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Big IT Service Provider, MSP Acquired for 6.5X EBITDA Valuation

Cincinnati Bell, a telecommunications and IT services provider, has been acquired by Toronto conglomerate Brookfield Infrastructure for $2.6 billion including debt, or roughly 6.5 times annual adjusted EBITDA, according to ChannelE2E’s estimates.

Cincinnati Bell owns CBTS and OnX — two MSP (managed IT services provider) subsidiaries that offer end-to-end IT solutions for U.S. and Canadian enterprise customers.

CBTS and OnX each specialize in cloud, communications, infrastructure and consulting services. Key CBTS partners include Amazon Web Services and Cisco Systems, among many others. Key OnX partners include Avaya, Cisco Systems, HP Enterprise, IBM, Oracle and VMware.

Cincinnati Bell in mid-2018 acquired Hawaiian Telcom to gain scale and fiber network infrastructure. That deal included direct access to the historic SEA-US Trans-Pacific fiber cable linking Asia to the United States.

Cincinnati Bell Acquired: IT Services Provider Valuations

Ahead of the Brookfield deal, Cincinnati Bell had predicted annual revenues of $1.515 million to $1.575 million within a November 2019 earnings disclosure. The same statement mentioned an adjusted EBITDA target of $400 million to $410 million.

Cincinnati Bell’s buyout valuation is typical for IT services providers, which have been selling for 4X to 8X annual EBITDA — a fairly wide range that’s based on such variables as overall size, growth rate, vertical market expertise, intellectual property, customer churn, customer diversification and more, ChannelE2E estimates.

Some IT service providers have been fetching as much as 10X annual EBITDA if they have truly unique intellectual property (IP) — particularly in the SaaS, cloud or automation areas — plus rapidly growing profits coupled with low churn, ChannelE2E’s reporting indicates.

Cincinnati Bell Acquired: Executive Perspectives

Leigh Fox, President and CEO, Cincinnati Bell

Describing the deal, Leigh Fox, president and CEO of Cincinnati Bell, said:

“With Brookfield Infrastructure’s support, we will be better positioned to deliver next generation, integrated communications for our customers through an expanded fiber network. Brookfield Infrastructure provides strong industry expertise with a proven track record of investment in critical data service and infrastructure. The financial, management, and other resources made available to Cincinnati Bell through the acquisition will enhance our networks and services to the benefit of our customers in Hawaii, Ohio, Kentucky, and Indiana, and across the nation.”

Sam Pollock, CEO of Brookfield Infrastructure, added:

“This investment represents an opportunity for Brookfield Infrastructure to acquire a great franchise and leading fiber network operator in North America. We are excited to leverage our operating expertise to work with the company’s management team as it completes its industry-leading fiber optic rollout plan. Cincinnati Bell is a great addition to our data infrastructure portfolio and we expect it will contribute strong utility-like cash flows with predictable growth.”

Cincinnati Bell Acquired: About Brookfield

Brookfield owns and operates a global network of companies in the utilities, transportation, energy, and data infrastructure sectors, with operations throughout the Americas, Asia Pacific, and Europe. Brookfield Infrastructure is part of Brookfield Asset Management, a global alternative asset manager with more than $500 billion in assets.

Additional reporting by Joe Panettieri.

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