Cable Operators

Suddenlink’s Kent Draws $2 Billion Bet

7/23/2012 12:01 AM Eastern

Chalk up another winning deal to Jerry Kent.

Kent, the chairman and CEO of Suddenlink Communications,
has earned a reputation over the years as
a consummate deal-maker, whether it was as a founder
and former CEO of Charter Communications or building
Suddenlink from scratch into the seventh-largest
cable operator in the nation.

Last week, he was at
it again, engineering a
$6.6 billion buyout of
Suddenlink by two investment
funds that
keeps his core management
team in place, provides
a highly profitable
exit for his former partners and provides the MSO with
the necessary capital to grow through acquisition.

British private-equity fund BC Partners and top Canadian
pension fund Canadian Pension Plan Investment
Board teamed up with Kent and two fellow Suddenlink
executives — chief operating officer Tom McMillin and
chief financial officer Mary Meduski — last week on the
deal. When the dust settles, likely in the fourth quarter,
the two funds will have
supermajority control of
Suddenlink, the MSO’s
three top executives will
share a minority interest,
and its former backers —
Goldman Sachs Capital
Partners, Oaktree Capital
Management and
Quadrangle — will walk
away with a three-fold
increase on their original
investment.

In an interview last
week, Kent said he had
two objectives going into
the deal — that it continues the company
tradition of strong returns to
investors and that it provides “forwardlooking”
capital to the 1.4 millionsubscriber
MSO.


CAPITAL INFUSION

Kent said he believes this deal has delivered
on both fronts. He estimated Goldman, Oaktree
and Quadrangle tripled their original investment of $900
million, reaping about $3 billion with this deal. And with
nearly $2 billion in equity — BC and CPPIB will also assume
$4.1 billion in existing debt and will issue another
$500 million in notes — Suddenlink has the capital to
continue investing in the business.

That, Kent said, could also include acquisitions.

Although Kent did not want to talk about potential
targets — he said Suddenlink’s focus has been on getting
its current deal done — the opportunity to grow through
acquisition is greater.

“We are going to continue to be disciplined, but it does
allow us to take a look at opportunistic acquisitions,”
Kent said. “Now that we have this signed, we can pause,
take a breath and think about what our next steps are.”

The deal also provides a boost to private cable valuations:
at 8.6 times annualized first-quarter 2012 cash flow,
it represents the richest multiple so far in 2012, a year that
has seen several strong deals. Suddenlink squeaked by
the previous first-place holder, Wave Broadband, which
agreed to a buyout earlier this year by Oak Hill Capital
Partners, GI Partners and Wave management at an estimated
8.5 times cash-flow multiple.

“It has been a while since we have seen multiples like
that,” said Pivotal Research Group principal and media
& communications analyst Jeff Wlodarczak.

Publicly traded MSOs have trading multiples that
range between 5.8 times and 6.7 times cash flow, according
to Sanford Bernstein cable and satellite analyst Craig
Moffett.

VALUATION BOOST

“The comps set by these transactions are far above
public-equity valuations, a pattern we have discussed
in our research for years,” Moffett wrote in a recent
research report, adding that the lack of liquidity in the
private equity transaction market had served as a roadblock
to higher valuations in the past.

“This flurry of transactions suggests that could finally
be changing,” Moffett added.

Kent said Suddenlink wasn’t formally soliciting offers,
but the deal came together quickly after an initial meeting
with BC Partners about two months ago.

“The bottom line is, we didn’t run a process,” Kent said.
“Our current investors were certainly interested in exit
opportunities in the future. Our partners, led by Goldman
Sachs Capital Partners, were really happy with their
investment and thought we earned the right to decide
who we wanted to write the next chapter.”

TAKEAWAY

The $6.6 billion buyout of
Suddenlink provides the MSO
with management stability and
a war chest.

September