For a couple years now, GTT has had a stated goal of reaching a run rate of $400M in annual revenue and $100M in adjusted EBITDA to go with it, with the expectation that much of it would come via M&A. This morning they announced plans to acquire One Source Networks, sprinting smoothly past the finish line of their self imposed race.
One Source Networks is privately held and provides UC and managed cloud networking services to large enterprises. Their revenue for the second quarter was $20.2M with $4.2M in EBITDA, which is actually rather larger than I thought. Like GTT, they have taken the low capex route, leveraging assets built by a spectrum of others to serve customers.
That model looks like it will fit well with GTT’s managed services, offering a chance to continue to add revenue scale on top of GTT’s global IP and Ethernet network. GTT’s early acquisitions started on the network side with nLayer and PacketExchange followed by the IP and Ethernet network operated by Inteliquent. Then their appetite shifted toward managed services with the acquisitions of UNSi last year and of Megapath’s managed services business earlier this year.
When complete, the deal will take GTT’s quarterly run-rate past $115M in revenue and $24M in EBITDA. With a few ongoing synergies plus a little organic growth, that EBITDA number should easily surge past the $25M quarterly mark shortly after closing. They’ll be paying $175M for the privilege, which just about 10 times the current run-rate of EBITDA, and just over 12 times for the trailing 12 months. The deal is expected to close in late October of this year.
I wonder what goal GTT will set for themselves next, having spent several years chasing this one. Will they continue to chart a very inorganic path, rolling up further managed services revenues onto their platform? There is certainly no dearth of potential targets at the managed services and cloud level. Or is will the next phase be more organic, as One Source Networks had been growing pretty well. Either way, they’ll surely spend a few quarters integrating One Source Networks and finishing up the remainder of work from the Megapath deal.
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Categories: Internet Backbones · Managed Services · Mergers and Acquisitions
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GTT is very good at raising debt and doing more M&A to stay ahead of their debt covenants. They are not really integrating many of their acquisitions and organic growth has become a challenge for them. At some point the street is going to turn on GTT as any potential buyer is getting a lot of debt with no organic growth pipeline. GTT’s goal is to sell soon, but they need to show real organic growth or they are going to go out at a discount, regardless of the stock price.