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Dec. 13 —Crestview Partners announced on Dec. 11 that one of its funds will acquire “a significant stake” in overbuilder Wow, formerly known as WideOpenWest, in a deal that may indicate how the next phase of U.S. cable industry consolidation will play out.
With most of the large U.S. cable operators now out of play—assuming that Charter's bid for Time Warner Cable, Inc. and Bright House Networks, and Altice's purchase of a majority of Suddenlink Communications and all of Cablevision Systems Corp. are completed—would-be consolidators' attention is turning towards smaller operators such as Wow.
“Charter still says they are interested,” Bloomberg Intelligence analyst Paul Sweeney said, “But after Cox (Communications, the fourth largest U.S. MSO) there is really nothing out there of size, so lots of ones and twos, singles and doubles,” in terms of deal size. “We’ll see some smaller companies get bought, particularly if interest rates remain relatively low. The leveraged credit market and the high-yield loan market loves the cable industry.”
Even assuming the big deals go through, Sweeney says, he does not expect regulators to raise objections to large companies adding smaller systems.
Denver, Colo.-based Wow is the 9th largest cable system operator in the U.S., with approximately 728,000 subscribers across 10 states in the Midwest and Southeast. The company was itself formed in a series of acquisitions, including Knology in 2012. Most of Wow's systems operate in markets where an incumbent cable provider also serves residential and commercial customers.
The company faces comparatively little competition from advanced telco networks in its primarily small-market and rural service areas.
Unlike cable consolidation waves predating the most recent mega-deals, however, smaller operators will not be a good investment if they have not upgraded their networks to support competitive broadband speeds.
Private equity investors are likely to seek out smaller MSOs that have already made investments in their broadband infrastructure, with the intention of investing a relatively small amount to complete the job before looking for a buyer.
Crestview's funds will purchase Wow shares held by Avista Capital Partners and other holders for an undisclosed sum, and make an additional $125 million investment in the company.
As of Jan. 1, Crestview Partner Jeffrey Marcus will become Wow’s new board chairman, replacing former Wow CEO Colleen Abdoulah, who will retire as chairman but will continue to serve as a director.
Like most of its peers, Wow is increasingly focused on its broadband Internet access business and on competing for small and mid-sized business customers as video subscriptions decline. Wow has lost video customers in each of the last five quarters, ending the third quarter with 565,000 video accounts, compared to 654,000 at the end of June 2014. Wow needs to turn around its data business as well, however, having lost approximately 18,000 high-speed data customers in the same period.
Wow does not report commercial subscriber counts, but third quarter 2015 commercial revenue of $25.3 million represented approximately 11 percent of total revenue compared to 9 percent a year earlier.
“Steven and the management team have done a great job over the years building WOW! into the ninth largest cable company in the U.S.,” Brian Cassidy, a partner at Crestview, said in a statement. “We are excited about the high-speed data and commercial opportunity, and our capital should help the company continue its growth.”
Crestview has a history of investing in cable systems, including Adelphia Communications' Puerto Rico properties in 2005, Insight Communications in 2010, and Charter Communications, Inc. during its bankruptcy. Those companies have since been sold to Liberty Global plc, Time Warner Cable and Liberty Media plc, respectively.
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