Warner may have erased one target off of Altice’s wish list, but we do not expect Altice to be away from the deal table for long.  Cablevision and Verizon’s wireline ops have been rumored to be in the French telecom’s scope.