Hot and cold: CommScope

 In 2015-05

Part 2:CommScope

In a media and telecommunications industry dominated by giants, a nuts-and-bolts Hickory tech company plays a critical role in connecting the world. Consumers no longer blanch at spending $200 or $300 a month to sate their television, Internet and mobile-phone habits, a credit to the marketing power of Facebook Inc., Netflix Inc. and other behemoths. But CommScope Inc. is keeping pace. It has had a tumultuous history since an investor group led by Frank Drendel bought the company, a division of Superior Continental Corp., in 1976 for less than $500,000 from Continental Telephone Co. Preferring to focus on its regulated business, Chicago-based Continental Telephone was happy to part with CommScope. Drendel, who ran the business for five years, hasn’t ever left. CommScope has annual revenue of $3.8 billion and provides equipment for cellular towers and networks, data centers, offices, arenas and airports, along with cable-TV wiring. It may grow another 60% when its largest acquisition is completed this year. Buying parts of Switzerland-based TE Connectivity Ltd.’s businesses for $3 billion will bolster global sales and reduce a reliance on the wireless industry, which cut spending recently, Credit Suisse analyst Kulbinder Garcha said in a February report.
A series of acquisitions have diversified the coaxial-cable company into a faster growing business. The company itself has been bought and sold almost a dozen times. The most recent owner, Washington, D.C.-based private-equity firm Carlyle Group LP, paid $3.9 billion in a go-private deal in 2011, then sold shares to the public two years later. Carlyle holds 43% after selling more than half its stake since the offering, while CommScope’s market value has jumped 40% to $5.5 billion over the last four years. “When you looked at it, it was a very nice company with great market positions and an outstanding management team,” says Bud Watts, a CommScope director and Carlyle partner in Charlotte. While ownership has changed, the bosses have stayed put. CommScope has had two chief executive officers and two chief financial officers in 39 years. Marvin “Eddie” Edwards Jr. became CEO in 2011 — Drendel remains chairman and controls about $140 million in stock.
Wireless accounts for about two-thirds of CommScope’s business, while its enterprise unit creates products for many prominent networks and buildings. At AT&T Stadium, the Dallas Cowboys’  $2.3 billion arena in Arlington, Texas, CommScope’s equipment helps manage heating and air conditioning, and its cable helps light the 60-yard-long scoreboard and 2,800 television monitors. CommScope is excelling because of a deliberate growth strategy, Edwards says. Its 2004 purchase of Santa Clara, Calif.-based Avaya’s cable components unit for $263 million doubled the company’s sales. It doubled again in 2007 in a $2.6 billion purchase of Orland Park, Ill.-based Andrew Corp., a leader in wireless equipment. The transactions added management depth: CommScope’s senior finance, marketing and sales executives worked for Andrew or Avaya. “What we’ve seen over time is we adapt. All of our businesses don’t perform at the same time at the same pace,” Edwards says.
Shares have gained 20% over the last year through mid-April, but investor sentiment has weakened after wireless sales shrunk 9% in the last three months of 2014, Garcha says. Six of 10 analysts now recommend the stock, down from 12 of 13 three months earlier.
But opportunity remains in many areas, as Comcast Corp. and other cable operators invest in network improvements, spurred by Google Inc.’s entry into fiber-to-the-home. “The addition of TE Connectivity really massively improves the strategic position of CommScope around the world,” Carlyle’s Watts says. “We are, if anything, more excited about the prospects of the company today than when we made the original investment in 2011.”

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