Cogeco acquires Quebec's DERYtelecom

Oct. 21, 2020
DERYtelecom is based in Saguenay, Quebec and offers Internet, television and telephony services to approximately 100,000 customers in over 200 municipalities.
Pixabay / Capri23auto
Conclusion Capri23auto

Cogeco Communications Inc. announced on Oct. 21 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.

DERYtelecom's regional operations in Quebec are very similar to Cogeco's, notes the operator. Opportunity exists to leverage Cogeco Connexion's product and sales expertise to add to DERYtelecom's service offering, increasing the operator's customer base and delivering superior revenue growth, it adds.

"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."

Annual run-rate synergies between the companies of approximately $3 million are expected to be realized gradually over the first year after the acquisition as operations are integrated and economies of scale are realized.

"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.

As noted above, 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.

According to a press release, 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.

Finally, via the acquisition, Cogeco says it expects an opportunity to further expand its rural footprint through network extensions, including through government funding programs, of which some were already awarded to 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." 

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