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Small-System Prices No Jackpot

Phoenix – Small cable systems sell far below the premiums of larger, high-capacity systems, a veteran cable broker said Tuesday, offering a somewhat grim reality check of valuations.

“You always read in the papers about the big deals – all of them for $4,000, $5,000, $6,000 a subscriber,” said Pat Thompson, managing director of RBC Daniels. “All systems are not created equal…All systems don’t sell for $5,000 a sub.”

She offered her analysis during a panel, “Leveraging Assets,” at the National Cable Television Cooperative’s Winter Educational Conference.

“Can you afford what the FCC is demanding you to do?” said panel moderator Dan Mulvenon, the NCTC’s vice president of corporate communications. “Selling may be a viable choice for some companies. It may end up being a forced decision for others.”

During the confab, Thompson presented price comparisons for sales last year of a number of different-sized systems, noting that very small low-capacity systems have sold at the per-subscriber prices of only $200 to $300.

But she started her presentation talking about the top of the market. For example, a 82,000-subscriber system, which was 860 MHz, sold for $483 million, or 8.7 times cash flow. That averaged out to $6,000 per subscriber.

Such sales have usually been at 10 to 12 times cash flow, Thompson said.

Three 750 MHz cable systems, with subscriber counts ranging from 4,000 to 1,000 homes, all sold at 10 times cash flow, at prices ranging from $12.5 million to $2.2 million. That came out to anywhere from $4,600 to $2,100 per subscriber, according to Thompson.

But prices dropped precipitously the smaller a system’s capacity.

For example, sales of three 450 MHz systems yielded figures of from $3,150 to over $1,000 per subscriber. In those examples, a 7,800-subcriber system sold for $8.4 million, yielding around $1,077 per subscriber, while a 2,000-subscriber system sold for $6.3 million, or $3,150 a subscriber.

“The small deals still get done,” Thompson said. “They take a little bit longer and you have to find just the right buyer.”

The two systems that garnered the worst per-subscriber prices were only 300 MHz to 450 MHz, according to Thompson. They sold at just $300 to $200 per subscriber, for total prices of $402,000 and $235,000.

“This is when we start getting into trouble, when we have the 330 MHz systems, and you’re also in a very rural area where you can’t tie in with other operating companies,” Thompson said. “The value makes you very sad, but these people needed to sell, and they did,” she said. “In the good days, you would be able sell these systems to people who wanted to amass subscribers, but you can’t do that anymore.”

In general, Thompson said it was her experience that smaller systems typically sell at prices seven to eight times cash flow.

But despite it all, she remained bullish about the future of small independent operators.

“In ’82 when I started my own company, I was told that if I was lucky I would have five years, because at the end of five years all the independent cable operators would be gone,” Thompson said. “Well, it’s 26 years after that, and guys, you’re still here.”