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July 11, 2017
martinwolf  Transaction Analysis
Cincinnati Bell to Acquire Hawaiian Telcom and OnX Enterprise Solutions

Financial Information*
  • Enterprise Value for Hawaiian Telcom Holdco Inc.                   ~$650M
  • Enterprise Value for OnX Enterprise Solutions                         ~$201M
Transaction Facts
  • Ohio-based landline carrier Cincinnati Bell Inc. (NYSE:CBB) announced yesterday that it has entered into separate definitive merger agreements with Hawaiian Telcom Inc. (NASDAQ:HCOM) and OnX Enterprise Solutions.
  • For Hawaii's largest telecommunications company, Hawaiian Telcom, Cincinnati Bell will pay ~60% cash and 40% stock for a total consideration of ~$650M. Once the transaction is completed, Hawaiian Telcom stockholders will own ~15% while Cincinnati Bell stockholders will own ~85% of the combined company. However, both companies will continue to maintain their separate local brand identities and operations. The deal is expected to close in the second half of 2018.
  • For cloud services company OnX, Cincinnati Bell will pay ~$201M in cash on a cash-free, debt-free basis. The deal is expected to close in the fourth quarter of 2017.
  • The combined company will have a net operating loss tax credit exceeding $300M and will yield ~$21M in cost synergies over a two-year period. 
Keeping Up with the Cloud 
  • Expanding Geographic Footprint: Cincinnati Bell has seen big changes since its inception as a telegraph services company in 1873. Now the dominant telecommunications company for the Cincinnati area, it is looking to expand beyond its local reach through acquisitions that will make it a national player -- the combined company will have 14,000 route miles of fiber and access to an undersea cable connecting it with Asia. Regionally, the fiber network spans more than 65% of Cincinnati's footprint, but in other areas, competitor Charter Communications has been winning over business customers with higher speeds for business that leverage its existing hybrid fiber coax (HFC) networks. 
  • Scaling Business: As it looks to further invest in  its fiber-optic network capacity, the company  is branching out in other sectors.  In 2011, Cincinnati Bell was the  first telecommunications company to also  provide retail energy service. In June, the technology services and solutions provider division CBTS won a deal to equip MLB team Cincinnati Reds with its SD-WAN and NaaS offerings -- Reds Front Office executives and scouts can watch players in real time at any one of the team's seven locations across the United States. 
  • Cloud Migration: During the first quarter of this year, Cincinnati Bell reported that its Telecom & IT hardware revenue was $86M, down $16M from Q1 2016 -- the company attributed the decline to customers' shifting preferences for cloud services like Unified Communications as a Service (UcaaS). With $80M of UCaaS revenue growing every year, Cincinnati Bell is focusing on its more profitable ventures. Part of its strategy is to pursue growth in network communications and enterprise IT services via strategic acquisitions -- the OnX acquisition will enhance CBTS' cloud assets and complement its current SD-WAN and UCaaS offerings, as OnX already focuses on providing storage and other infrastructure solutions. 
  • Consolidation in Telecom: There has been a surge in M&A among major wireless operators -- in order to gain an edge in an increasingly competitive environment, companies are looking to attain greater scale and obtain valuable cloud-based network services. In February, Windstream Holdings acquired EarthLink Holdings Corp., and in April, entered into a $228M deal to acquire Broadview Networks, a cloud-based unified communications provider in the SMB sector. In October 2016, CenturyLink agreed to acquire  Level 3 Communications in a deal worth ~$35B. Meanwhile, in April 2016, Frontier Communications Corp. completed the purchase of Verizon's wireline assets in California, Florida and Texas in a deal worth ~$10.5B.
For more information about this transaction,  click here to read the press release.

*Financial Information from the press release.

martinwolf was not the advisor in this transaction.

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With offices in the San Francisco Bay Area and New York, martinwolf is a leading M&A Advisory focused on middle market companies in the IT Services, IT Supply Chain, IT-Enabled Business Process Outsourcing and Software as a Service (SaaS) space. Since 1997, our team has completed more than 150 transactions in over 20 countries and sold seven divisions of Fortune 500 companies. 

 

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