Third Deal for US Cable Since June
In June, US Cable sold its cable systems in Minnesota and Wisconsin to Midcontinent Cable and shortly after sold its cable operations in Missouri to Charter Communications (Nasdaq:CHTR). After Tuesday, you can add Texas, Colorado and New Mexico to the list of states in which the MSO will no longer operate. US Cable announced its third deal in under three months—an agreement to sell cable systems serving 60k revenue generating units to South Carolina-based Baja Broadband.
Similar to the Charter and Midcontinent deals, financials on the Baja purchase were not disclosed, nor was there detail on the number of customers served by the systems that were sold. We can estimate from the RGU totals however around 30k customers. After accounting for the 50k customers acquired by Midcontinent and Charter, US Cable has sold territories serving around 80k of its subscribers since June.
Prior to June, US Cable had reported in a press release that it served only around 90k customers, suggesting that after its recent sales, its time in the cable business is coming to a close. US Cable is a partnership between Comcast and private investors led by Steven Myers. While Comcast is not getting out of the cable business any time soon, Steven Myers and company have decided the time to exit is now.
Taking the opposite view point, the owners of Baja Broadband—private equity firm, MC Ventures—feel that cable operations remains a strong investment. Gilles Cashman, a chairman at Baja and general partner at MC Ventures commented on M&A in cable earlier this year.
“In the fiber sector, it’s compelling to do acquisitions because there are such economies of scale. The more properties you acquire, the more you can leverage those relationships to sell the same customer over a broader geography. Your sales momentum increases when you’ve got more footprint to sell.”
Baja currently serves 60k customers across New Mexico, Colorado, Utah and Nevada. The US Cable purchase will expand its footprint in New Mexico and Colorado, helping to provide the economies of scale that Cashman references. He also provided some insight into the type of cable companies MC Ventures would look to invest in during 2011. The firm targets cablecos that have not yet achieved strong penetration with digital video and broadband internet products, leaving room for ARPU growth.
“Where we are focused with respect to cable is guys that don’t have huge penetrations in video and have not been able to penetrate the digital product as much as others. They’re going to be better positioned to make the transition to more of a broadband provider than those who have $120 video ARPU’s,” commented Cashman.
An interesting aspect to this deal is that MC Ventures—a communications focused firm—is betting on cable while many private investors are getting out of their cable investments. In the past year, Virginia-based MCG Capital sold its stakes in Avenue Broadband and JetBroadband, while Carlyle recently agreed to sell its ownership in Insight Communications. In cable M&A of late, the story has been the big get bigger—recent buyers have been the large cablecos such as Time Warner and Charter. Baja Broadband is one smaller provider bucking that trend.