Atlantic Broadband Takes MetroCast Express

It's not just the big guys who are getting bigger in US cableland these days. The midsize guys are getting bigger too, not surprisingly at the expense of the smaller ones.

In the latest manifestation of this trend, Atlantic Broadband announced a deal Monday morning to buy MetroCast Cablevision from Harron Communications for $1.4 billion. The transaction, expected to close in January 2018, will make Atlantic Broadband the ninth largest MSO in the US with cable systems in 11 states up and down the Eastern Seaboard. It comes after Atlantic Broadband bought MetroCast's Connecticut cable operation for $260 million in 2015 and has enjoyed early success in spurring the growth of those properties. (See Atlantic Broadband to Acquire MetroCast Connecticut.)

A subsidiary of Cogeco Communications (Toronto: CCA), one of the four largest MSOs in Canada, Atlantic Broadband has been growing like a bad weed for the past few years through both acquisitions and organic expansion. Thanks to that growth and some consolidation among the largest MSOs, it has catapulted from the 13rh largest US cable operator just two years ago to a top-ten player nipping at the heels of other midsize MSOs like Cable One Inc. , WideOpenWest Holdings LLC (WOW) and TPG Capital .

With the closing of the MetroCast deal next winter, the Quincy, Mass., based operator will pass another 236,000 homes in five states – Maine, Maryland, New Hampshire, Pennsylvania and Virginia -- giving it a total of nearly 830,000 homes passed across its new footprint. It will gain 120,000 broadband, 76,000 video and 37,000 telephony customers, boosting its number of "primary service units" to 835,000 and its total customer base to well more than 400,000. As a result, it will add about $230 million in revenue to its top line, raising its total annual revenues above $700 million.

Of course, compared to the likes of such giant US cablecos as Comcast Corp. (Nasdaq: CMCSA, CMCSK) and Charter Communications Inc. , Atlantic Broadband will still seem pretty puny. But, like the three midsize MSOs standing just above it in the size rankings, Atlantic Broadband does not intend to remain all that puny for long. In addition to the MetroCast purchase, the company also announced Monday that its parent firm, Cogeco, has received a cash infusion of $315 million from Caisse de depot et placement du Quebec (CDPQ), a French Canadian pension fund committed to investing in US properties. Atlantic Broadband plans to use its new "partnership" with CDPQ to buy other cable properties in the US.

With CDPQ's financial backing and fresh 21% stake in the US cable operation, "we have deep pockets for additional opportunities that may come up in the future," said David Isenberg, president and chief revenue officer of Atlantic Broadband. "We continue to seek the right strategic fit." He declined to say how much bigger the cableco aspires to be.

What's unclear, though, is how many right strategic fits remain out there for Atlantic Broadband to find. With Charter, Altice , Cable One, WOW and TPG Capital all aggressively seeking new cable properties as well, the pickings could be pretty slim. (See Post IPO, What Does Altice USA Acquire Next? )

Getting back to the news, Atlantic Broadband executives view MetroCast as the right strategic fit today for a number of reasons, starting with its technically advanced cable systems. In a presentation made to investors, they stressed that MetroCast operates a "fully digital network, comprised of 860 MHz or fiber-to-the-home, in 95% of the network." They added that MetroCast already offers broadband speeds as high as 150 Mbit/s across its entire footprint.

Atlantic Broadband officials have also been eyeing MetroCast because its systems are concentrated in somewhat upscale markets outside the major East Coast cities and generally compete against weak service offerings from the incumbent telcos. For instance, MetroCast now faces wireline triple-play competition in just 5% of its footprint and mainly competes against slow DSL speeds on the broadband end.

Finally, Atlantic Broadband executives salivate over the growth opportunities that the MetroCast markets present on both the residential and commercial sides of the business. They point to the progress that they've made in MetroCast's former Connecticut systems, increasing business services revenue by 65% and doubling overall revenue growth to more than 10% a year.

Plans call for upgrading the MetroCast service offerings shortly after the deal closes in January. Among other things, Atlantic Broadband execs intend to extend their TiVo-powered video and gigabit broadband offerings to the new systems, starting next spring. "We have a previous playbook that we know we can put to work here," Isenberg said. "We see it as a tremendous growth opportunity."

What Atlantic Broadband's plans don't call for is selling out to Comcast, Charter, Altice or any of the other larger MSOs on the hunt. "Growing in the US market is a critical strategy for Cogeco," Isenberg said. "We're clearly on the buy side, not the sell side."

— Alan Breznick, Cable/Video Practice Leader, Light Reading