Big consolidation is hitting the cable TV industry as operators plan to use M&A activity to gain leverage during future renegotiations of programming rights. Besides Cable TV operators being buyout candidates, Cable TV tech vendors will likely be the hottest takeover targets of all this summer, and could fetch the largest premiums!
The big technology to revolutionize cable TV this past decade was video on demand (VOD). An analyst at Brean Capital issued a note in December about VOD tech vendor Seachange (SEAC) saying, "because of SEAC's leading position in key areas of MSO investment, it is not likely to remain an independent company in an industry consolidation scenario."
The industry consolidation scenario is now here! SEAC rose past its previous 52-week high of $12.10 on Monday and hit a new 52-week high on Wednesday of $12.72. SEAC is currently $12.58 and trading with a market cap of $412mm, with $114.23mm in cash, and an enterprise value of $297.77 million or 1.91X revenues of $156.11mm.
During the last consolidation wave in 2006, analysts proclaimed SEAC's #1 rival Concurrent (CCUR) to also be a takeover target. CCUR at $7.80 has an enterprise value/revenue ratio of 0.73 and needs to rise to $16.35 to match SEAC's ratio of 1.91! CCUR's gross margins of 58.2% exceed SEAC's margins of 51.6%. CCUR has grown its operating margin from 1.3% in 4Q2012, to 2.7% in 1Q2013, to 5.3% in 2Q2013, and to 7.3% in 3Q2013. CCUR's 3Q GAAP EPS of $0.11 was up 175% YOY and if CCUR earns the same in the 4Q, they will report YOY EPS growth of 450%!
CCUR is about to rally by a much larger percentage than SEAC! CCUR recently surpassed SEAC to capture the #1 VOD market share. CCUR also has the largest market shares of start-over/look-back and Big Data Analytics. Plus, CCUR is rapidly growing a huge share of the multi-screen CDN market! CCUR recently signed HUGE new CDN deals with Virgin Media (the #1 U.K. cable TV operator) and Time Warner Cable (the #2 U.S. cable TV operator)!