2007 already has seen the most acquisitions of incumbent local ca...

John Hendon II, vice president in Stifel Nicolaus’ telecom and media group. The total value of acquisitions has dropped, though, to $1.84 billion this year from $2.36 billion in 2006, and both years are overshadowed by 2005, when Alltel’s wireline spinoff was one of the few sales, he said Wednesday at USTelecom’s Executive Business Forum in San Jose. Buyers need growth, “and organic growth is just more difficult to achieve in this environment,” Hendon said. Sellers face cable competition, the cost of investing in new technologies and regulatory uncertainty on access charges, the Universal Service Fund and access to video programming for pay-TV plays. And the sum of a takeover can be greater than the parts, he said. Windstream, spawn of the Alltel spinoff and a merger with Valor Communications, said it bought CT Communications in a $585 million deal that closed late last month partly because it expects to boost their combined EBITDA to $88 million from $58 million. Debt markets remain receptive to deals, Hendon said. Volatility from the mortgage mess is hurting “more on the LBO side,” he said. And “the equity markets have been very receptive,” instead of driving down purchasers’ share prices, as often happens, Hendon said. “The stocks of buyers are going up. They're being rewarded for buying and consolidating. Six sellers the past few years have been public companies, and on the buyers’ side, there’s been “limited private equity involvement,” he said. The measure of value has shifted from the historical one of access line numbers to a multiple of EBITDA and, most recently, to free cash flow, Hendon said. Buyers have had telecom operations near those of purchased companies, and a seller’s ability to extract a strong price for all its assets, notably wireless interests, has been a major variable in valuations, said other panelists.