GTT acquires MegaPath's managed services business, enhances multinational customer base

GTT Communications is enhancing its multinational customer base by reaching a deal to acquire MegaPath's Managed Services business, one that currently serves more than 500 large multinational business customers.

Under the terms of the agreement, GTT will purchase MegaPath's managed services unit for $144.8 million in cash and $7.5 million in GTT common stock.

A key initial piece of this acquisition for GTT is it immediately adds scale to its customer roster with over 500 new customers, a base that it can immediately cross sell and upsell other solutions from its growing services portfolio.  

MegaPath's existing managed services customers will be able to gain access to GTT's broader global footprint that today spans 56 major metro areas and over 300 markets in the United States, Asia and Europe. 

"It brings us a roster of over 500 multinational clients with almost no overlap so it's a great opportunity in a very consistent portfolio to cross sell and upsell, particularly for international opportunities," said Rick Calder, president and CEO of GTT, in an interview with FierceTelecom. "MegaPath has historically been a very U.S.-focused firm so many of these clients have higher capacity Internet locations, all of which we can add to and take the security offerings they have and provide to our expansive list of our global customers."

Complementing the larger customer base, one of the big advantages that the acquisition will give GTT is an enhanced set of managed security solutions it can sell to its national and international customer base.

This includes everything from internal network intrusion detection, premises-based firewalls and secure socket layer (SSL) services that allow remote employees to access corporate VPNs.

"The MegaPath assets complement our strategy to expand network connectivity to any location in the world and complements our cloud networking service portfolio," Calder said. "One of the things that is a real upgrade to our cloud networking portfolio is their managed security solution, which is the number one thing that CIOs worry about right now."

MegaPath's Managed Services division has been a profitable business, generating nearly $124 million in recurring revenue and adjusted EBITDA of approximately $20 million.

After obtaining regulatory approvals, the two companies expect to close the deal on April 1.

Much like its acquisition of UNSi, the MegaPath acquisition is another rung GTT is climbing to grow its business.

"After we achieved $30 million in EBITDA in November 2013, we put out a financial objective to grow to $400 million in revenue and $100 million in EBITDA, and this acquisition clearly accelerates our pace towards that," said Calder. "We very much see that within our sight now by creating a business that's much larger in scale."

For MegaPath's part, this sale marks what has been a new transition for the company.

Earlier this year, the company sold off its wholesale business, which includes the former Covad Communications assets, to Global Capacity. In essence, this is a deconstruction of the three-way merger MegaPath did with Covad and Speakeasy in 2010.

When it completes this deal with GTT, Craig Young, executive chairman of MegaPath, said it will enable it to focus more on crafting its cloud services strategy, while giving its customers access to GTT's larger global footprint.

"This agreement with GTT is the second of two strategic initiatives that further our strategy of becoming a leading global cloud communications provider," said Young in a release. "This agreement will provide us with additional resources to drive further innovation in our unified communications and cloud offerings and leverage our existing leadership on the communications and security front to build a dominant cloud business."

For more:
- see the GTT release
- and the MegaPath release

Related articles:
GTT acquires UNSi, deepens Ethernet, managed services customer base
GTT opens new support center to accommodate MNC customer growth
GTT increases Asia-Pacific play by establishing network presence in Tokyo
GTT buys Inteliquent data business for $54.5 million, enhances Ethernet interconnectivity

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