GTT is continuing its spree of early summer acquisitions, signing a deal to acquire Global Capacity, scaling its last mile connectivity reach to over 9.6 million U.S. commercial addresses.
Global Capacity is a provider that built a software platform set on simplifying the process of enterprises connecting to the cloud and Ethernet services.
Under the terms of the agreement, GTT will pay $100 million in cash and issue 1.85 million shares of GTT common stock, to the sellers at closing.
GTT said it expects that Global Capacity’s annualized revenue will be about $200 million at close, net of pro forma adjustments, and that the purchase price will reflect a multiple of post-synergy Adjusted EBITDA of 5.0x or lower, with integration and cost synergies to be achieved within two to three quarters after close.
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Rick Calder
Rick Calder, GTT president and CEO, said in a release that the acquisition of Global Capacity will bring it one step closer to reaching its $1 billion revenue goal.
“After integration, we expect to achieve our previously announced, next financial objectives of $1 billion in revenue and $250 million in Adjusted EBITDA,” Calder said.
Following recent acquisitions of Perseus and Giglinx, this is the third acquisition that GTT has made in the past month.
After meeting regulatory approvals and other customary closing conditions, the two companies expect to close the acquisition by the end of third quarter 2017. GTT will fund the cash portion of the acquisition at close with funds from the debt offering completed in May. At that time, the company raised $150 million in new funding for acquisitions and other growth activities.
“We put in our AK filing in early June that we raised $150 million in high-yield financing that we had two letters of non-binding letters of intent,” Calder said in an interview with FierceTelecom.
Jefferies said in a research note that Global Capacity is a complementary business to GTT, particularly when it comes to SD-WAN and expanding its data center footprint.
“Global Capacity operates a network of over 1,750 central office points of presence (POPs), which will be incremental to GTT's footprint,” Jefferies said. “As GTT, and the industry, push further into SD-WAN solutions, the CO POPs should add strategic value.
Jefferies added that Global Capacity “operates 41 POPs in carrier neutral data centers, which would overlap with GTT's existing footprint.”
Building scale
Similar to its recent deals to acquire Giglinx and Perseus, the Global Capacity deal is about driving new scale.
As part of increasing its last-mile connectivity, GTT gains access to 41 data centers and 1,750 Central Office points of presence (PoPs).
By acquiring Global Capacity‘s client base, GTT gains marquee customers in the healthcare, application service provider, retail and carrier markets, adding highly complementary recurring revenue streams.
The acquisition will also augment GTT’s managed SD-WAN service with diverse access options, including an extensive on-net Ethernet over Copper (EoC) infrastructure.
Global Capacity has built it out EoC via relationships with major telcos as well as its acquisition of MegaPath’s Network Services business unit in 2014.
In 2016, Global Capacity equipped 830 Central Offices (CO) to deliver service to an additional 230,000 new commercial addresses across 58 metro markets in 28 states.
“GTT gains new marquee clients, enhanced network reach and scale, and a great team of employees to drive outstanding client experience, through our core values of simplicity, speed and agility,” Calder said in the release.
Besides EoC, the Global Capacity deal will also enhance GTT's SD-WAN reach. Similar to GTT, Global Capacity recently launched its own SD-WAN service.
Advancing alternative carrier vision
The Global Capacity acquisition also ties into GTT’s mentality to be a key challenger to AT&T and Verizon in the competitive multi-national corporation (MNC) service segment.
What perhaps has set GTT apart from these carriers is that its sole focus is on providing only wireline services to business customers.
As a way to better serve its business customers, GTT created three new divisions—enterprise, carrier and EMEA. The service provider said these divisions are designed to accelerate sales growth and give it more of a hands-on focused approach that allows it to craft solutions for each customer type.
Overseen by three division presidents, the three divisions will oversee the primary customer experience functions: sales, quoting, ordering, service delivery and collections.
While AT&T and Verizon still own the majority of the MNC market, GTT is confident it can grow its market share that it has said is still small but growing.
“We’re continuing to build what we believe is the great challenger brand in our industry for big multi-nationals if I don’t want to use the incumbent what are the other options out there,” Calder said.
GTT’s confidence was certainly reflected in its first quarter results. The service provider reported $182.4 million in revenue, 46.6% over the first quarter of 2016.