GTT will accelerate organic growth in Q4 2017, Jefferies predicts

GTT

Now that it has completed its acquisition of Global Capacity and signed an agreement to acquire Transbeam, GTT will likely focus its attention on accelerating organic growth, rather than M&A, throughout the remaining fourth quarter season, analyst firm Jefferies predicts.

By purchasing Transbeam and Global Capacity, GTT not only gains additional network and service capabilities, but new revenue sources stemming from the ability to upsell existing and new customers more services.

“While 3Q sequential growth should be driven by a full quarter of Perseus and 2 weeks of Global Capacity, we anticipate organic growth to accelerate beginning in 4Q,” Jefferies said in a research note. “We roll forward to a year-end 2018 target of $41, which also reflects the accretion from the acquisitions.”

RELATED: GTT continues buying spree with $28M Transbeam acquisition, deepens SD-WAN, Northeast network presence

Global Capacity and Transbeam immediately broaden GTT’s client and network service base while deepening its presence in key carrier and enterprise vertical markets.

GTT can tie these assets into its new multitier structure. Earlier this year, GTT created three new divisions: enterprise, carrier and EMEA. 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.

Global Capacity deepens last-mile, software capabilities

A big piece that Global Capacity adds to the GTT puzzle is last-mile assets. The acquisition allows GTT to scale its last-mile connectivity to over 9.6 million U.S. commercial addresses.

The acquisition augmented GTT’s SD-WAN service with diverse access options, including an extensive on-net Ethernet over Copper infrastructure. SD-WAN, while still a nascent concept, is gaining momentum as another option for business customers to forgo expensive MPLS circuits by equipping remote offices with lower-cost broadband connections over a software-based construct.

But physical assets are only one element: Global Capacity also brings a software platform that’s designed to simplify the process of enterprises connecting to the cloud and Ethernet service.

Still, Jefferies expects Global Capacity will only contribute a small amount of revenue in the fourth quarter since GTT only completed the acquisition last month.

“We anticipate ~$7.1mn of revenue from Global Capacity in 3Q, which reflects approximately two weeks of contribution in the quarter,” Jefferies said. “Global Capacity is expected to contribute ~$200mn on an annualized basis, though declining modestly given pressures within the SMB base.”

Transbeam deal adds depth

While not as large as the Global Capacity deal, the acquisition of Transbeam will complement the assets it purchased from Global Capacity.

The Transbeam deal comes with additional broadband, wireless and Ethernet over Copper (EoC) facilities that GTT can use to deliver SD-WAN across its growing network footprint in the United States. Prior to being purchased by Transbeam, the service provider introduced its SD-WAN service in February.

As the third acquisition GTT made this year, will also enhance its scale while deepening its network footprint throughout the Northeast market.

“Though relatively small at just $28mn, the acquisition of Transbeam brings added scale and some new customers to the GTT portfolio,” Jefferies said. “Transbeam adds depth in the NY market,  complementing Global Capacity's Northeast presence.”

Jefferies estimates “Transbeam's run-rate revenue at ~$25mn with little EBITDA contribution” and that run-rate “synergies from the deal are estimated at ~$5mn, to be realized by mid-2018.”