Cable One developed a winning strategy for investments, particularly in rural America.
Long before cord-cutting or the Rural Digital Opportunity Fund were in the headlines, Cable One was at the forefront of de-emphasizing video in favor of broadband and of expanding into rural markets. The company set upon an M&A frenzy to help it implement those strategies, making 10 investments over the past five years.
“We are interested in purchasing or investing in businesses that provide residential or commercial broadband services in Tier 2, Tier 3 and rural markets. We are primarily focused on businesses that are growing and share similar cultural attributes to Cable One,” says Cable One CFO Steven Cochran.
Take the most recent transaction as an example. In February 2021, Cable One acquired the remaining 85% of Hargray Communications that it didn’t already own. Like Cable One, Hargray is focused on broadband, with 99% of customers in its 14 southern markets having access to Gigabit services.
“The whole way (Cable One) think(s) about customer relationships and competitive positioning is built around broadband, and their cost structure and margins are built around broadband as their core service,” says Craig Moffett, founding partner, MoffettNathanson.
The deal occurred a little over a year after Cable One exchanged its system in Anniston, Alabama, and the surrounding area for 15% of Hargray. This investment first-buy later approach illustrates the provider’s intent to gain stakes in companies that it would consider owning down the road.
“That doesn’t mean we have the right to or that we will eventually own outright every business we invest in, but we need to believe that we would desire full ownership over time,” Cochran says.
Cable One also knows that while it considers itself good at integration, stacking too much can be a recipe for failure. Instead, get a foot in the door and a feel for the company. “This allows us to invest our balance sheet today in assets we like and with teams we believe in, and that allow us to plan for integrations that will happen years into the future,” Cochran says.
It is worth noting that Cable One has been interested in rural systems long before rural was cool. The 2017 acquisition of NewWave Communications, which operated in what Cable One termed “non-urban markets similar to ours” is a case in point.
“Today’s infatuation with rural broadband seems intuitively obvious—lower penetration and less competition can only be a good thing for growth—but when Cable One started down the rural path, those systems were still out of favor,” Moffett explains.
To extend broadband into rural markets, Cable One has a stated technology-agnostic philosophy and has sought out companies with an expertise in areas Cable One wants to strengthen.
There was the 2018 acquisition of Clearwave Communications, for example, which brought 2,400 route miles of metro fiber to the table. And the 2020 addition of FTTH provider, ValuNet, which Cochran says had an “excellent competitive mindset” that Cable One could learn from. Thinking outside the technology box has even led to the world of fixed wireless, with Cable One taking a 40% interest in Wisper and a 10% stake in NextLink. “[These deals] are reflective of our belief that the best way to learn is to do,” Cochran says.
Moving forward, Cable One is busy with integrating Hargray and Fidelity Communications, which was brought into the fold in 2019. The near future will be focused on investment and/or “small tuck-in” acquisitions, Cochran says.
However, with the video-light rural focus cat out of the bag, it might prove harder to find attractive candidates for acquisition. “Cable One’s success means that smaller, privately held operators are demanding much bigger paydays to convince them to sell,” Moffett notes.