WOW Makes Its Case for IPO
Cable operator WOW has filed preliminary documents with the SEC in preparation for an initial public offering. The goal as stated in the filing is to raise up to $100 million, although investment research firm Renaissance Capital estimates that the company could go much higher to raise up to $750 million.
WOW also received $125 million in new funding just 15 months ago from private equity firm Crestview Partners. (See WOW! Wins $125M Private Equity Investment.)
Currently, WideOpenWest Holdings LLC (WOW) is ranked as the sixth-largest cable operator in the US, with a footprint that covers roughly 3 million homes and business. Revenues in 2016 were $1.24 billion, with net income recorded at $26 million at the end of last year. Because WOW is a long-time overbuilder, the company competes with other cable operators in several of its regions including Comcast Corp. (Nasdaq: CMCSA, CMCSK) in 53% of its customer footprint, and Charter Communications Inc. in 39%.
While there are well-known business risks facing WOW, as there are across the cable industry as a whole, the company makes the case that its business remains strong in part because of a decision to focus on high-speed broadband offerings over lower-margin video services. To that end, WOW now has nearly half again as many broadband subscribers as video subs, with those broadband customers contributing 45% of gross profit. Video subs, in contrast, contribute only 24% of gross profit, although still 44% of total revenue.
WOW also argues that it has invested heavily in its network. The company is bringing 1.2GHz plant to new communities, while 97% of its existing operations are running at 750MHz or above. Additionally, WOW has been trialing both distributed access architecture technology in the residential market, and a virtualized CPE product for its business services customers. (See Nokia Swings Deal for Gainspeed and WOW Trials NFV for Business, Eyes Residential .)
The cable operator believes it has further room to grow in the commercial services sector, as well as an opportunity to expand its addressable market through an "edge-out" strategy of extending its customer territory to neighboring communities.
The move by WOW to go public is only the latest sign of a shifting cable landscape. In January, Cable One Inc. announced its intention to acquire NewWave Communications for $735 million. Should that deal go through, Cable One would overtake WOW in size, giving it a total of roughly 1.2 million primary service units. (See Cable One Bids $735M for NewWave.)
For both Cable One and WOW, the clear perceived mandate is to participate in the broader trend of cable consolidation. By strengthening their own operations through acquisition and IPO respectively, the two cable companies should be able to compete more effectively and perhaps make themselves attractive for later takeover by a larger operator.
WOW's current primary investors include Crestview Partners and Avista Capital Partners. UBS Investment Bank and Credit Suisse are handling Wow's IPO preparation.
— Mari Silbey, Senior Editor, Cable/Video, Light Reading