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New Ulm Telecom Makes $42M Cash Deal for Scott-Rice Telephone

The telecommunications company's purchase of Scott-Rice Telephone will expand its regional presence.

New Ulm Telecom Makes $42M Cash Deal for Scott-Rice Telephone
New Ulm Telecom Inc. is hardly a major player in the modern telecommunications industry, but on Friday the company announced a deal to acquire Scott-Rice Telephone Co. for approximately $42 million in cash.
 
Scott-Rice Telephone Co. is based in Prior Lake but had been owned by Allstream Business U.S. LLC, an affiliate of Boulder, Colorado-based Zayo Group Holdings Inc. The publicly traded Zayo had revenue in excess of $1.7 billion in 2016.
 
Zayo, a communications infrastructure company, had acquired Scott-Rice Telephone with its March 2017 deal to buy Vancouver, Washington-based Electric Lightwave (formerly Integra Telecom) for $1.4 billion. Zayo, following its purchase, didn’t own any other assets quite like Scott-Rice Telephone. “[Scott-Rice Telephone] doesn’t really fit their business profile,” said Bill Otis, who has been president and CEO of New Ulm Telecom.
 
Otis joined the company in 1979 as its controller. He has been president and CEO since 1985.
 
New Ulm Telecom — more commonly known to some under its NU-Telecom brand name — had previously been negotiating with Electric Lightwave to buy Scott-Rice Telephone, said Otis. As indicated by its name, Scott-Rice Telephone has residential and business customers in Scott and Rice counties. New Ulm Telecom provides telephone, video, internet/data and other services for its rural customers.
 
“We contacted them to see if it was a possibility,” Otis said of Zayo. “We had been working on the deal in 2016.”
 
For 2016, New Ulm Telecom posted a net profit of $2.85 million on revenue of $42.3 million. For the first three quarters of 2017, New Ulm Telecom reported $35.2 million in revenue through the end of September, an 11.3 percent increase from 2016.
 
The company’s most recent quarterly filing notes that New Ulm Telecom had $24.7 million in long-term debt as of September 30, 2017. The new acquisition will be funded in part through a new credit facility from Colorado-based CoBank, which will add more debt to the books.
 
While that might sound steep for a smaller company, Otis said that one of the industry benchmarks is looking at debt as a multiple of the company’s EBITDA (earnings before interest, taxes, depreciation and amortization). Otis said that the company’s debt load is currently about 1.5 times its EBTIDA: “Which is very low,” said Otis. “We’re not concerned and our lender is not concerned.” 

New Ulm Telecom’s stock is traded over-the-counter. On Thursday, New Ulm Telecom’s stock closed at $17.01 per share. That’s up 82 percent from where it stood a year ago, closing at $9.35 on February 22, 2017.
 
News of the deal did not boost the stock much. On Friday, it closed at $17.10 per share, up just nine cents per share for the day. The stock is thinly traded; no analysts follow the company.
 
New Ulm Telecom’s history stretches back more than a century: it was founded as the New Ulm Rural Telephone Co. in 1905. New Ulm is nearly 100 miles southwest of downtown Minneapolis. The city has a population of approximately 13,000 people.
 
The current deal will require both state and federal approval from the Minnesota Public Utilities Commission and the Federal Communications Commission. The transaction is expected to close before the end of June.
 
When asked if New Ulm Telecom was expanding its regional footprint to make itself an acquisition target for a larger industry player, Otis said that was not the plan.
 
“In the grand scheme of things, we’re terribly small,” said Otis of the telecommunications industry. “We’re not trying to grow to sell.”
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