Deal Market Poised For A Return in Comcast/TWC Wake

Small and mid-sized cable operators, some who were holding back on their expansion plans as the fate of Time Warner Cable played out over the past few months, could be looking to get back into the deal market in the wake of TWC’s agreement last week to be acquired by Comcast in a deal valued at about $45 billion in equity.

Several new players entered the cable business last year, all with eyes toward expanding by rolling up smaller cable companies. New players like GTCR – which created Rural Broadband Investments last year, acquiring three systems including New Wave Communications – and Vyve Broadband (formerly BCI Broadband) joined veterans like Suddenlink Communications and Telephone and Data Systems in the quest for additional scale.

But the deal market has been relatively quiet since June, when TWC was first approached by Charter Communications, setting off a flurry of speculation as to how further consolidation would play out.

While the floodgates are not expected to open immediately, both buyers and sellers are again looking for deals, according to several people in the cable investment community.

“Our strategy all along has been to consider acquisitions that are a good fit with our current operations, and that strategy has continued without interruption,” said Suddenlink senior vice president of corporate communications Pete Abel. “In fact, as recently as our third quarter earnings call, held Nov. 12, our CEO said that we will continue to be “opportunistic with respect to acquisitions.” To that end, we closed our most recent acquisition of properties from Northland less than two months ago, and we continue to consider other such strategic opportunities.”

Telephone and Data Systems, a Chicago-based wireless and wireline carrier that purchased Baja Broadband in August for $267.5 million said earlier this month that it was looking to re-enter the deal market.

“We would like to buy more assets like Baja or other attractive cable assets," Telephone  & Data’s CEO LeRoy Carlson, Jr., said during the Stifel 2014 Technology, Internet & Media Conference in San Francisco on Feb. 10. "What we're looking for are good demographics; we’re looking for areas where we're not competing head on with FiOS because FiOS is a very competitive offering of fiber-to-the-home. And we’re looking for an affordable price. As you know, the cable sector has been pretty hot recently."

Carlson said that whether the company could acquire systems at an affordable price remains to be seen, adding that the telco would be interested in any systems that would be divested from the larger deal.

Comcast chairman and CEO Brian Roberts said the combined company would divest about 3 million subscribers if needed to get its deal done. However, the company has not identified which systems would be divested.

Some members of the cable financial community have speculated that Comcast could include systems in Texas and Kentucky for possible sale, markets that are not as strategic as others in the combined portfolio. It is expected that more details will be released as the union nears its planned closing date of the end of the year.

But most deal mavens are expecting several suitors to line up for those systems – including Charter Communications, whose $132.50 per share unsolicited bid for TWC was trumped by Comcast.

“Brian Roberts is going to make a lot of friends,” said one member of the cable financial community that asked not to be named.