Megacable Set for M&A

Mexico’s Megacable is in a good position to acquire competitors, say analysts eyeing the credit. “Megacable has the flexibility to acquire assets in its sector in accordance with its consolidation strategy,” according to Banif Ixe, pointing to net debt reduction of 35% in the past year, with a leverage ratio of 0.5x and interest coverage ratio of 14.6x. The cable company’s shopping spree over the past 2 years includes 11 purchases of smaller local competitors. With a 31% share of the Mexican paid subscriber market, Megacable is the country’s largest operator, but still holds a relatively small portion of the national market. Among larger independent companies in Mexico are privately held Grupo Hevi, which has 600,000 subscribers, and Cablecom, with 300,000, notes Rajneesh Jhawar, media and telecom analyst at JPMorgan. “These companies are highly levered,” he adds, referring to Mexican cable companies in general. “Having this debt during a downturn makes them more susceptible to considering an equity investment or acquisition,” he adds. Historically, Telmex, one of the region’s biggest telecom acquirers, has paid between $1,000-$1,200 per subscriber, though since its last spree, public equity valuations have tumbled by some 50%, says Jhawar. As such, a company like Grupo Hevi might command an equity price tag of anywhere from $300m to $600m.