SureWest enters Kansas City through acquisition

SureWest Communications has agreed to acquire Everest Broadband for $173 million in cash in a deal that will roughly double SureWest’s triple-play subscriber base.

To SureWest’s fiber-to-the-home (FTTH) network in Sacramento, Calif., privately held Everest adds an 870 MHz fiber-to-the-node network that passes more than 91,000 homes in the Kansas City, Mo., area and serves 37,000 residential customers and 1500 business customers. The combined company will pass nearly 281,000 homes with triple-play networks in the two markets.

Everest’s current revenue-generating units (RGUs) include nearly 34,000 video RGUs, 34,000 data RGUs and 34,000 voice RGUs, giving the combined company a total of 54,000 video RGUs, 95,000 data RGUs and 53,000 voice RGUs.

Everest increases SureWest’s revenue run rate by slightly less than a third. Combined, the two companies reported $66 million in revenue for the third quarter and $21 million in earnings before interest, taxes, depreciation and amortization.

SureWest plans to expand Everest’s network to more business customers and increase its penetration of its residential market beyond the current level of 41%. The company said today it plans to “aggressively” grow Everest’s base of business customers while continuing to build out its Sacramento FTTH network.

SureWest had promised investors in recent months that it was searching for acquisitions to lend economies of scale to its business, and the company said today the Everest deal achieves that end and more.

The combination also gives SureWest a more balanced triple-play business. Whereas the company currently gets 60% of its revenue from data service, that number drops to 47% with the acquisition, and its share from voice and video grow from 20% each to 26% and 27%, respectively.

SureWest is funding the deal with a combination of cash on hand and committed debt financing. The company computes Everest’s purchase price as about $3700 per residential subscriber.