Continuing the wave of industry consolidation, Cable One announced its intent this morning to acquire NewWave Communications for $735 million in cash.
If consummated, the deal will help Cable One Inc. leapfrog a spot or two on the US cable company leaderboard, putting it likely ahead of WideOpenWest Holdings LLC (WOW) with somewhere north of 800,000 customers to make it possibly the sixth largest American MSO. Cable One is on track to report more than $800 million in revenues from 2016, while NewWave had an estimated $180 million in revenues last year, according to investor materials made available around the proposed acquisition.
As with all of the recent cable M&A activity, Cable One is looking to boost its scale in a market that is increasingly controlled by a few top service providers. The deal with NewWave should help Cable One compete more effectively for customers, while also making it a more attractive takeover target in its own right for cable operators higher up the food chain. The move follows another mid-tier takeover announced last August when private equity firm TPG Capital said it would acquire RCN Corp. and Grande Communications for $2.25 billion. (See TPG Splashes $2.25B on RCN & Grande and TPG's Slice of the Cable Market Still Small.)
In bringing NewWave on board, Cable One has an opportunity to extend its footprint in areas of Arkansas, Illinois, Indiana, Louisiana, Mississippi, Missouri and Texas. Unlike the TPG acquisition, NewWave's customers are largely in non-urban areas with few effective competitors for residential service. Cable One also sees upside potential for business services revenue with the transaction, citing under-penetration of that market by NewWave today.
Measuring Cable One's exact size after the NewWave acquisition isn't a straightforward calculation. Ahead of the transaction, Cable One lists 658,000 subscribers in its customer roster. NewWave does not break out its specific customer numbers, but does report 214,000 residential primary service units (PSUs) and 31,000 business services PSUs. The PSU metric typically accounts for discrete voice, video and data service orders, which means there are more PSUs than total customers. Cable One lists 882,767 residential PSUs and 75,397 commercial PSUs in a recent financial statement.
Together, Cable One and NewWave will tally just over 1.2 million PSUs.
In the broader US cable market, Cable One now ranks somewhere between number six and number eight among the top ten providers. Ahead of Cable One are Comcast Corp. (Nasdaq: CMCSA, CMCSK), Charter Communications Inc. , Altice , Cox Communications Inc. and Mediacom Communications Corp. . Both WOW and TPG (with the acquisition of RCN and Grande) are neck and neck with Cable One as measured by total customers.
— Mari Silbey, Senior Editor, Cable/Video, Light Reading