Buying and Selling at Limited Partnerships Seven and Eight
Seattle-based Northland Communications has filed for four separate cable TV system sales in Georgia and Alabama. Three of the systems are owned by Northland Cable Properties Seven Limited Partnership (Northland Seven); the fourth is owned by Northland Cable Properties Eight Limited Partnership (Northland Eight). Northland Communications owns and operates smaller-market cable systems in Alabama, California, Georgia, Idaho, North Carolina, South Carolina, Texas and Washington.
In two of the transactions, Northland Cable Television, Inc. (Northland CATV), an affiliate of Northland Communications and managing general partner of the LPs, will acquire the systems. In the other two, Truvista Communications of Georgia, LLC and Charter Communications are the buyers. Because both of the limited partnerships file with the SEC, relatively detailed data was available with which to crunch multiples and evaluate the systems.
In the first transaction, Northland Seven is selling its systems in Vidalia, Georgia to Northland CATV for $5.4m. Vidalia (home of the onion!) is midway between Savannah and Macon, and the system there passed about 9,500 homes. Basic subscribers as of the end of the latest quarter were estimated to be around 3,200 based on year-end 2010 reported figures and the percentage decline experienced by the three Northland Seven systems in the aggregate through September 30. Similarly, the Vidalia system revenue was estimated based on Northland Seven average ARPU across the three owned systems, as was OIBDA and margin. Using these assumptions, the deal for Vidalia in a sale to the managing general partner comes in at about 1.6x revenue and more than 8x OIBDA.
Next, Northland Seven is selling its Toccoa, Georgia system to Truvista Communications for $8.9m. Toccoa is in northeastern Georgia near the South Carolina border and the system passes about 13,000 homes. I estimate the Toccoa system was serving just under 4,000 basic customers and generating nearly $4.2m in annual revenue. Based again on LP-wide margins, OIBDA would be in the $807k range, indicating a revenue multiple of 2.1x and a cash flow margin of 11x.
Finally, Northland Seven will sell its Sandersville, Georgia system to Charter Communications for $3m, or about 1.5x revenue and 7.9x cash flow. Sandersville is also between Macon and Savannah and the systems pass about 4,600 homes.
In the aggregate, Northland Seven is liquidating its systems for $17.3m, or 1.8x actual LQA revenue and 9.4x actual aggregate cash flow.
In the final transaction, Northland Eight is selling its systems in Aliceville, Alabama and Swainsboro, Georgia to Northland CATV for $5m, or 1.2x actual LQA revenue and 6.5x actual LQA cash flow (excluding the impact of an $860,000 writedown in the quarter for the fair value of the LP’s franchises).
Judging by comments made in the public filings as well as the 19% cash flow margins at both partnerships, it seems the systems may have been struggling recently. Subscriber losses for Northland Seven were around 9% year over year through September, compared with an average YoY loss of less than 3% for the major publicly-traded cable companies. Northland Eight’s subscriber base fell by 6% YoY through September.