Telecom services contractor Multiband Corp (NASDAQ:MBND) agreed to sell out to privately-held Goodman Networks in May 2013 for roughly $70 million, or $3.25 per share in cash. Goodman, an engineering services company, seems to have been attracted to Multiband Corp (NASDAQ:MBND)’s growing engineering services unit that constructs public telecom and energy infrastructure assets on a project basis. However, Multiband Corp (NASDAQ:MBND) is also the #2 field services provider for DIRECTV (NASDAQ:DTV), one of only four contracted home services providers for the top satellite television company, and provides similar services for various cable and internet companies. With an acquisition price of roughly 1.5 times book value, should investors take the cash?
Multiband Corp (NASDAQ:MBND) derives the vast majority of its sales from its field services installation work for DIRECTV (NASDAQ:DTV) and other operators, accounting for 87% of its total sales. While satellite work orders were down 9% in its latest fiscal year, the company offset the decline with new business from cable companies looking to outsource the labor-intensive installation process. Multiband Corp (NASDAQ:MBND) also benefited from its position as one of the largest master system operators for DIRECTV (NASDAQ:DTV), which allows it to directly bill customers and receive fees for managing upgrade and customer service processes.
In its latest fiscal year, Multiband Corp (NASDAQ:MBND) generated relatively weak financial results, with a 1.8% increase in revenues and a steep decline in operating income. While the company did a good job of replacing lower home installation work with higher multi-unit management contracts, the cost of acquiring new business negatively impacted profitability. However, with roughly 159,000 direct multi-unit subscribers and a growing base of managed subscribers for third party operators, Multiband is creating critical mass in the multi-unit market, an area that has approximately 26 million households and is a focal point for DIRECTV (NASDAQ:DTV).
Of course, Multiband is riding the coattails of DIRECTV (NASDAQ:DTV), which dominates the domestic satellite television market along with smaller competitor DISH Network Corp (NASDAQ:DISH).Despite rising competition from cable, wireline, and online networks, the two companies have maintained steady market share, with a current combined 34 million subscribers out of the estimated 100 million households with pay-television services. In addition, both companies have been strengthening bonds with customers by adding services, like exclusive original content and digital video recording capabilities.
In its latest fiscal year, DIRECTV (NASDAQ:DTV) reported solid financial results, with increases in revenues and operating income of 9.2% and 9.9%, respectively, versus the prior year. The company’s sales growth benefited from net subscriber additions globally, especially in its Latin American unit, as well as from higher average pricing in the U.S. In addition, despite a perennial rise in programming costs, DirecTV achieved its highest operating margin of the past five years by driving efficiencies across its supply chain, including the use of third-party providers like Multiband.
Naturally, DISH Network Corp (NASDAQ:DISH) continues to try to use innovation to overtake the top satellite television provider spot, with roughly 14 million subscribers versus 21 million for DirecTV. In 2012, the company unveiled its latest DVR, the Hopper, which is capable of skipping through commercials and enabling the viewing of programming on broadband-connected mobile devices. During the period, Dish Network also launched dishNET, its high-speed internet product that is primarily geared for the segment of the population living in under-served rural markets.
In its latest fiscal year, Dish Network reported relatively weak financial results, with a 1.6% increase in revenues, but a 25.2% decline in adjusted operating income. While the company was able to reverse the prior year loss in its overall subscriber base, its profitability suffered from rising subscriber acquisition and programming costs. Like DirecTV, though, Dish continues to generated substantial operating cash flow that it is using to acquire wireless spectrum, which will ultimately allow it to provide more bundled services that are in demand from customers.
Multiband’s fortunes are heavily tied to DirecTV, the best operator in the satellite TV space and one that is investing in new services to strengthen and expand its customer base. As a major partner of the satellite TV giant, Multiband is positioned for future gains from this relationship, with possible additional upside from its business development activities outside of the satellite segment. While Multiband’s profitability is currently depressed as it builds secondary revenue streams, its growth opportunities are promising and investors should hold out for a better offer.
The article Is This Telecom Services Contractor Worth More Than You Think? originally appeared on Fool.com and is written by Robert Hanley.
Robert Hanley has no position in any stocks mentioned. The Motley Fool recommends DirecTV. Robert is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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