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TELECOMMUNICATIONS MERGERS & ACQUISITIONS PERSPECTIVES

Q3 2017

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The telecommunication services industry experienced a 24.6 percent year-over-year (YOY) decrease in the number of mergers and acquisitions during the nine months ended September 30, 2017, compared with the same period in 2016. There was a total of 43 transactions in 2017 versus 57 transactions in 2016.

However, the median capital invested increased by 33.3 percent in the nine months ended September 30, 2017, to $137 million compared to $103 million in the same period in 2016. This illustrates that although there are fewer deals being done, the consolidation trend within the industry continues to drive aggregate deal value totals higher.

OVERVIEW & OUTLOOK

2

The U.S. telecommunications industry continues to experience growth, with new consumer services and product features bolstering demand. Industry operators are meeting that demand either through innovation or consolidation, with the largest industry players seeking strategic growth through acquisitions. As the landscape continues to rapidly change and evolve due to greater levels of connectivity and changing consumer preferences, the strongest companies will implement a forward-looking model in order to grow and thrive in this environment, which will often involve strategic acquisitions. For small to middle-market companies in the space, this presents an attractive opportunity to exit at a time when valuations are high and sellers are scarce. When combined with a more favorable regulatory environment, these factors will continue to facilitate strong deal flow in the industry.

57

43

YTDSep.'16

YTDSep.'17

$103

$137

Telecommunication Services Deals Median Capital Invested

CONTENTS

Transaction Activity

Industry Highlights

Industry Segment Trends

Wireless Telecom Services

Fiber Infrastructure & Broadband Services

Wireless Towers

Data Centers

Cable Service Providers

About BKD Corporate Finance

ABOUT BKDCF

Founded in 1994, BKD Corporate Finance helps companies and stockholders go beyond their numbers by creating value through investment banking solutions that include mergers, acquisitions, sales, recapitalizations, management buyouts and financings.

Source: S&P Capital IQ , includes all Telecommunications Services Deals in the U.S.


TRANSACTION ACTIVITY

3

1.5

X

1.5

X 2.1

X

1.5

X

0.9

X

2.1

X

2.9

X

1.8

X

3.3

X

1.3

X

3.0

X

0.0X

1.0X

2.0X

3.0X

6.1

X

5.0

X 7.2

X 8.8

X

8.4

X

7.8

X

8.3

X

7.0

X

9.5

X

6.4

X

8.8

X

0.0X

2.0X

4.0X

6.0X

8.0X

10.0X

Telecommunication ServicesMedian EV/Revenue Multiples

Telecommunication ServicesMedian EV/EBITDA Multiples

INDUSTRY HIGHLIGHTS

The FirstNet buildout spearheaded by AT&T and slated to begin in early 2018 could offset the wireless towers subsector exposure to the large carriers. Especially, given AT&T’s need to overlay an entire frequency band required for a national first responder network, coupled with the carriers need to upgrade their networks to 5G in the coming years. Most states that have made decisions regarding the national network, excluding New Hampshire, have opted in to FirstNet.

Local exchange carriers continue to redefine themselves, as fiber transport and broadband connectivity remain robust helping to offset the erosion of plain old telephone service. Federal funding continues to play a role in the buildout of rural areas in an effort to “Connect America” and offer broadband connectivity to all.

Cable companies are feeling greater pressure to provide desirable content, given the threat of over-the-top (OTT) delivery of content from services like Netflix, Hulu and Amazon. Cable companies must take advantage of their embedded networks to deliver carrier class voice and broadband connectivity to both enterprise and residential consumers. Wireless offerings (as a reseller) provide cable companies with a more robust bundled service offering, and they are starting to hit the market (Verizon Wireless/Comcast and AT&T/DirecTV) with the verdict still out as to how they will compete and thrive in an already crowded arena. The AT&T/DirecTV promotional offerings may mute the wireless efforts.

Data centers and fiber networks remain the most sought after segment as most facilities and networks continue to build out for capacity, speed and new cloud product offerings around artificial intelligence, with 5G speeds (fronthaul and backhaul) coming as early as 2020.

Source: S&P Capital IQ , includes all Telecommunications Services Deals in the U.S.

10

3

8

4

10

8

Other


Data Centers

Wireless Towers

Fiber Infrastructure & Broadbrand Services

Wireless Telecommunication Services

Transactions by Industry Segment - YTD September 2017


TRENDS FOR WIRELESS TELECOMMUNICATION SERVICES

4

Acquisitions have been and continue to be an attractive solution for wireless telecommunication service providers seeking to enter new markets. While deal flow in the segment has slowed by 33.3 percent YOY in the U.S., there are many large transactions occurring involving companies buying rivals on their core networks in order to gain market share and support pricing.

Select Transactions

Sprint (S) was in talks with T-Mobile (TMUS), but called off discussions in November.

AT&T (T) due to close on TWX in 2018, if the deal can clear the U.S. Justice Department’s antitrust lawsuit and all approvals are satisfied.

Sector Telecom Georgia acquired ITC Cellular for $72 million on July 20, 2017.

Wireless Innovation was acquired by Lyceum Capital through a $25.9 million LBO on August 23, 2017. Lyceum intends to use the business as a platform for a buy-and-build project in the managed services sector.

FairPoint Communications was acquired by Consolidated Communications for $1.5 billion on July 3, 2017.

3732

1915 17

2521 19

15 14 128

05

10152025303540

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 YTD Sep.'16

YTD Sep.'17

U.S. Wireless Telecommunications Services Transactions2007 – YTD September 2017

Source: S&P Capital IQ

Public Comparables

Ticker Price TTM TTM Enterprise EBITDA EV to EV to

Company (9/30/2017) High Low Revenue EBITDA Value Margin Sales EBITDA

Wireless Telecommunication Services

AT&T T 39.17 43.03 35.10 160,711 48,829 362,348 30.4% 2.25 7.42

Verizon VZ 49.49 54.83 42.80 124,419 43,975 316,603 35.3% 2.54 7.20

Sprint Corp S 7.78 9.65 5.83 33,172 11,176 63,853 33.7% 1.92 5.71

T-Mobile TMUS 61.66 68.88 44.91 39,627 10,612 82,162 26.8% 2.07 7.74

Median 82,023 27,576 199,382 32.0% 2.16 7.31

Mean 89,482 28,648 206,241 31.5% 2.20 7.02

in millions of dollars

52 Week


TRENDS FOR FIBER INFRASTRUCTURE & BROADBAND SERVICES

5

The flurry of consolidation in fiber and broadband services that occurred over the past 10 years continues into 2017. While deal flow has slowed by 37.5 percent YOY, large transactions continue to take place as companies search to expand their customer base, enhance operational efficiencies and increase purchasing power.

Select Transactions

Hawaiian Telcom Holdco (HCOM) reached a definitive agreement to be acquired by Cincinnati Bell (CBB) for $650 million on July 10, 2017. The acquisition will enable Cincinnati Bell to bring greater operational scale and an established market position to a new geography and seize on the growing demand for fiber.

Windstream Holdings (WIN) acquired Broadview Network Holdings on July 28, 2017, for $227.7 million.

Luna Innovations agreed to sell its high-speed optical receiver (HSOR) business to MACOM Technology Solutions for $33.5 million on August 9, 2017.

WideOpenWest agreed to sell its fiber-optic network assets in Chicago market to Verizon Communications for $225 million on August 1, 2017.

Lightower Fiber Networks reached a definitive agreement to be acquired by Crown Castle International for $7.1 billion on July 18, 2017.

U.S. Fiber Infrastructure & Broadband Services Transactions2007 – YTD September 2017


Public Comparables

4437

4247

38

46

34

2024 22

1610

0

10

20

30

40

50

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 YTD Sep.'16

YTD Sep.'17



Fiber Infrastructure & Broadband Services

Cincinnati Bell, Inc. CBB 19.85 24.45 16.05 1,147 282 2,035 24.6% 1.77 7.22

Cogent Communications CCOI 48.90 50.25 34.23 465 146 2,639 31.3% 5.68 18.12

Zayo Group Holdings ZAYO 34.42 35.65 29.30 2,338 1,061 13,903 45.4% 5.95 13.11

Century Link* CTL 18.90 33.45 18.17 16,620 5,940 35,123 35.7% 2.11 5.91

Median 1,743 671 8,271 33.5% 3.90 10.16

Mean 5,143 1,857 13,425 34.3% 3.88 11.09


52 Week


TRENDS FOR WIRELESS TOWERS

6

Deal flow in the U.S. wireless towers industry is down 33.3 percent YOY. With the ongoing consolidation occurring in the overall telecom industry, cell tower owners like American Tower (AMT), Crown Castle International (CCI) and SBA Communications (SBAC) have struggled to transact as revenues become more concentrated among their customer base, namely mobile service providers.

Select Transactions

SoftBank, controlling investor in Sprint (S), announced on October 17, 2017, it is pairing up with Australia’s Lendlease Group in a joint venture focused on U.S. cell towers. Formed as Landlease Towers, the venture is planning to acquire and/or manage some 8K sites, with Sprint (S) as an anchor tenant. The joint venture plans to buy $5 billion in U.S. telecom assets in the medium term.

Insite Wireless Group acquired Peoria Area Broadcast Tower on July 12, 2017.

China Tower filed to go public on the Hong Kong stock exchange on May 10, 2017. The expected offering amount is $10 billion.

American Tower completed its acquisition of Vodafone India on August 3, 2017. The deal comprises 11,000 telecommunication towers serving Indian customers.

U.S. Wireless Tower Transactions2007 – YTD September 2017


Public Comparables

14

10

1412

16

10 10 10

5 6 64

0

5

10

15

20

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 YTD Sep.'16

YTD Sep.'17



Wireless Towers

American Tower AMT 136.68 148.71 99.72 6,499 3,861 78,850 59.4% 12.13 20.42

Crown Castle International CCI 99.98 108.88 79.38 4,150 2,206 54,260 53.2% 13.08 24.60

SBA Communications Corp SBAC 144.05 154.71 95.66 1,701 1,119 25,852 65.8% 15.20 23.09

Median 4,150 2,206 54,260 59.4% 13.08 23.09

Mean 4,117 2,396 52,987 59.5% 13.47 22.70


52 Week


TRENDS FOR DATA CENTERS

7

While deal flow for U.S. data centers was down 11.1 percent YOY, data centers are trading at all-time high valuations (approximately 12x sales and 25x EBITDA), benefiting from the projected growth in data creation and traffic. According to the Cellular Telecommunications Industry Association, there will be 1.5 billion internet of things devices with cellular connections by 2022 and smartphone data traffic is projected to grow 5x by 2022 in North America, from 5.1 gigabytes per month in 2016 to 25 gigabytes per month in 2022. All of this new data spells huge opportunity for data centers.

Select Transactions

Active Network, LLC was acquired by Global Payments Inc. (GPN) for $1.2 billion on September 1, 2017.

Equinix IS2, a subsidiary of Zenium Technology Partners, was acquired by Equinix for $93 million on October 6, 2017.

The Colorado Data Center of Stream Data Centers was acquired by Zayo (ZAYO) for an undisclosed amount on September 7, 2017. Colorado Data Center was backed by Iron Point Partners at the time of the deal.

U.S. Data Center Transactions2007 – YTD September 2017


Public Comparables

7 29

29

13

23

17

22

15 14

9 8

0

5

10

15

20

25

30

35

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 YTD Sep.'16

YTD Sep.'17



Data Centers

Equinix Inc. EQIX 446.3 475.28 314.55 4,111 1,760 43,012 42.8% 10.46 24.44

Digital Realty Trust, Inc. DLR 118.33 127.23 85.63 2,328 1,257 31,549 54.0% 13.55 25.10

CyrusOne, Inc. CONE 58.93 65.73 38.8 629 318 7,040 50.6% 11.19 22.12

QTS Realty Trust, Inc. QTS 52.36 56.23 43.01 433 160 3,702 37.0% 8.55 23.11

Median 1,478 788 19,294 46.7% 10.83 23.78

Mean 1,875 874 21,326 46.1% 10.94 23.69


52 Week


TRENDS FOR CABLE SERVICE PROVIDERS

8

After 10 years of steady M&A activity, consolidation is beginning to slow in the cable service providers industry as players face the onset of OTT content providers, like Netflix and Amazon, and decide their next move. Large transactions that allow media giants like Time Warner and telecommunications giant AT&T to access wireless distribution channels like smartphones are likely to become increasingly common, especially with deregulation accelerating under the current administration.

Select Transactions

• K2 Communications reached a definitive agreement to be acquired by TDS Broadband Service, a subsidiary of Telephone & Data Systems (TDS) for an undisclosed amount on September 5, 2017.

• TDS Broadband Service also reached a definitive agreement to acquire Crestview Cable Communications on August 3, 2017.

• Cablevisions Systems Corporation (Altice USA) (ATUS) raised $2.2 billion in its IPO on June 21, 2017. A total of 63,943,029 shares were sold at a price of $30 per share, valuing the company at $22.1 billion.

U.S. Cable Service Provider Transactions2007 – YTD September 2017


Public Comparables

1819

12

17 17

12

911

12

6 63

0

5

10

15

20

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 YTD Sep.'16

YTD Sep.'17




Comcast Corporation CMCS.A 38.48 42.18 30.02 83,972 27,787 244,540 33.1% 2.91 8.80

Charter Communications, Inc. CHTR 363.42 408.83 241.50 40,833 14,620 166,079 35.8% 4.07 11.36

DISH Network Corporation DISH 54.23 66.50 52.09 14,543 2,963 40,490 20.4% 2.78 13.67

Cablevision Systems Corp. (Altice USA)* ATUS 27.31 35.29 0.00** 9,200 3,688 42,765 40.1% 4.65 11.59

Cable ONE, Inc. CABO 722.12 788.00 559.83 909 397 5,224 43.7% 5.75 13.16

Median 14,543 3,688 42,765 35.8% 4.07 11.59

Mean 29,891 9,891 99,819 34.6% 4.03 11.72

*Cablevision went public on June 21st, 2017


52 Week


ABOUT US

BKD Corporate Finance, LLC, a wholly owned subsidiary of BKD, LLP, helps companies and stockholders go beyond their numbers by creating value through investment banking solutions that include mergers, acquisitions, sales, recapitalizations, management buyouts and financings.

Founded in 1994, BKD Corporate Finance is staffed with experienced investment bankers and financial analysts. In addition, the firm draws on the resources of BKD with its network of accountants, auditors, tax professionals, business consultants and industry-specific consultants.

BKD Corporate Finance is a member of the Financial Industry Regulatory Authority and the Securities Investor Protection Corporation.

The professionals of BKD Corporate Finance, LLC have more than 100 years of

combined experience helping company owners plan for and execute their growth

and exit strategies. From managing the sale of a company to negotiating the

acquisition of a competitor or raising debt and equity capital to improve financial

and operational flexibility, BKD Corporate Finance can help you experience the

insight to develop a specific course of action for achieving your desired results.

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INDUSTRY FOCUSCONTACT US – TELECOM TEAM

9

Kevin Brynestad

Managing Director

Denver, Colorado

303.861.4545

[email protected]

Jeff Johnson

Vice President

Denver, Colorado

303.861.4545

[email protected]

mailto:[email protected]

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