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U.S. Communications Service Provider Quarterly

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U.S. Communications Service Provider Quarterly Telecom Technology and Services Group U.S. Communications Service Provider Quarterly Spring 2021 Vol. 11, No. 2 IN THIS ISSUE 2 Introduction and Sub Sector Definitions 3 U.S. Summary Comments: Public Markets 4 Public Market Summary Charts 1-6 5 U.S. Communications Service Provider Stocks: M&A Summary Charts 1-2 6 Announced Transactions 7 Announced Transactions with Revenue Multiples 8 Sub Sector Analysis: Large Cap Telecom Charts 1-6 9 Sub Sector Analysis: Alternative Telecom Charts 1-6 10 Sub Sector Analysis: Hosted and Managed Services Charts 1-6 11 Sub Sector Analysis: ILEC and Diversified ILEC Charts 1-6 Investment Banking and Advisory Services 12 Sub Sector Analysis: Cable and Video Charts 1-6 FOCUS Investment Banking LLC is a leading investment bank 13 FOCUS Telecom Technology and with specialized telecom technology and services expertise, Services Team concentrating on providing highly tailored services to emerging middle market and larger organizations in this sector: • Mergers & Acquisition Advisory • Corporate Development Consulting • Strategic Partnering & Alliances • Capital Financing, Debt & Equity • Corporate Valuations U.S. Communications Service Provider Quarterly By Richard Pierce, FOCUS Managing Director and Telecom Technology and Services Team Leader FOCUS believes that the need for communications ser- • Has a breadth of knowledge that covers most segments vices has never been greater. Large enterprises, small and of the telecom industry, medium sized businesses and individuals have all come • Has seasoned bankers with decades of telecom industry to rely upon ubiquitous access to voice, video and data experience, services to run their day-to-day activities. Furthermore, the importance of Communications Service Providers • Has a proven transaction methodology for delivering (CSPs) appears poised to increase further as they begin results, to enable a variety of new services ranging from hosted • Is equally comfortable with buy side and sell side M&A, PBX and videoconferencing platforms to in-home secu- rity and energy management solutions. Access to capital • Leverages an experienced team of research professionals, and the benefits of scale will mean that a small number of • Has a national presence with coverage of both east and large companies will continue to dominate certain areas west coasts. such as mobile wireless and video. However, FOCUS con- tinues to see opportunities for middle market CSPs. While Sub Sector Definitions not as large as the industry giants, they continue to thrive by developing innovative business models that share one Large Cap: Large, diversified communications service pro- or more characteristics such as capital efficiency, cus- viders that control a significant number of former RBOC tomer responsiveness, an advanced technology platform access lines and/or have a nationwide wireless operation. and a focus on an underserved industry vertical or geogra- Alternative Telecom: Competitive carriers that primarily phy. Furthermore, it is often the middle market CSPs that provide basic voice, data and transport services to busi- point the direction for the future of the industry. FOCUS nesses and other telecom service providers. is proud of its commitment to the CSP sector and we are excited about the prospects for middle market companies Hosted & Managed Services: Companies that provide in this space. hosted VoIP telecom services as well as additional hosted offerings such as audio and video conferencing. The FOCUS Telecom Technology and Services group con- ILEC & Diversified ILEC: Non-RBOC incumbent carri- sists of two professionals with a combined 30+ years of ers, many of which have branched out into other sectors of transaction experience across a wide variety of telecommu- communications services. nications-related companies. The FOCUS Telecom team is uniquely qualified to help middle market clients reach their Cable & Video: Incumbent cable service providers, satel- strategic objectives because the group: lite video providers and competitive video providers whose core business is providing video services to residential • Devotes significant senior level resources to executing customers. transactions for lower middle market clients, 2 www.focusbankers.com /telecom | Atlanta • Los Angeles Metro • Washington, DC Metro U.S. Summary Comments Public Markets Hosted and Managed Services The FOCUS Communications Service Provider Index On the down side, the 7.1% drop in the Hosted and Man- (CSPI) had a fourth straight reporting period with a pos- aged Services sub sector made it the worst performing itive return. However, this period’s gain of 1.3% was rela- sub sector in the CSPI this period and the only one to tively modest and under-performed both the 5.8% gain in post a negative return. Six of the eight companies in the the S&P 500 and the 2.8% gain in the NASDAQ over the index delivered a loss over the past three months, including corresponding time frame. The CSPI is also up 27.6% for four companies (American Virtual Cloud Technologies, the full year. However, even with this substantial increase Bandwidth, Crexendo and RingCentral) with double digit the sector still lags the S&P 500 (up 53.7%) and the losses. However, the sub sector is still the top performing NASDAQ (up 72.0%) by a wide margin. Sector multiples sub sector in the CSPI for the full year period with a gain are significantly higher than they were at this time last of nearly 125%. Every singly company in the index deliv- year. The sector revenue multiple increased from 2.5x to ered a double digit return over the past year, with Twilio 3.0x, and the sector EBITDA multiple jumped from 7.2x leading the pack with a whopping year-over-year increase to 8.5x of 280.8%. The multiples for the sub sector have also more than doubled over the past 12 months and ended the Large Cap period at 15.4x revenue and 277.3x EBITDA. The Large Cap sub sector was more or less flat this past three months, posting a slight gain of 0.2%. Lumen was ILEC and Diversified ILEC the sub sector’s top performer with a gain of 36.9%, while The ILEC and Diversified ILEC sub sector was the CSPI’s Verizon dropped by 1.0%. For the full year, the sub sector top performing sector over the past three months with a was up 29.4%, with Lumen once again posting far and gain of 18.9%. Consolidated Communications (up 47.2%) away the largest increase. Sub sector multiples closed out and Telephone & Data Systems (up 23.6%) were the the period at 3.1x revenue and 8.8x EBITDA. Both of primary reasons for the increase. The sub sector is also these are higher than year-ago multiples of 2.6x revenue up 33.6% over the past year, with every single company and 7.6x EBITDA enjoying a positive return. In fact, four of the five com- panies in the sub sector are trading 30% or more higher Alternative Telecom than they were at this time last year. These increases were This was the second straight reporting period where driven much more by company performance than multi- the Alternative Telecom sub sector had a slight gain. In ple increases. The sub sector revenue multiple ticked up this case, the sub sector climbed 3.2% in the past three slightly from 1.4x to 1.5x, while the sub sector EBITDA months. Double digit gains at Boingo and Cogent Commu- multiple had a similarly small increase as it went from nications helped power the increase, while a nearly 50% 4.7x to 4.8x. loss at GTT served as a significant drag on sub sector performance. The sub sector is also up slightly compared to Cable and Video this time last year with a gain of 2.8%. Boingo was once The Cable and Video sub sector cooled off somewhat again a major contributor to this increase, as was Uniti. this period with a small gain of 1.7%. The sub sector Sub sector multiples are higher than they were a year ago, was evenly split between gainers and losers with three but only slightly. The sub sector revenue multiple went companies falling into each category. WOW was the sub from 4.3x a year ago to 4.5x currently, while the sub sec- sector’s top performer with a three-month increase of tor EBITDA multiple increased from 9.6x to 10.2x over 27.4%, while Cable One brought up the rear with a drop the same time period. of 17.9%. Sub sector performance looks significantly better over the full year period with a 12-month gain of 55.8%. These gains were broad-based as every single stock in the index delivered a double-digit return. At the end of the period, sub sector multiples stood at 3.4x revenue and 10.8x EBITDA. These compare to multiples at this time last year of 2.5x revenue and 8.0x EBITDA. www.focusbankers.com /telecom | Atlanta • Los Angeles Metro • Washington, DC Metro 3 U.S. Communications Service Provider Sector: Public Market Summary Twelve Month Index Returns Sector and Sub Sector Returns 200.00% 12 Month 3 Month Communications Service Provider 27.6% 1.3% 150.00% Large Cap 29.4% 0.2% 100.00% Alternative Telecom 2.8% 3.2% Hosted and Managed Services 124.8% -7.1% 50.00% ILEC and Diversified ILEC 33.6% 18.9% 0.00% Cable and Video 55.8% 1.7% S&P 500 53.7% 5.8% NASDAQ 72.0% 2.8% Communications Service Provider S&P 500 Index NASDAQ Index Revenue Multiple Trends Sector and Sub Sector Revenue Multiples 4.0x 3/31/2021 3/31/2020 Communications Service Provider 3.0x 2.5x 3.0x Large Cap 3.1x 2.6x Alternative Telecom 4.5x 4.3x 2.0x Hosted and Managed Services 15.4x 7.6x ILEC and Diversified ILEC 1.5x 1.4x 1.0x Cable and Video 3.4x 2.5x 0.0x Enterprise Value/Revenue EBITDA Multiple Trends Sector and Sub Sector EBITDA Multiples 10.0x 3/31/2021 3/31/2020 Communications Service Provider 8.5x 7.2x 8.0x Large Cap 8.8x 7.6x 6.0x Alternative Telecom 10.2x 9.6x Hosted and Managed Services 277.3x 122.2x 4.0x ILEC and Diversified ILEC 4.8x 4.7x 2.0x Cable and Video 10.8x 8.0x 0.0x Enterprise Value/EBITDA Source: Capital IQ 4 www.focusbankers.com /telecom | Atlanta • Los Angeles Metro • Washington, DC Metro U.S.
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