NEW YORK ( The Deal) -- Over the last two weeks, John Malone-backed Charter Communications ( CHTR) and Altice SA ( ATCEY), the acquisitive Luxembourg communications outfit of French billionaire Patrick Drahi, have scooped up some of the most attractive cable systems in the U.S.
Charter added Time Warner Cable (TWC) for $79 billion, in conjunction with the $10.4 billion purchase of a controlling stake in privately held Bright House Networks LLC. Altice bought Suddenlink Communications for $9.1 billion, with ambitions to add to its U.S. portfolio.
A field of smaller players remain, from Cox Communications to New York metro-area provider Cablevision Systems (CVC) and companies such as Mediacom Communications Corp., which focuses on smaller markets. Private-equity firms such as Abry Partners LLC, Oak Hill Capital Partners and GTCR LLC back cable-TV companies and could be sellers.
Graham Holdings (GHC), the former owner of the Washington Post, is spinning off Cable One Inc., the 10th-largest U.S. cable operator with $815 million in 2014 sales and more than 420,000 video subscribers in the Midwest, West and South.
"The most attractive guys left are Cablevision and Cox from a market standpoint," Moody's Investors Service analyst Neil Begley said of the array of cable operators.
Cablevision CEO James Dolan has said the New York market should be consolidated. Meanwhile, Cox president Pat Esser said the company "is not for sale," in an emailed statement. "We'll continue to aggressively invest and innovate within our product portfolio and explore other potential growth opportunities that align with our business objectives," he added.
Scale is increasingly important in negotiations with content providers. The drop-off from the largest cable outfits to the rest of the field is steep. To a smaller operator, especially one with private-equity backing, it might not be a bad time to exit.
"If you get an offer for 10x Ebitda (earnings before interest, taxes, depreciation and amortization) or better, you have a good chance of having people line up to say, 'I'll take some of that,' " Begley said. "The Suddenlink deal would be attractive to a lot of folks, particularly the more rural guys."
Among PE firms, Abry and Oak Hill have been particularly active. Abry owns RCN Telecom Services LLC, Grande Communications Networks LLC and Home Town Cable of Port St. Lucie, Fla.
Oak Hill and GI Partners back Wave Holdco LLC, which operates out of Kirkland, Wash., under the name WaveDivision.
Abry and Oak Hill have worked together in the past. The firms previously owned Atlantic Broadband Group LLC, which Cogeco Cable Inc. purchased for $1.36 billion in 2012. Abry and Oak Hill also sold WideOpenWest to Avista Capital Partners for $800 million in 2006. Charter bought another Abry portfolio company, Avalon Cable, for $845 million in 1999.
Services to corporations, governments and other commercial customers is a growth market for cable operators. A fragmented, isolated footprint is a setback when pitching a contract to an enterprise with multiple locations.
"They are going to reach a level of maturity more quickly than the large companies in the commercial segment," Begley said of the smaller operators, "since they have less capability to serve the larger businesses given their more restricted network footprint."
Many of the PE-backed cable operators are "overbuilders" -- meaning they erected networks in markets that already had an incumbent operator. By definition, these providers face more competition. Begley suggested that overbuilders are more ripe for an international buyout than a sale to a local cable operator, noting that no incumbent U.S. cable operator has ever overbuilt another cable company.