Fort Worth-based TPG Capital agreed to buy two small cable providers, RCN Telecom Services and Grande Communications Networks, in a $2.25 billion bet on demand for faster Internet connections and video.
TPG will acquire RCN for $1.6 billion and Grande for $650 million from Abry Partners to create a top 10 cable company in the U.S., according to a statement Monday. Google Capital will acquire a minority stake in the companies, according to a person familiar with the transaction who asked not to be identified.
Amid consolidation in the cable industry, private-equity firms have been quietly buying smaller operators, merging them together and upgrading internet bandwidth and speed with the goal of injecting more competition in the market and in some cases attracting takeover interest. With networks in Texas, New York, Boston, Chicago and Washington, D.C., TPG could bring another super-fast Internet provider to territories where AT&T, Verizon Communications and even Google have service available or in the works.
On their own, cable’s tiny mom-and-pops seldom become deal targets of the likes of cable giants Comcast or Charter Communications. Some serve sparsely populated corners of the country, while other “over-builders” like RCN struggle to keep their TV businesses profitable as they compete against entrenched incumbents.
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Yet the game changes once they’re rolled up. In an industry where consolidation or acquisitions are necessary for survival, a cobbled-together, regional cable system is one of the few options left — for both big and small providers.
RCN has about 289,000 video subscribers in markets including New York, Boston and Philadelphia, while San Marcos-based Grande serves 88,000 TV customers in Dallas and Austin, according to SNL Kagan. Grande was the first cable provider to introduce a gigabit service in Austin following Google Fiber’s push into the city.
TPG said RCN and Grande will challenge existing phone and cable operators by expanding gigabit-per-second, high-speed data services, and “focusing on providing high-quality and more reliable communications services along with better value and customer service.”
TPG’s purchases come after a wave of deals in the cable industry. Charter bought Time Warner Cable and Bright House Networks and Altice acquired Cablevision Systems and Suddenlink Communications.
For Google, the investment gives the search-engine giant another toehold in the market for TV and broadband delivery. In addition to providing these services directly to consumers in some cities through Google Fiber, the company has been exploring various ways to get more involved in television, from YouTube programming to cable set-top boxes.