Cogeco Communications to buy DERYtelecom for C$405m

Cogeco Connexion, an affiliate of Cogeco Communications, has agreed to acquire DERYtelecom, a Saguenay, Québec-based provider of internet, television and telephony services to local communities.

Cogeco Connexion, an affiliate of Cogeco Communications, has agreed to acquire DERYtelecom, a Saguenay, Québec-based provider of internet, television and telephony services to local communities. The deal reflects a purchase price of C$405 million and is expected to close by fiscal Q2 2021. DERYtelecom in 2016 secured financing from Caisse de dépôt et placement du Québec, Capital croissance PME and BDC Capital to support a management buyout.

PRESS RELEASE

MONTREAL, Oct. 21, 2020 /CNW Telbec/ – Cogeco Communications Inc. (TSX: CCA) announced today that following the satisfactory completion of the due diligence process, its Canadian subsidiary Cogeco Connexion has entered into a definitive agreement to purchase DERYtelecom, the third largest cable provider in the province of Quebec for $405 million.
DERYtelecom is based in Saguenay, Quebec and offers Internet, television and telephony services to approximately 100,000 customers in over 200 municipalities across several regions in Quebec, including Estrie, Lanaudière, Montérégie and the Laurentians. Revenue and adjusted EBITDA for the fiscal year ended August 31, 2020 are estimated to be $105 million and $44 million, respectively.

“The acquisition of DERYtelecom is a strong strategic fit which will allow Cogeco Connexion to increase its presence in areas that are adjacent to its Quebec footprint and to build on the long history of mutual respect, collaboration and friendship between the two companies,” said Philippe Jetté, President and Chief Executive Officer of Cogeco Communications Inc. “Our proven track-record in the successful integration of regional cable businesses, having acquired five companies in the U.S. and Canada over the past five years alone, demonstrates our commitment to bring superior connectivity to regional and rural communities.”

“As a Quebec-based company which is committed to its employees and its regional communities and with a history similar to ours, Cogeco presented itself as the best possible partner for us. This new beginning bodes well for the future of DERYtelecom, its clients and employees,” stated Bryan Godbout, President and General Manager of DERYtelecom.

“We are excited at the prospect of adding the DERYtelecom customers, employees and networks into the Cogeco Connexion fold,” said Frédéric Perron, President of Cogeco Connexion. “DERYtelecom’s customer base and networks are complementary to those of Cogeco Connexion and we know that together, bolstered by the core values that we share, we can augment the service offering, increase the customer base and deliver superior revenue growth.”

Acquisition Rationale
DERYtelecom’s regional operations in Quebec are very similar to Cogeco’s.
Opportunity to leverage Cogeco Connexion’s product and sales expertise to add to DERYtelecom’s service offering, increase the customer base and deliver superior revenue growth.

Annual run-rate synergies of approximately $3 million to be realized gradually over the 1st year as operations are integrated and economies of scale are realized.
Opportunity to further expand our rural footprint through network extensions, including through government funding programs, of which some were already awarded to DERYtelecom.

Valuation Highlights and Acquisition Financing
DERYtelecom will be purchased for $405 million. As the transaction will be executed essentially through an asset purchase, Cogeco Connexion expects to realize tax benefits with a present value of approximately $40 million. These benefits are due to the tax amortization of tangible and intangible assets which are both stepped up to current market value in an asset purchase transaction. The transaction represents an acquisition multiple of 7.8x EBITDA, accounting for the projected synergies and tax benefits.

The purchase price will be financed with a combination of cash on hand and Cogeco’s term revolving facility. The transaction is subject to regulatory approvals under the Competition Act along with other customary closing conditions and is expected to close no later than the second quarter of the fiscal year 2021.

ABOUT COGECO COMMUNICATIONS
Cogeco Communications Inc. is a communications corporation. It is the 8th largest cable operator in North America, operating in Canada under the Cogeco Connexion name in Québec and Ontario, and along the East Coast of the United States under the Atlantic Broadband brand (in 11 states from Maine to Florida). The Corporation provides residential and business customers with Internet, video and telephony services through its two-way broadband fibre networks. Cogeco Communications Inc.’s subordinate voting shares are listed on the Toronto Stock Exchange (TSX: CCA).