Grande Finale as Overbuilder Cashes Out

Grande Communications, the San Marcos, Texas-based overbuilder, said in a Securities and Exchange Commission filing last Monday that it has agreed to be acquired by private-equity group ABRY Partners in a recapitalization deal worth about $265 million.

Grande first announced it had entered into a nonbinding letter of intent with ABRY on June 9. Back in January, Grande hired New York-based cable investment Waller Capital Corp. to explore strategic alternatives. In April, Grande hinted at a sale, stating in SEC filings that a third party may be trying to raise money for a bid. That filing came after reports that ABRY was trying to raise debt for a bid, valuing a possible deal at about $250 million.

According to SEC documents, adding up all the elements of the deal — including $103.8 million in new debt, $147.6 million for the equity and $13.6 million in capital lease obligatons — brings the total value of the transaction to about $265 million.

The recapitalization is basically a sale — ABRY will control 75.3% of the voting power of the new company, with Grande Holdings holding the remainder — and is expected to be closed before the end of the month.

ABRY has been a longtime investor in the cable industry. Among its current holdings is Atlantic Broadband, the Boston-based cable operator with more than 285,000 customers in Florida, Pennsylvania, Maryland, South Carolina and Delaware.

According to executives in the investment community, Atlantic Broadband's management — headed by CEO David Keefe and president and chief operating officer Ed Holleran — will manage Grande as a separate entity after the deal is closed.

Grande has about 101,000 customers in several communities in Texas and reported revenue of $205.3 million and cash flow of $40.4 million in 2008. The price represents a multiple of about 6.6 times 2008 cash flow. For the first half of the year Grande reported revenue of $102.7 million (up 1%) and adjusted EBITDA of $25.3 million (up 24%).

Grande originally put itself on the block in January, fueled in part by the high prices fetched by some smaller overbuilders like Everest Broadband, which was sold for $173 million in 2007 to SureWest Communications. That deal worked out to about $4,600 per subscriber, an almost unheard of price for an overbuilder.

Grande hired New York cable investment banker Waller Capital to run its auction, but the looming recession and the banking crisis bogged down the process and limited the number of bidders able to participate. As early as January, Grande chairman and CEO Roy Chestnutt told the San Antonio Express-News that the sale was off.

Waller Capital, which served as Grande Holdings' exclusive financial adviser in the transaction, declined to comment.

Talks between ABRY and Grande heated up in April, when the company was apparently looking to raise debt for a deal and culminated in the June letter of intent between the two parties.

At A Glance

Grande Communications

Grande was formed in 1999 by William Morrow, former chairman and CEO of West Point, Ga.-based overbuilder Knology Holdings. Morrow left Grande in 2006 to devote more time to his other telecom investments. In 2006, Grande hired Chestnutt, formerly Sprint Nextel senior vice president of national field sales and general business, as CEO. He added the chairman's title in 2008.