U.S. cable MSO Cable One (NYSE: CABO), Hargray Communications, and The Pritzker Organization, LLC (TPO) reveal they have reached an agreement that will see Cable One acquire the 85% of Hargray it doesn’t yet own. TPO leads the investor group that owns the majority share; the group also includes Stephens Capital Partners, Redwood Capital Investments, and WaveDivision Capital. The deal, which is expected to close in the second quarter of 2021, implies a $2.2 billion total enterprise value for all of the equity interests of Hargray on a debt-free and cash-free basis.
Founded in 1947, Hargray provides triple-play services in parts of South Carolina, Georgia, Alabama, and Florida. That footprint has expanded significantly since the TPO group first invested in Hargray in 2017, thanks in part to a series of mergers (see, for example, “Hargray acquires ComSouth to extend southeast network,” "Hargray announces acquisition of Dark Fiber Systems," and "Hargray continues buying spree with Kingsland Cable/Internet"). One of those saw Cable One contribute infrastructure in Alabama, a deal that led to the cable MSO’s stake in Hargray (see “Cable One swaps Alabama assets for stake in Hargray Communications”). Now Cable One seeks full ownership of the company to re-enter the Southeastern U.S. and leverage Hargray’s fiber expansion expertise.
“We look forward to further partnering with Hargray to extend our presence in the Southeast through Hargray’s fast-growing markets, like-minded strategy, and commitment to providing fast and reliable internet service to rural markets,” said Julie Laulis, Cable One president and CEO. “This transaction will also serve as a potential platform for future organic and inorganic growth in the region as we look to continue to expand our footprint.”
Cable One says Hargray generated approximately $128 million in adjusted EBITDA on an annualized basis for the quarter ended December 31, 2020 (4Q LQA). However, Hargray experienced a 4Q LQA net loss of approximately $28 million. Cable One expects to realize approximately $45 million in estimated annual run-rate synergies within three years of closing the sale. With this in mind, the purchase price represents a 17.2X multiple on Hargray’s 4Q LQA adjusted EBITDA without the expected synergies included and 12.7X with the synergies considered immediately realized.
The pending sale was not the result of TPO and its co-investors looking for an exit, according to Hargray executives. “We were not looking to sell, but one of our strategic partners presented us with an attractive opportunity. We worked with TPO to refine our views, and they and our other investors supported this transaction,” explained Michael Gottdenker, Hargray’s chairman and CEO.
“Since last year when Cable One contributed its Anniston, AL, system in exchange for a minority interest in Hargray, it has become even more apparent that both companies have decidedly complementary mindsets, cultures, and core values, which I am confident will enable our colleagues, customers, and communities to continue to thrive with Cable One as our sole owner,” Gottdenker added.
Cable One says it plans to finance the acquisition via a combination of existing cash resources, revolving credit facility capacity, and proceeds from new indebtedness and/or equity capital. The company adds it has received $900 million of definitive bridge loan commitments from J.P. Morgan and Credit Suisse to finance a portion of the purchase price.
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Stephen Hardy | Editorial Director and Associate Publisher, Lightwave
Stephen Hardy is editorial director and associate publisher of Lightwave and Broadband Technology Report, part of the Lighting & Technology Group at Endeavor Business Media. Stephen is responsible for establishing and executing editorial strategy across the both brands’ websites, email newsletters, events, and other information products. He has covered the fiber-optics space for more than 20 years, and communications and technology for more than 35 years. During his tenure, Lightwave has received awards from Folio: and the American Society of Business Press Editors (ASBPE) for editorial excellence. Prior to joining Lightwave in 1997, Stephen worked for Telecommunications magazine and the Journal of Electronic Defense.
Stephen has moderated panels at numerous events, including the Optica Executive Forum, ECOC, and SCTE Cable-Tec Expo. He also is program director for the Lightwave Innovation Reviews and the Diamond Technology Reviews.
He has written numerous articles in all aspects of optical communications and fiber-optic networks, including fiber to the home (FTTH), PON, optical components, DWDM, fiber cables, packet optical transport, optical transceivers, lasers, fiber optic testing, and more.
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