System Sales Jump, as Does Cost

BY K. C. NEEL Cable system sales are on the increase, and if Cequel III’s $85 million purchase of Shaw Communications’ Texas properties is any indication, prices are up as well. Cequel agreed last week to pay a $3,185 per subscriber for Shaw’s Lone Star State systems, which have 27,000 customers. In addition, Patriot Media & Communications closed its $245 million acquisition of RCN Corp.’s Princeton, N.J., property that serves 80,000 customers. That deal translates into $3,062 per customer. Most secondary market sales have ranged in price between $800 and $1,800 per subscriber in recent years, although growing interest in these markets may be spurring prices. Several cable veterans have jumped back into the cable business in recent weeks, including Bill Bresnan, who agreed to buy systems serving 713,000 customers from Comcast Corp. Others, like Ben Hooks, who sold his Buford TV to Classic Communications a few years ago, remain on the prowl. Cequel and Patriot also plan to expand. Not all tertiary or secondary market systems will command such high prices, despite a growing pool of buyers, says Daniels & Associates CEO Brian Deevy. These buyers are generally committed to a conservative pricing strategy and, moreover, they loathe the idea of bidding wars, he adds. Patriot CEO Steve Simmons didn’t want to get into a bidding war, yet that’s exactly what he did. “There were eight parties vying for this [Princeton] property,” Simmons says. The price he ended up paying was worth every penny, he adds. All 80,000 customers are already served by one head-end, creating a slew of efficiencies right off the bat, he says. The demographics alone — the area ranks in the top 1 percentile for household income and is home to several Fortune 500 companies — were worth a premium, he adds. Cequel’s SVP of corporate development, Paul Estes pointed to the Shaw properties’ 28% penetration rate as one of their main attractions. They will also fit nicely with the Classic properties the company agreed to take control of earlier this month, he said in a prepared statement. Deevy believes more properties will come on the market this year, but he’s not sure buyers will pony up the kind of bucks Cequel and Patriot recently agreed to pay. “What’s not necessarily strategic for a larger operator may be very strategic for a smaller operator, so more properties will probably be available later this year,” he says. “But these guys are determined to remain disciplined when it comes to making acquisitions.” Still, “the fact that things are beginning to get done would suggest that they are willing to pay a bit more and buyers are willing to negotiate a bit more, too,” Deevy says. Simmons is convinced there are plenty of opportunities now even if they can’t match the demographics or technological convenience of his Princeton operation. He’s committed to spending $40 million to upgrade the system to 870 MHz. Patriot is currently offering digital video and high-speed data and plans to launch video-on-demand and high-definition by mid-2004. He also plans to eventually offer Voice over IP telephony services.