FOCUS Telecom U.S. Communications Service Provider Quarterly: Summer 2024 Report

By Richard PiercePublished On: July 24, 2024

OVERVIEW

After turning in positive returns in each of our last two reports, the FOCUS Communications Service Provider Index (CSPI) fell into negative territory with a three-month loss of 1.8%.

This loss was despite a generally positive market backdrop that saw the S&P 500 gain 3.9% and the NASDAQ gain 8.3% over the corresponding time period. Over the last 12 months, the CSPI was up 3.2%. This performance once again trailed the broader indices, as both the S&P 500 and the NASDAQ were up more than 20% over the past year. Sector multiples closed out the period at 2.4x revenue and 6.4x EBITDA. These multiples are unchanged from this same time last year.

The only sub sector in the CSPI to post a positive return over the past three months was the Residential Providers, which inched up 0.7%. The sub sector’s best performers were Telephone and Data Systems and WOW, both of which were buoyed by potential M&A rumors. The National Providers sub sector declined 1.6% this period as Comcast dropped nearly 10% and Lumen dropped nearly 30%. However, it was not all gloom and doom for the sub sector as AT&T jumped up 8.6%. The CSPI’s worst performing sub sector by a wide margin was Business and Wholesale.This sub sector plummeted nearly 25% in the past three months. While all of the companies in the sub sector posted negative returns, Uniti was the worst performing stock as the company shed half of its value after announcing it would merge with Windstream.

PUBLIC MARKETS SUMMARY

Twelve Month Index Returns

Sector and Sub Sector Returns

Sector and Sub Sector Revenue Multiples

Sector and Sub Sector EBITDA Multiples

M&A ACTIVITY

Based on the number of announced transactions, the Business and Wholesale sub sector dominated M&A activity as it accounted for 10 of our 16 total transactions. Basalt Infrastructure Partners and Grain Management both inked new business fiber investments in Tahoe Network Infrastructure and 123NET, respectively.In a platform transaction involving an asset light provider. McCarthy Capital acquired cloud communications company NUSO. While the Residential Providers sub sector saw fewer transactions, it did account for the majority of announced transaction dollar value with Uniti’s purchase of Windstream for $4.8 billion. In another notable transaction in the Residential Providers space, EQT and T-Mobile are banding together to invest in Lumos Networks to expand its FTTH platform.

The only transaction with an announced multiple this period was Uniti’s acquisition of Windstream. The multiple for this transaction was 1.2x revenue and 5.3x EBITDA.

Number of Transactions

$ Value of Transactions in Millions

ANNOUNCED TRANSACTIONS (4/1/24 – 6/30/24)

M&A TRANSACTIONS WITH ANNOUNCED MULTIPLES (7/1/24 – 6/30/24)

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Rich Pierce, FOCUS Managing Director, has more than 20 years of investment banking experience advising middle market clients on a variety of mergers and acquisitions and capital raising transactions. During that time, Mr. Pierce’s primary emphasis has been on serving clients in the telecommunications industry including providers of network related hardware and software products, wireless and wireline telecommunications service providers and network engineering and construction companies. Prior to joining FOCUS, Mr. Pierce was a Director in the Communications and Media group of Stifel Nicolaus, a nationally recognized middle market investment bank. In this capacity he led Stifel Nicolaus’ entry into the networking technology space while also working with clients in a variety of other telecommunications-related areas. Mr. Pierce was also a member of the Telecommunications group at Legg Mason. While at Legg Mason he gained significant experience working with telecommunications service providers, particularly those serving secondary and rural markets. Mr. Pierce has been a speaker for a variety of industry associations including the Rural Cellular Association (RCA), the National Telecommunications Cooperative Association (NTCA) and the Fiber to the Home (FTTH) Council, and he has also been recognized as a testifying expert in the wireless industry. Before becoming an investment banker, Mr. Pierce had a successful seven year career as an officer in the U.S. Army Military Intelligence Corps. In addition to working in a number of tactical level assignments in the U.S. and Europe, he is a graduate of the Army’s Airborne and RANGER training programs. Mr. Pierce graduated from Brown University with a B.S. in Electrical Engineering and received his M.B.A. in Finance from the University of Pennsylvania’s Wharton School, where he graduated with distinction.