Shenandoah Telecommunications Company to Acquire Horizon Telcom
Horizon is a leading commercial fiber provider in
“The acquisition of Horizon is a transformative transaction that we believe will allow us to accelerate our
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- Horizon generated
$64.7 millionin revenues, $12.0 millionin net loss and $19.0 millionin Horizon Adjusted EBITDA in 2022.1,2
- Shentel anticipates realizing
$10 millionin estimated annual run-rate synergies3 within 18 months of closing the transaction.
- Shentel anticipates realizing
$16 millionin present value of tax benefits from utilization of $68 millionin Horizon Net Operating Loss and $18 millionin deferred interest deduction carryforwards.
- Horizon has been awarded over
$57 millionin grants from the Ohio Broadband Authorityand NTIA (“Government Grant Projects”) to construct fiber to 2,500 unserved homes, expand its middle-mile fiber network across eight underserved counties in Ohio, and increase its network backbone capacity up to 400 Gbps. These projects are expected to be completed by 2028.
1 The financial results for Horizon in this press release have been derived from audited financial statements prepared by Horizon, without adjustment to conform to the accounting principles and methodologies used by Shentel. The accounting policies and methodologies used by Horizon differ in certain respects from those used by Shentel, but Shentel does not believe these differences are material.
2 A reconciliation of Horizon Net Income, the most directly comparable financial measure calculated and reported in accordance with GAAP, to Horizon Adjusted EBITDA and Horizon Adjusted EBITDA net of synergies can be found at the end of this press release under the heading “Non-GAAP Financial Measure.”
- The Transaction is subject to certain regulatory approvals and other customary closing conditions and is expected to close in the first half of 2024.
- The purchase price, less present value of tax benefits, represents:
- 12.9x 2022 Horizon Adjusted EBITDA multiple net of synergies2
$51,000per fiber route mile
- Shentel intends to fund the Transaction with a combination of existing cash resources, revolving credit facility capacity and an amended and upsized credit facility. The Company has received
$275 millionin financing commitments from CoBank, Bank of America, Citizens Bank, N.A., and Fifth Third Bank, N.A.. GCM Grosvenor(“GCM”), a selling unit holder of Horizon, will exchange its equity interest in Horizon for 4.08 million shares of Shentel common stock with an aggregate value of $80 millionbased on a reference price of $19.604 resulting in GCM owning approximately 7% of Shentel’s fully diluted common shares after the transaction is closed.
- Shentel has entered into a 7%5 Participating Exchangeable Perpetual Preferred Stock (“Preferred Stock”) investment agreement with
Energy Capital Partners(“ECP”), an existing Shentel shareholder and long-time infrastructure investor, to provide $81 millionof growth capital to fund the FTTH network expansion, the Government Grant Projects and general corporate purposes. The dividend can be paid in cash or in-kind at the option of the Company. The Preferred Stock can be exchanged for Shentel common stock at an exchange price of $24.50, a 25% premium to the reference price of $19.604, under certain conditions as outlined in the investment agreement. This financing is expected to close in conjunction with the Transaction.
- The Company plans to raise additional growth capital for the FTTH network expansion, Government Grant Projects and general corporate purposes, which may include exploring strategic alternatives for its tower portfolio.
GCM Managing Director,
- Rothschild & Co acted as sole financial advisor to
Shenteland Hunton Andrews Kurth LLPis acting as its legal counsel. Bank Street Group LLCserved as exclusive financial advisor to Horizonand Baker Botts LLPis acting as its legal counsel.
- Houlihan Lokey acted as financial advisor to
GCM Grosvenorand Greenberg Traurig, LLPis acting as its legal counsel.
Listen via Internet: https://investor.shentel.com/
A replay of the call will be available for a limited time on the Investor Relations page of the Company’s website.
4 Reference price of
5 Dividend rate is subject to increase if ECP’s Independent Director is not seated on Shentel’s Board after the next annual meeting and the PIK dividend is subject to increase after the fifth and seventh anniversaries of the closing date.
Horizon is a facilities-based fiber-optic broadband service provider based in
This release contains forward-looking statements about Shentel regarding, among other things, its business strategy, its prospects and its financial position. These statements can be identified by the use of forward-looking terminology such as “believes,” “estimates,” “expects,” “intends,” “may,” “will,” “plans,” “should,” “could,” or “anticipates” or the negative or other variation of these or similar words, or by discussions of strategy or risks and uncertainties. The forward-looking statements are based upon management’s beliefs, assumptions and current expectations and may include comments as to Shentel’s beliefs and expectations as to future events and trends affecting its business that are necessarily subject to uncertainties, many of which are outside Shentel’s control. Although management believes that the expectations reflected in the forward-looking statements are reasonable, forward-looking statements are not, and should not be relied upon as, a guarantee of future performance or results, nor will they necessarily prove to be accurate indications of the times at which such performance or results will be achieved, and actual results may differ materially from those contained in or implied by the forward-looking statements as a result of various factors. A discussion of other factors that may cause actual results to differ from management’s projections, forecasts, estimates and expectations is available in Shentel’s filings with the
|Senior Vice President and Chief Financial Officer|
Non-GAAP Financial Measure
Horizon Adjusted EBITDA
Shentel defines Horizon Adjusted EBITDA as net income (loss) calculated in accordance with GAAP, adjusted for the impact of depreciation and amortization, interest and loss on extinguishment of debt, other expense (income), net, income tax benefit, transaction, financing and restructuring fees, settlement of legal dispute, stock-based compensation and shareholder management fees. A reconciliation of net income (loss), which is the most directly comparable GAAP financial measure, to Horizon Adjusted EBITDA is provided below.
The financial results for Horizon in this press release have been derived from audited financial statements prepared by Horizon, without adjustment to conform to the accounting principles and methodologies used by Shentel. The accounting policies and methodologies used by Horizon differ in certain respects from those by Shentel, but Shentel does not believe these differences are material.
Shentel and Horizon believe that the presentation of Horizon Adjusted EBITDA provides useful supplemental information that is essential to a proper understanding of the operating results of Horizon's businesses. This non-GAAP performance measure should not be viewed as a substitute for operating results determined in accordance with GAAP, nor is it necessarily comparable to non-GAAP performance measures that may be similarly named and presented by other companies, including Shentel's calculation of Adjusted EBITDA.
Reconciliation of Horizon’s
|Net income (loss)||$||(
|Depreciation and amortization||14,293|
|Interest and Loss on extinguishment of debt||18,835|
|Other expense (income), net||(538||)|
|Income tax benefit||(3,420||)|
|Transaction, financing and restructuring fees||430|
|Settlement of legal dispute||396|
|Shareholder management fees||511|
|Horizon Adjusted EBITDA||19,013|
|Horizon Adjusted EBITDA net of synergies||$||28,613|
6 The Company expects to realize synergy savings in overlapping back-office systems and resources, as well as excess office space, over the 18 months following closing. The expected savings and synergies are a forward-looking statement and may not be realized or may take longer or cost more than expected to realize.
Source: Shenandoah Telecommunications Co