Patience Rewards Halyard In Cable Deal

Target: Newnan Utilities

Price: $70 million

Sponsor: Halyard Capital

Seller: Newnan Water, Sewage and Light Commission

Financial Adviser: Seller: DH Capital

Legal Counsel: Sponsor: Hogan & Hartson; Seller: Paul, Hastings, Janofsky & Walker

The second time is turning out to be a charm for Halyard Capital. In a handful of its recent deals, the New York-based firm bought companies it missed out on the first time around.

The latest example is Newnan Utilities. The firm attempted to buy the municipal cable company in 2005, but ended up passing on the deal because Newnan Utilities’s outstanding general obligation bonds made a leveraged buyout too complex to pull off, said Mike Furey, a principal with Halyard Capital. Three years later, the municipality had paid off the bonds, simplifying a take-private.

The move echoes Halyard Capital’s recent purchase of medical publisher HCPro Inc. The firm bought HCPro Inc. in February after passing on it two years before. Similarly, Halyard Capital in 2003 bought direct marketer TRANZact out of bankruptcy, just two years after coming up short in an auction for the company.

In its deal for Georgia-based cable operator Newnan Utilities, which the firm renamed NuLink, Halyard Capital paid $70 million. CIT Group led the senior lending club and was joined by Newstar Financial and Wells Fargo Foothill. The deal, which closed on April 21, took four months to complete. Halyard Capital had to navigate a regulatory thicket because it was seeking to privatize a municipal entity; additionally, the firm had to assemble a financing package in a constrained lending environment, Furey said.

Halyard Capital maintained a dialogue with Newnan Utilities despite its stalled buyout attempt in 2005. Thanks to a population boom in the south Atlanta suburbs, the business doubled its EBITDA during those three years. But because it was attached to a public utility, the company didn’t have the ability to launch popular and lucrative services such as video-on-demand and Voice Over Internet Protocol, Furey said.

“Admittedly, the utility folks weren’t cable professionals, so there are a lot of internal improvements that can be made,” he said.

Halyard Capital has never owned a cable company. For expertise, the firm tapped John Brooks, a co-founder of Broadstripe, a cable broadband business, to be NuLink’s chairman and CEO. Brooks has informally advised Halyard Capital in the past.

Extracting NuLink from its parent, the the city of Newnan Water, Sewage and Light Commission, will require building a back-office operation from scratch. Halyard Capital and the city worked out a year-long transition services agreement to ease the changeover. Once NuLink can stand on its own, Halyard Capital expects to boost its growth by offering video on demand and VoIP services in addition to high-definition and standard cable television services.

Money for NuLink came from Halyard Capital’s second fund, which is now in the market. The firm is seeking an undisclosed amount for the vehicle. In 2000, the firm closed its first fund, a $450 million pool, with the firm’s former parent company, the Bank of Montreal, as the sole limited partner.

BMO Private Equity has committed $150 million to the second fund, and the firm held a first close on $250 million in October 2007, Buyouts previously reported. A regulatory filing named New Mexico State Investment Council as another LP. Park Hill Group, a unit of The Blackstone Group, is the placement agent for Halyard Capital’s second fund.—E.G.