One Day, Two Cable Companies, $8B In Deal Value

In the larger deal, BC Partners and CPP investment Board agreed to buy Cequel Communications Holdings LLC from investors led by Goldman Sachs Capital Partners, Quadrangle Group and Oaktree Capital Management in a deal valued at $6.6 billion. Cequel, doing business as Suddenlink Communications, is the seventh largest cable operator in the United States, offering television, Internet and telephone services to 1.4 million customers, primarily in Texas, West Virginia, North Carolina, Oklahoma, Arkansas and Louisiana.

Quadrangle, the second-largest shareholder with 16.6 percent of the company, is looking at a total return of more than 3x its $150 million investment, when including dividends, as sister Web site peHub reported.

For Goldman Sachs Capital, the exit is a long time coming: The firm invested $100 million in the company back in 2004, and invested another $250 million in 2006. A source close to the deal said the Goldman team was the most eager seller, noting the hold time of the investment and the fact that Gerry Cardinale, a senior partner in the group quoted in a press release announcing the deal, announced in June that he was leaving the firm. Hughes Lepic, who oversees Europe, the Middle East and Africa for Goldman’s merchant banking division, announced his retirement at the same time.

“My sense is that Goldman is in realization mode on older deals,” this source said. “I think [Cardinale] wanted to get it done before he left.”

This same source noted that for sponsors, cable companies are particularly enticing right now because their revenues can often be more reasonably predicted than other businesses. That’s a critical attribute in an unsteady economy in which many firms are skittish about buying companies because it’s so hard to foresee how they’ll perform in the coming quarters, he said.

“A lot of things can go less well than you hoped and as a private equity investor you can still make low double-digit returns,” the source said. “On the other side, if things go well, you might get into the low 20s [on internal rate of return], and as a private equity investor today, that’s a pretty good outcome.”

Suddenlink, for example, is fairly protected from Verizon and AT&T, which have determined that the housing density in the regions Suddenlink serves don’t promise attractive enough returns for the companies to upgrade their copper telephone networks with the fiber networks necessary to adequately challenge Suddenlink’s offerings, the source said. BC Partners Co-Chairman Raymond Svider echoed those sentiments in the deal announcement.

“Cable…epitomizes the defensive growth characteristics we typically seek in an investment,” Svider said in the press release.

In the other deal, Canada’s Cogeco Cable Inc. agreed to buy U.S. cable operator Atlantic Broadband Finance LLC, which serves about 250,000 customers in Pennsylvania, Maryland, Florida, Delaware and South Carolina, in a deal valued at $1.36 billion, from ABRY Partners and Oak Hill Capital Partners.

The firms and their co-investors a 250 percent gain on a $261 million equity investment made in 2004, which includes $300 million the firms will make on the sale and $624 million of dividends they’ve already collected through dividends, according to The Deal.

Executives at Goldman Sachs and ABRY Partners were not immediately available. Executives at Oak Hill declined to comment.