During trading hours, Cogeco Cable Inc.(TSE:CCA) disclosed that its wholly owned subsidiary Atlantic Broadband (ABB) has entered into a definitive agreement to acquire the assets of MetroCast Connecticut for $200 million. The tax adjusted purchase price, which reflects the tax benefit of amortizing intangible assets in an asset purchase, represents a multiple of approximately 7.9x 2015 expected Adjusted EBITDA of the business being acquired. The purchase price is subject to customary closing adjustments.
MetroCast Connecticut’s network passes close to 70,000 homes and businesses across nine communities in eastern Connecticut including New London, Waterford, East Lyme, Montville, Plainfield, Killingly, Sterling, Griswold, and Putnam. Additionally, MetroCast Connecticut’s system serves approximately 23,000 TV, 22,000 Internet and 8,000 Phone customers with expected 2015 revenue of approximately US$45 million and Adjusted EBITDA of approximately US$21 million.
“With eastern Connecticut’s strong demographics and MetroCast Connecticut’s well-maintained networks, this acquisition brings sizeable residential and business growth opportunities,” said Atlantic Broadband President and Chief Executive Officer, Richard Shea. “Our goal is to deliver the best TV, Internet and Phone services combined with responsive local support to the communities we serve. We look forward to welcoming MetroCast Connecticut’s customers and employees to Atlantic Broadband.”
“We have been pleased with the results of our Atlantic Broadband acquisition and we are excited to continue our geographic expansion in the U.S. market,” said Louis Audet, President and Chief Executive Officer, Cogeco Cable Inc. “This transaction enhances our growth profile through the planned launch of new residential services such as TiVo and Metro Ethernet for businesses.”
Cogeco Cable Inc. intends to finance this Transaction through non-recourse debt to be issued by Atlantic Broadband. The Transaction is subject to regulatory governmental approvals along with other customary closing conditions and is expected to close during the third calendar quarter of 2015. RBC Capital Markets served as the exclusive merger and acquisition advisor to MetroCast Connecticut in connection with this Transaction.
The acquisition enhances company’s growth profile heading into F2016. Cogeco Cable management has been hinting at further US cable acquisition since it acquired ABB, so this should not be a surprise. Based on our initial estimates, we expect the transaction will be to some extent accretive to FCF by 2% in F2016.
We reiterate our “Sector Perform” rating and $75 target.