In a deal that has been a long time in the making, a Hicks, Muse, Tate & Furst-led investment group recently agreed to acquire Canadian cable operator Persona Inc. in a public-to-private transaction valued at roughly C$406 million ($307 million). Hicks Muse will be joined in the investment by TD Capital Canadian Private Equity Partners and CIBC Capital Partners.
The deal, totaling C$6.80 a share, represents a 32% premium over the company’s closing price the session prior to the announcement. And BMO Nesbitt Burns, in a research note to clients, said, “[The purchase price] implies an acquisition multiple of roughly 8 times last 12 months’ Canadian cable EBITDA, or roughly $1,615 per subscriber.” That number, the bank said, is in line with and slightly below the trading multiples of public Canadian cable operators Cogeco and Rogers.
The investor group is only acquiring Persona’s Canadian operations, leaving the company’s Bahamian assets-essentially Columbus Communications -to be acquired by Persona Director and 14% Shareholder Philip Keeting, who has agreed to pay roughly C$45 million in cash and stock.
For Hicks Muse, the cable industry represents familiar landscape, having made several acquisitions in the space prior to this deal. “We were initially interested in this transaction because we’ve made a lot of acquisitions in cable before, and feel we have some proprietary knowledge and can add some value,” Hicks Muse Partner Peter Brodsky said. Other cable deals for the Texas-based firm include investments in Marcus Cable Co., Teledigital Cable, and most recently Aster City Cable.
In pursuing Persona, Brodsky said, “We were able to find a company that has already made significant investments in its plant. This is a predominately rural and suburban cable system, but it already offers digital services to 70% of its customers, and 50% of the customer base can access high speed data.”
In addition to cable television and digital cable access, Persona also provides high-speed and dial-up Internet, as well as other telecom services. The company, which trades on the Toronto Stock Exchange under ticker symbol “PSA,” caters to over 223,000 customers in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec and Newfoundland.
Brodsky could not comment on the terms of the transaction, other than to say the firm is lining up a senior debt facility to help finance the deal, while the equity will come out of Hicks Muse’s $1.6 billion Fund V.
Scotia Capital, in a research note, indicated that Hicks Muse will control the majority of the economic ownership, while Canadian firms CIBC and TD will garner more than 66.67% of the voting shares in order to comply with Canada’s foreign ownership restrictions.
Scotia also noted, “CIBC and TD were in the banking syndicate (likely in a substantial way), whose debt covenants had been breached in the last quarter or two.”
Persona had been actively shopping the Canadian assets since early last year as part of its “shareholder value maximization process,” which was initiated in order to address its outstanding debt obligations.
PE Flips To Cable
Private equity has been drawn to the cable sector primarily for its stability, but the sector also represents a substantial growth opportunity with the proliferation of digital cable and the bundling of other interactive services, such as Internet and telecommunications.
In 2003, buyout sponsors were especially active in the space. Among the more notable deals last year were the Providence Equity Partners-led $1.86 billion purchase of Deutsche Telekom’s cable unit, The Carlyle Group/GMT Communications Partners $700 million purchase of France Telecom’s Casema unit and Spectrum Equity Investors $245 million buyout of select RCN Corp. assets. Other cable buyouts included purchases of Gans Communications, Intercable, and certain rural assets of Comcast, among others.
“I think cable is an attractive investment because it is highly valued by its customers,” Brodsky said. “The sector also has a stable base of cash flow and with the advent of high speed data, there are some additional opportunities available, giving the sector some legitimate growth potential.”
Buyer: Hicks, Muse, Tate & Furst, TD Capital Canadian Private Equity Partners and CIBC Capital Partners
Target: Persona Inc.
Seller: Service Corp. International
Advisors: PI:TD Securities, Crosbie & Co.
Legal Counsel: HMTF: Weil, Gotshal & Manges and Fasken Martineau DuMoulin; PI: McCarthy Tetrault
Accountant: HMTF: KPMG