GTT jumped on the acquisition trail this week, announcing an agreement to acquire submarine cable provider Hibernia Networks for $590 million in a deal that will scale its IP network and customer reach.
Under the terms of the acquisition, GTT will pay $515 million in cash and about 3.3 million shares of GTT common stock valued at $75 million that will be issued at closing.
By acquiring Hibernia, GTT will immediately enhance its Tier 1 IP network with a set of owned and leased dark fiber assets including five owned subsea cable and eight landing stations.
Hibernia Networks owns and operates transatlantic cables including the recently opened ultralow-latency Express cable. Hibernia has also built a series of U.S. and European terrestrial networks by purchasing dark fiber indefeasible rights of use leases from other service providers.
While GTT has mainly rented facilities from other carriers, Rick Calder, CEO of GTT, told FierceTelecom in an interview that purchasing physical assets could enable the company to hit its $1 billion revenue goal.
The service provider reported in its third quarter earnings that revenue rose by 35.9 percent to $131.9 million compared to $97 million in third quarter 2015.
“We have always said we don’t have to own the fiber and we can lease it, but as we get bigger maybe the buy/make decision switches,” Calder said. “We have an opportunity to basically, through one acquisition, get a great growing client base, bolster the strength of our Tier 1 IP backbone, add products to our portfolio, including optical transport as well as the video media platform.”
Besides the physical network assets, the Hibernia acquisition expands GTT’s cloud networking portfolio with the addition of optical and low latency transport, video and CDN services.
As GTT brings Hibernia into its fold, one of the initial opportunities is to sell services across both customer bases.
“They have a broad network with a Tier 2 IP network, which we will consolidated onto our Tier 1 and we also have tremendous cross sell opportunities for Layer 2 and Layer 3 transport services such as Ethernet, MPLS, VPLS, DIA and other kinds of services they historically have not sold as much of,” Calder said. “It completely strengthens our backbone and we think that having some routes on the most and highest capacity makes sense to us.”
GTT will also now oversee Hibernia’s broadcast video transport and CDN business, which serves content rights holders, broadcasters, cable companies and OTT providers. The Hibernia video transport service transmitted last the 2016 Summer Games for RTE, Ireland’s national television and radio broadcaster, for example.
Having built out low latency fiber networks, Calder said the acquisition could help it more effectively compete against AT&T and Verizon for business on the Department of Defense's $4.3 billion Information Systems Agency (DISA) services contract.
As an indefinite-delivery/indefinite-quantity contract, the new contract is focused on providing telecom network solutions and services that support the transmission requirements of DISA's enterprise-level infrastructure.
“We’re a big contract winner on the Department of Defense’s Enhanced Global Services contract, which are all outside the U.S., and these assets fit very well for that,” Calder said. “They spent a significant amount of engineering time, effort and energy ensuring that these are the low latency routes so it has significant benefits across all of the industry segments we serve.”
After meeting customary regulatory approvals and other customary closing conditions, GTT and Hibernia expect the acquisition to close by the end of the first quarter of 2017.
Unlike other acquisitions that have been recently announced, such as AT&T’s pending deal for Time Warner and Verizon’s play for Yahoo, Calder said that its acquisition of Hibernia will help it scale to serve multinational clients and aren’t part of a protective strategy.
“When you look at ours versus a couple of other combinations recently, they combine and say our earnings were not that good, but we said we’re a nice growing company and we think the combination of our two businesses will help us grow faster,” Calder said. “This is an offensive move on our part and most of the other things we have seen in our industry have been defensive or if you think about the biggest incumbents they’re trying to become media companies.”
Hibernia is the latest in a string of acquisitions GTT has made over the past ten years to scale its business.
Calder told investors in June that it has a "funnel" of more than 50 M&A possibilities it is looking at today.
Other notable acquisitions GTT has made include Telnes, MegaPath's managed services business and One Source Networks, three providers that immediately deepened GTT's domestic and international network reach.