Former Federal Communications Commission chairman Ajit Pai has joined Searchlight Capital as a partner, the investment firm said Monday.

Pai led the FCC as chairman from 2017 to 2020 under then President Donald Trump administration and first joined the Commission in 2012 after being appointed by then President Barack Obama. Prior to his FCC appointment, Pai served in various positions at the U.S. Department of Justice and the U.S. Senate, was a partner at the law firm of Jenner & Block and worked as in-house counsel at Verizon Communications. At Searchlight, he will focus on the company’s investments in the technology, media and telecommunications sectors.

During his tenure as chairman of the FCC, Pai helped advance major initiatives in 5G and other wireless technologies, led programs to help close the digital divide, promote innovation, protect consumers, public safety, and national security, and helped make the agency more open, transparent, and diverse. 

“TMT has always been a core focus at Searchlight and in recent years we have seen the opportunities in these sectors grow, a trend accelerated by the COVID-19 pandemic,” Searchlight founding partner Eric Zinterhofer said in a press release. “Given our strong presence in this space and Ajit’s distinguished career in the industry, we are excited to welcome him as our newest partner. His outstanding accomplishments at the FCC had a material impact on the broadband, wireless, and broadcast sectors, and his deep knowledge will be invaluable in accelerating our efforts in TMT and digital infrastructure.”

Searchlight is a global private investment firm with more than $8 billion in assets under management, with offices in New York, London, and Toronto and currently has holdings in Liberty Latin America, Univision Communications, Hemisphere Media Group, Ziply Fiber and others.

“I am excited to join the Searchlight team and help build on the firm’s demonstrated success in the technology media, and telecommunications sectors, especially with respect to digital infrastructure—an area that is essential to consumers and businesses in the United States and around the world,” Pai said in a press release. “Searchlight’s flexible investment strategy and partnership-driven approach have distinguished it from its peers, allowing the firm to capitalize on opportunities that provide value for its clients and the companies it invests in. I look forward to joining Eric, Erol, and Oliver, and contributing to the firm’s continued investment efforts.”

Point Broadband, a high-speed internet service provider based in West Point, Georgia, said it has received an investment from private equity firm GTCR to help accelerate its expansion plans. Terms of the deal were not disclosed.

Point Broadband was founded in 2017 and offers fiber-to-the-premises broadband service to residential and business customers in several markets east of the Mississippi River. The company said it is actively expanding its footprint via FTTP builds in near adjacent markets,  and that the investment from GTCR will help accelerate plans to expand its network into underserved communities. 

"GTCR's strategic investment will help accelerate the deployment of our fiber-based broadband solutions to a range of markets, including small town USA and rural America," Point Broadband co-founder and CEO Todd Holt said in a press release. "GTCR shares our core values of customer service and community engagement and has a proven track record of deploying capital to build state-of-the-art broadband networks. We are excited to welcome GTCR to the Point Broadband family as we enter our next phase of growth."

Stifel served as lead financial advisor and Houlihan Lokey served as co-financial advisor to Point Broadband. Credit Suisse and Rothschild & Co. served as financial advisors and Kirkland & Ellis LLP served as legal advisor to GTCR.

"Point Broadband has a strong focus on best-in-class customer service supported by a localized presence in the communities they serve, and we believe Point is well-positioned to serve the growing demand for broadband services in markets across the nation," GTCR managing director Mark Anderson said in a press release. 

Chicago-based private equity company GTCR said Wednesday that it has agreed to buy Consumer Cellular, the wireless service provider focused on older users, in a deal some reports value at about $2.3 billion.

GTCR has been an aggressive player in the rural cable market -- it recently sold an interest in its Mega Broadband Investments, parent of Vyve Broadband, to Cable One for $547.1 million. 

With the Consumer Cellular buy, GTCR gains about 4 million subscribers, mostly aged 50 and over. Ed Evans, a long-time wireless executive, will succeed Consumer Cellular founder John Marick as CEO of Consumer Cellular after the close of the deal, expected in the fourth quarter. Marick will remain a substantial shareholder of the company and will retain his seat on its board of directors. 

"John and the Consumer Cellular team have built a tremendous business that is well-positioned for long-term success," GTCR managing director David Donnini said in a press release. "The entire Consumer Cellular organization should be proud of the business they have built. We look forward to Ed working with the Company and its employees to continue Consumer Cellular's legacy of growth and innovation."

According to reports, GTCR beat out bidders including Dish Network, Altice USA and a group led by Boost Mobile founder Peter Adderton. 

"I am excited to partner again with GTCR and look forward to continuing Consumer Cellular's mission of providing its customers with exceptional service and competitively priced wireless plans," Evans said in the press release. "GTCR brings significant resources and experience in building industry-leading companies and together we expect to further grow Consumer Cellular's subscriber base and expand its services offering.”

Credit Suisse and Raymond James served as financial advisors and Kirkland & Ellis LLP served as legal advisor to GTCR. BofA Securities served as exclusive financial advisor and Kell, Alterman & Runstein, LLP served as legal advisor to Consumer Cellular.

Private-equity firms, anxious to get back into the cable broadband business just a few years ago, are considering exit strategies, with at least one big deal in the works and others in the wings, according to sources in the cable financial community.

Perhaps the biggest deal in the pipeline is the possible sale of Dallas-based private equity giant TPG’s interest in Astound, its rollup of RCN, Grade Communications and Wave Broadband. TPG, which spent around $5 billion rolling up those three overbuilders between 2016 and 2018, is seeking about $8 billion in a sale and has hired investment bankers Morgan Stanley and J.P. Morgan Chase to handle the auction, according to a Reuters report.

TPG declined comment.

Sources in the financial community confirmed the Reuters report, adding that TPG originally tried to start an auction for the properties in March, but pulled it back when the COVID-19 pandemic hit. The second round of bidding is expected to take place in the next two months, with a winner expected to be chosen early next year. 

Already, interest among larger operators is beginning to rise. On Sept. 2 Altice USA launched a $7.8 billion unsolicited takeover bid for Canadian telco Cogeco, the parent of Quincy, Massachusetts-based Atlantic Broadband. Altice USA has partnered with Toronto-based Rogers Communications, which would buy Cogeco’s telecom businesses for $4.8 billion. Altice USA would pay
$3.6 billion for Atlantic Broadband, about
10.2 times the cable company’s forward-looking cash flow. Cogeco’s controlling shareholder rejected that offer on Sept. 3, although most analysts expect Altice to raise its bid. Either way, the offer itself could mean that  valuations for other assets would start at even higher multiples.    

Riding the Broadband Wave

TPG burst onto the distribution scene in 2016 with its $2.25 billion purchase of Grande Communications and RCN and has ridden the broadband wave over the past several years, as large and small cable companies have shifted their primary focus away from video and toward faster data speeds. All three companies serve diverse geographies. Grande focuses on metro and rural Texas, and has customers in Austin, San Antonio, Dallas, Corpus Christi, Midland, Odessa, Greater Temple and Waco. Wave, which TPG purchased in 2018, focuses on Washington (including the Seattle area) Oregon and California. RCN, the largest of the three,  operates in Boston; Chicago; Washington, D.C.; Lehigh Valley, Pa.; New York and Philadelphia.

When TPG closed the Wave deal in 2018, it claimed the combined companies passed about 2.7 million homes and had 925,000 residential and business customers, delivering nearly 1.7 million data, voice and video services.

Just who would buy the TPG assets is the big question. Because of its status as an overbuilder in some of its larger markets like New York, Chicago and Boston, incumbent operators like Comcast and Charter Communications would be prohibited from buying. Midsized cable and broadband provider Cable One has been aggressively buying smaller cable companies and fiber network owners over the past three years: Emporia, Kansas-based broadband services company ValueNet Fiber; Sullivan, Missouri’s Fidelity Communications; Sikeston, Missouri-based  NewWave Communications and ClearWave Communications. But a TPG deal could be too pricey for Cable One, which paid about $735 million for NewWave and $526 million for Fidelity. The company didn’t reveal the price of the other purchases, but it is believed they were for considerably less.

 In a research note, MoffettNathanson principal and senior analyst Craig Moffett said CableOne needs to add scale to justify its high valuation, either organically or by other means. Its stock has been the best performer in the distribution sector for three years running, currently priced at nearly $1,900 per share. In the second quarter, Cable One beat analysts’ expectations by adding more than 44,000 high-speed internet customers, an 11.3% growth rate and more than double the 5.1% rise in Q1.     

Broadband is driving much of the interest in cable at the moment. According to one member of the cable financial community who asked not to be named, familiar names in the smaller cable business that had sold their systems in the past — like NewWave’s Gleason family and former Wave Broadband CEO Steve Weed — have been dabbling in companies in the fiber-to-the-home business to help address the broadband boom.

Fiber Draws Interest

“It’s been nuts,” said the cable financial executive who asked not to be named. “There’s a lot of interest in fiber-to-the-home. It’s a new chapter for overbuilders.”

Weed, who sold Wave Broadband to TPG in 2018 for $2.36 billion, formed WaveDivison Capital with former Wave Broadband executives Harold Zeitz and Wayne Schattenkerk shortly after closing that deal, and in May 2019 teamed up with Searchlight Capital to purchase former Frontier Communications properties in Washington, Oregon, Idaho and Montana with 350,000 residential and commercial customers for about $1.35 billion, renaming the company Ziply Fiber.   

At the time of the Frontier deal, Weed hinted that more deals could come. 

“We are big believers in the Northwest’s future growth opportunities and that future runs on broadband,” Weed said in 2019. “Our plan is to invest further in our markets, specifically by extending fiber to more homes and businesses, to bring them the high speeds they want.” 

Overall broadband growth has been strong and continues to be dominated by cable distributors. Leichtman Research Group estimated that cable operators added about 1.4 million high-speed internet customers in Q2, compared to 530,000 additions in the prior year. While much of that was due to work-from-home and stay-at-home orders in many states due to the pandemic, Leichtman Research president Bruce Leichtman said in a press release that the increase was the largest since 2008. Some believe the momentum
will continue. λ

It was only about five years ago when AT&T, opening its checkbook wide to break into the pay TV distribution business in 2015, touted its $48.5 billion purchase of DirecTV as the beginning of a new era in media. Armed with 26 million subscribers -- including about 5.7 million from its existing IPTV business U-verse -- AT&T was going to transform the way people watched TV.

Fast-forward five years and AT&T, for what seems like the umpteenth time, is looking to sell DirecTV to anyone with a pulse. According to reports, the telco is willing to part with a little more than 50% of the satellite giant for about $20 billion. 

Related: Will AT&T-DirecTV Merger Fly? 

DirecTV still has about 16.3 million subscribers, throws off about $4 billion in free cash flow a year and is still a force in rural America. The bad news: it is losing customers at an 18% annual rate (about three times the pace of traditional cable operators), and with the upcoming RDOF auctions, some cable companies (like Charter) could aggressively deploy broadband in rural areas. Broadband is what helped kill DirecTV in urban markets, and a lot of analysts believe it could be the final nail in DirecTV’s coffin. 

It’s a shame, because less than a decade ago DirecTV was basically the gold standard for pay TV, leading JD Power customer satisfaction surveys, pioneering innovative programming (NFL Sunday Ticket) and technology (digital TV) and causing cable operators fits. Now, AT&T has reportedly stooped to letting certain non-DirecTV subscribers sign up for Sunday Ticket -- and for at least the past year it has seemed that AT&T has lost interest in the former satellite TV jewel.

AT&T has been not-so-quietly removing the DirecTV brand -- so important when it bought the satellite giant in 2015 -- from practically every product. DirecTV Now changed its name to AT&T TV Now last year. The satellite service is still called DirecTV but the flagship distribution product is called AT&T TV, an IP-based service of questionable subscribership. On the streaming side, HBO Max is the dominant brand, a product of its 2019 purchase of Time Warner Inc.

In a blog post, MoffettNathanson principal and media analyst Craig Moffett wrote that while he believes AT&T would be better off without “the albatross that is DirecTV,” he doubted it would be able to find a suitable buyer. 

Because the biggest question surrounding DirecTV is and always has been its valuation. Aside from the aforementioned subscriber erosion, the analyst points out that DirecTV’s ARPU growth -- in the past in the mid-single-digit percentages --will likely decline to low single digits, which would affect revenue and cash flow growth negatively.

And then there are the purported suitors AT&T is courting for DirecTV -- private equity players. According to the Wall Street Journal, which first broke the story that AT&T was (again) exploring its options for DirecTV, AT&T was talking to Apollo Global Asset Management and Platinum Equity as potential buyers. 

But private equity usually looks for one of three things when they are considering a purchase -- an undervalued asset (nope), an underappreciated or emerging market (again, nope), or an asset that can be monetized through an IPO or a sale (maybe).

Moffett said an IPO is not a feasible option, and a sale to satellite TV rival Dish Network, while possible, isn’t as attractive as it seems to be.

Dish, which is deep into building its own wireless network, has lost fewer satellite TV customers because it has focused on rural subscribers, according to Moffett. But that doesn’t mean slapping it together with DirecTV will make things better.

Merging with Dish would only improve the subscriber erosion to 15% per year, according to Moffett, adding that with Charter and others planning to increase rural broadband buildouts, the picture is even gloomier.

“If we see a huge post-COVID stimulus/infrastructure bill next year targeting broadband expansion, as seems likely, then the defensible rural segment will all but disappear,” Moffett wrote.

Even analysts more open to a sale to Dish, do so with a healthy dose of caution.

In a note to clients Monday, Barclays Research media analyst Kannan Venkateshwar said that a Dish/DirecTV merger, while rejected by legislators in 2002, is more likely given how the market dynamics have changed. But he warned that the current administration has not been too willing to make things easy for AT&T. 

“Even if the deal is approved ultimately, the political environment could result in an inordinately long approval process which may change the economics and rationale of the deal in the interim given the acceleration in cord cutting,” Venkateshwar wrote.

A buyer could run the business for cash, but Moffett added for that to be attractive to a private equity buyer, they would have to get in at a very low entry multiple.  

But AT&T is constrained there too. Moffett wrote that after operating leases, pension and post-retirement health benefit obligations and whatnot, AT&T’s leverage ratio is about 3.5 times EBITDA, already pushing the limit of its investment grade credit rating. Selling DirecTV at a lower multiple would only make AT&T’s leverage ratio higher, which is not an option, he wrote.

“Would any buyer pay more than 3.5x EBITDA for DirecTV?” Moffett asked. “We doubt it.”

So, five years into its multi-billion dollar marriage, breaking up won't be that easy for DirecTV and AT&T.

After a long career in program and advertising sales, Robert Wussler is moving into the financial business as executive director of asset management company Manhattan West.

In his new post, Wussler will help attract clients and use his experience to advise the firm on making investments in technology, media and telecom companies.

Wussler, whose father, also named Robert, helped Ted Turner found CNN, most recently had been VP, sales and integration for 21st Century Fox’s Twentieth Television unit. He and his team were eliminated after Fox sold its assets, including Twentieth Television to the Walt Disney Co. 

Before that, he held posts at NBC Universal, Paramount, Turner, Genesis Entertainment and Blair Television.

Manhattan West is based in Los Angeles. In addition to asset management, the firm has an Alternatives platform leveraging expertise in real estate, venture capital, private equity and private debt and a Solutions Group offering a variety of customized solutions including family office services, business management, insurance, and tax.

By hiring Wussler, it is establishing a New York footprint.

“I’ve known and collaborated with Rob for decades and his analytical approach as well as the skill sets he brings – in developing client relationships, building business portfolios and evaluating broad trends, among others – are ideal for our mission and will be invaluable as we grow our firm.”  said Lorenzo Esparza, chief executive officer and founding principal of Manhattan West.

Wussler said he’s had a long relationship with Esparza. “I’ve been a client of his for 10-plus years. I participated in many of his funds and it had good success,” he said.

Wussler said Manhattan West hasn’t yet invested in any media or ad tech companies yet. “At the moment, we’re actively pursuing several right now,” he said. 

The firm avoids investments in startups. “On every phone call I’ve been on with [Esparza], he says ‘the last thing I’m ever going to want to do is report to a client that I’ve lost their money,’” Wussler said. “The investment strategy is typically for companies that are early stage, but are producing revenues, so there’s a calculation into future that has some reality to it.”

As he makes a transition from showbiz to Wall Street, Wussler said there are some similarities. In both cases you have to do your homework.

“When you walked into an ad agency, you had to know where they invested their media spend, what was good and what was not, and stitch together a better plan for them with what you could bring to the table,” he said.

“The same is true with investment strategy and the same is true with the private equity investment targets we’re looking at,” he said.  “It always comes down to the capabilities of analyzing data and understanding the features and benefits of the various products.”

As Cable Networks and distributors continue to struggle with the shift toward streaming video, private-equity giant Apollo Global Management, once a big player in the cable space, is turning an eye toward broadcast-TV stations and the lure of retransmission-consent revenue.

Apollo is not-so-quietly involved in three high-profile broadcast deals. On Friday (Feb. 15), it agreed to purchase a majority interest in 14 stations owned by Cox Media; it is said to have an agreement to buy Northwest Broadcasting, a Michigan-based broadcaster with more than a dozen stations in the Pacific Northwest; and it is said to be a bidder for stations Nexstar Media Group has earmarked for divestiture in connection with its $6.4 billion purchase of Tribune Media. Nexstar has identified about 15 market overlaps with Tribune properties, but there is no guarantee all of the affected stations will be put up for sale.

Apollo did not disclose the price it paid for the Cox assets, which include newspaper and radio properties in Ohio, but a prior report from Reuters said the deal was worth around $3 billion. Cox will retain a minority interest.

Becoming a Player Quickly

All in all, Apollo could become a player in the station group arena relatively speedily. The Cox deal would boost Apollo’s station holdings to about 40 across the country, putting it in the same neighborhood as Tegna, which owns 49 stations in 41 markets, and Tribune, which owns 42.

Apollo’s interest comes as TV station properties are drawing interest from nearly every sector. Once thought to be media’s version of the buggy whip, TV stations, with their emphasis on live sports and news programming, are becoming the last bastion of ad-supported content. In a climate where viewers are increasingly glued to ad-free subscription video-on-demand services, live sports and news continue to be appointment television.

Case in point: 21st Century Fox, which is nearing the finish line in the sale of its linear cable and production assets to The Walt Disney Co. for $71.3 billion. After that deal closes, expected in the first half of this year, Fox will be left with cable news, sports and broadcast properties. It has said on several occasions it would like to beef up its station portfolio over time.

Private-equity firms Blackstone Group and Providence Equity also are believed to be interested in adding to their broadcast portfolios.

An obvious attraction is the potential of more lucrative retransmission-consent revenue.

Nexstar has said it expects retrans intake from the Tribune stations alone to rise by $72 million in their first year under its ownership, applying the Nexstar rate card. With more stations in large markets, Nexstar should be able to grow its overall retrans haul substantially this year, when a big chunk of its stations come up for renewal.

But there is a risk. Even as station groups look to get bigger — with Gray TV completing a $3.6 billion deal to buy Raycom Media in January and others expected to seek deals to increase scale — retrans growth is slowing. According to Kagan, a unit of S&P Global Market Intelligence, retrans revenue is expected to rise to $10.8 billion in 2019, up 6% from $10.2 billion in 2018, and increase another 4%, to $11.2 billion by 2020.

“We do see a slowing trend in terms of the growth rate from a high double digit growth rate on a year-over-year basis to a high single digits on a year-over-year basis,” Kagan senior research analyst, broadcast media Justin Nielson said.

Retrans May Have Hit Wall

Adding to that risk is that retrans contracts are usually on a three-year cycle, about the same window for a typical private-equity firm to seek a return on its investment. There’s also the idea retrans fees have hit a wall, as distributors and customers push back after years of double-digit increases.

Retrans fees currently average from $2.50 to $3 per subscriber per month, Nielson said. Some analysts have estimated that for the Big Four — CBS, NBC, ABC and Fox — those rates could rise to $4 to $5 per subscriber per month.

“From a broadcaster perspective, they still think there is still room to move up,” Nielsen said. But from a pay TV provider’s point of view, he cautioned, “You only have so much leeway on what you can pass along to consumers.”

There is expected to be a robust market to sell stations, another key component of private equity participation. Aside from Fox, which has expressed a desire to increase its station holdings after its Disney deal closes, Tegna and Gray Television are also expected to be on the hunt for more properties, Nielson said.

Great Plains Communications, the largest privately-owned telecommunication provider in Nebraska, said it has been purchased by private equity firm Grain Management. Terms were not disclosed.

Great Plains, based in Blair, Neb., provides video, high-speed data and voice services to business and residential customers in more than 90 communities across the state. The family-owned company has been in business since 1910.

“We are enthusiastic about the outstanding performance Great Plains Communications has delivered for its customers, and we are thrilled to partner with the current management team to continue pursuing their vision of being the region’s leading provider of high-quality, fiber-based telecommunications services,” said Grain Management founder and CEO David Grain in a statement. “Throughout its long history, Great Plains Communications has strategically transitioned itself into a leading regional provider of fiber-based services through significant investment in its state-of-the-art network and facilities.”

Related: Great Plains Completes Pinpoint Buy

The heart of that infrastructure us a 9,500-mile regional fiber network that includes more than 300 fiber miles in the Omaha Metro area. The network extends beyond Nebraska into Colorado, Illinois, Iowa, Kansas, Minnesota, South Dakota, and Wyoming. With additional resources from Grain Management, Great Plain said it intends to enhance its presence throughout the Midwest, extending and improving its network for both customers and their communities.

“We were committed to choosing a buyer that would support the family’s dedication to delivering high-quality services to our customers,” said Great Plains’ current owners, the Garrigan and Jensen families, who are third and fourth generation descendants of Founder E.C. Hunt.

The transaction is expected to close in the third quarter of 2018.

“This acquisition is a positive step forward in our vision of providing the best telecommunications services to sustain and advance Nebraska,” said Great Plains CEO, Todd Foje in a statement. “Together with Grain Management, we will be able to expand our network and enhance our offerings to benefit our customers, employees and the local communities we serve. Our team looks forward to partnering with Grain Management and utilizing their deep experience in regional fiber investment.”

Alston & Bird LLP served as legal counsel to Grain Management. UBS Investment Bank served as exclusive financial advisor to Great Plains Communications in the transaction. Morgan Lewis & Bockius LLP served as legal counsel to Great Plains Communications with assistance from Kutak Rock LLP and Woods & Aitken LLP

Private equity firms Bain Capital and The Blackstone Group have held early discussions with two top investment bankers concerning their stakes in The Weather Channel, including a possible sale of their interests, according to reports.

According to a report in Bloomberg News, the buyout firms have approached investment bankers J.P. Morgan Chase and Goldman Sachs concerning their possible options, including an outright sale of all or part of the company. Bloomberg said that The Weather Channel has not begun a process or hired bankers yet. The channel, which is fully distributed in more than 100 million homes, was purchased in 2008 for $3.5 billion by Blackstone, Bain and Comcast’s NBC Universal.

While fully distributed channels have attracted high prices in the past, The Weather Channel has come under fire recently for its programming. In January DirecTV dropped the channel for three months – it later signed up with weather service Weather Nation instead – complaining that the network filled its prime time slots with reality programming instead of focusing on weather forecasts. The Weather Channel returned to DirecTV in April, after it agreed to pull back on reality programming and focus more on local weather updates.

Officials at The Weather Channel, Blackstone, NBC Universal and Bain all declined comment.

Sources familiar with the matter said that while “very preliminary” discussions have occurred between the buyout firms and bankers, nothing is imminent.

“I wouldn’t attach a lot of significance to it,” said one person familiar with the companies.

Investors also seemed unfazed by a potential Weather Channel deal. Comcast stock was down about 15 cents each (0.3%) to $56.83 per share in Friday afternon trading.