Knology Fills in Around the Edges
West Point, Ga.-based Knology, Inc. (Nasdaq:KNOL) announced on November 17, 2009 it had closed on its acquisition of Private Cable Co., LLC (Private Cable) for $7.5m in cash. The deal was first announced during KNOL’s quarterly earnings call on November 6, 2009.
According to KNOL, Private Cable generates approximately $5m in annualized revenue and $1.5m in annualized OIBDA before potential synergies.
“This transaction is a nice fit with Knology both from an operational and financial perspective…The transaction will be immediately accretive, before synergies, to EBITDA per share, levered free cash flow per share and overall enterprise value,” said KNOL president and cfo M. Todd Holt.
KNOL was formed in 1994 by ITC Holding Company, Inc., a telecommunications holding company which has, over the years, spawned companies such as Powertel and ITC^DeltaCom. KNOL’s ILEC subsidiaries include Interstate Telephone Company, Valley Telephone Company, Graceba Total Communications – acquired in January 2008 for $75m (The Deal Advisor, 2/08, p.9), and Prairie Wave Communications – acquired in April 2007 for $255m (The ILEC Advisor, 2/07, p.12). KNOL and its subsidiaries provide phone, internet, cable, and bundled services to residential and business customers in portions of Alabama, Florida, Georgia, Iowa, Minnesota, South Carolina, South Dakota, and Tennessee, and reported approximately 682,000 connections as of the end of 3Q09.
Private Cable has been providing video service to customers in the Athens, Ala. market since 1995. Over time, the company has increased its service area and offerings and today provides phone, internet, cable, and bundled service to subscribers in the Athens and Decatur, Ala. markets. Both Private Cable markets are adjacent to KNOL’s Huntsville, Ala. service area.
JSICA Observations: There has been a real dearth of cable deals so far this year….and the deals we have been seeing have tended to be small and involve properties that sit somewhere below top shelf. This deal seems to follow the trend.
Based on the annualized revenue and OIBDA numbers provided by KNOL, the deal comes in at 1.5x revenue and 5.0x OIBDA. That’s a little below the 1.5x revenue and 6.3x OIBDA ABRY Partners paid for Grande Communications back in September 2009 (The Deal Advisor, 9/09, p.13), and well below the 3.0x revenue and 8.6x OIBDA Shiver Investments paid when it picked up 25,000 Mediacom subscribers back in February 2009 (The Deal Advisor, 9/08, p.9).
KNOL hasn’t yet disclosed the number of subscribers picked up in the deal but, based on average revenue per connection and connection per basic subscriber data observed from other recent deals, we’re estimating the deal includes about 5,000 basic subs and about 8,300 total connections. That puts the deal at a relatively cheap $904 per connection compared to an estimated $1,790 per connection for the Mediacom deal and $1,316 per connection for the Grande deal.