Broadband Infrastructure Companies Ripe for M&A, Experts Say

Earlier in December, Alaska Communications accepted an approximately $300 million all-cash takeover bid from a joint venture of Macquarie Capital and GCM Grosvenor. The deal means $3 per share, which is an impressive premium of at least 60% to the fiber broadband company’s pre-deal trading range.

Cincinnati Bell Acquired

Broadband Cincinnati
Image credit Data Center Dynamics

Cincinnati Bell provides high-speed broadband Internet, data and video services, along with traditional voice services. The company serves Hawaii, Indiana, Kentucky, and Ohio. Since largely exiting the wireless communications business early in the 2010s, their leadership’s primary focus has been expanding its “Fioptics” — a fiber optic broadband network directly connecting homes and businesses. Fioptics is now available to 60% of the greater Cincinnati area. There are nearly 500,000 total “revenue generating units” (Internet, plus video and voice). Their network in Hawaii serves 36% of potential users with approximately 142,100 customers.

Huge Increases in Enterprise Ethernet Broadband

Macquarie Infrastructure is acquiring Cincinnati Bell at an enterprise value slightly less than nine times trailing 12 months EBITDA, which includes the assumption of the company’s $2.065 billion debt load. It’s an expensive price tag, given the decrease in the legacy wireline communications industry (Q3 sales of 9%) which generated slightly more than 40% of year-to-date 2020 revenue. Moreover, broadband growth has slowed of late, showing just a 0.7% uptick for the consumer and 2.4% for enterprise over the last 12 months. That’s why observers expect the final bid for Alaska Communications to end up higher — which is seen in the stock’s above offer price. It’s also an easier deal complete as far as regulatory approval, as Alaska’s approval is needed. However, Cincinnati Bell will need Hawaii to okay the deal, despite the state’s past hostility to other M&A.

For Macquarie, the appeal is much the same. Mainly, the company’s rapidly expanding fiber broadband network is the only option where it operates.

Alaska Communications is a considerably smaller company than Cincinnati Bell, with less than 50,000 business and consumer broadband connections combined. However, consumer voice now contributes just 3.8% of total revenue. Broadband and business/wholesale revenue are growing by 5.6% and 6.2%, respectively. The legacy part of the overall company will continue to decline.

Other Small North American Broadband Companies

Like other cable television giants Comcast and Charter Communications, Altice continues to bolster its investment in its own broadband network capability. They partnered with Lightpath business earlier this in December for financial backing. Plus, telecom titans AT&T and Verizon Communications will enhance their 5G wireless networks.

After the 1996 deregulation, US communications business has seen the strategy to expand or die. But will the companies that matter will do their own fiber deployment or make a bid for the remaining independents.

To date, the leaders have left most M&A to financial buyers. These players are enjoying very low cost funding.



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Carpenter Wellington PLLC

Ryan Carpenter serves as Attorney and Managing Director of Carpenter Wellington. Ryan advises clients across a broad set of corporate and commercial matters.