Buy the System, Pay With Its Own Cash Flow

“We borrowed every penny, and within two years—thanks to JC’s crew and regional manager Marion Nowak—we had it running on its own cash. Leverage dropped fast—we had essentially bought the cable system with its own cash flow. We would do the same thing buying the Dallas franchise from Warner-Amex.”

“When we started to grow and finance that growth, predictability was what gave banks the confidence to lend more money for bigger purchases. We saw patterns, which led to some simple rules at times: for example, never pay more than five times the annual cash flow generated by a cable system, figuring in the savings from synergies. This helped us decide instantly if a property was worth the asking price. It was all quite simple—a virtuous circle that would help us gain the advantages of scale economics. Buying more cable systems would bring in more paying subscribers. More paying customers meant higher cash flow and lower costs in the form of bulk discounts for networks. Increased cash flow allowed TCI to borrow more money and pay the higher total interest costs on it, which we used to buy still more cable systems.”