Exclusive: ISQ plans to expand GTT infra network in Europe after $2.15bn deal
The investment company that is buying the infrastructure division of GTT for US$2.15 billion will be expanding the business, which includes the infrastructure and data centre operations of the former Interoute, as will as Hibernia Networks and the former KPN International.
But New York-based I Squared Capital (ISQ) will not merge it with Hong Kong-based HGC Global Communications, which it bought for $1.9 billion in 2017.
“We want to connect to newer cities or data centre clusters with incremental capex,” ISQ partner Mohamed El Gazzar (pictured) told Capacity in an exclusive interview just hours after the acquisition was confirmed on Friday.
“HGC sits as a separate asset,” he explained. “It’s our Asia platform. They are not going to be brought together.”
Separately, HGC said over the weekend that, further to the GTT announcement, “HGC, being the first telecom asset for I Squared Capital … will continue to consolidate and expand its Hong Kong base, establish ourselves in Asia, and expand its international venture in different possible aspects.”
Until now HGC, acquired from Hong Kong’s Hutchison group, has been unwilling in the extreme to say anything about ISQ.
El Gazzar told Capacity that it bid unsuccessfully for Interoute but was beaten on price by GTT in February 2018 – when GTT agreed to pay $2.3 billion. “We know [the business] well. We started in 2017 and it is unfinished business.”
In 2017 ISQ was working with the Fondation de Famille Sandoz (Sandoz Family Foundation), which owned 70% of Interoute, and with minority shareholders. In October that year the Bloomberg news agency reported that Interoute was working with banks on a $1.65 billion sale, though it named no potential purchasers.
“We had a very solid relationship with Sandoz,” said El Gazzar. “We worked very hard but in December 2017 there was difference in prices.”
In recent months ISQ worked with previous Interoute executives while preparing the bid, El Gazzar told Capacity. One confirmed to Capacity by email: “Yes actually [I] worked with ISQ to help them.”
But the world has changed since 2018, said El Gazzar in his interview with Capacity. “One thing we all acknowledge is the digital infrastructure world has been transformed. In enterprises today and in homes, bandwidth has become absolutely essential.”
Will ISQ bring back the Interoute brand? “We have not decided on the branding,” said El Gazzar. “We are studying this.” The purchaser has also not decided on a CEO or whether to bring back former Interoute executives. “It’s too early for that.”
As well as the former Interoute, ISQ’s purchase includes Hibernia Networks, which GTT bought in January 2017 for $590 million, and KPN International, bought in July 2019 for €50 million ($59 million).
That means GTT paid a total of $2.95 billion for assets in two and a half years that it has now sold to ISQ for $2.15 billion, an $800 million discount.
The deal includes:
a 103,000 route-km fibre network with over 400 points of presence, covering 31 metro areas and interconnecting 103 cities across Europe and North America (see map);
three transatlantic subsea cables, including GTT Express, formerly Hibernia Express, which GTT says is “the lowest latency route between Europe and North America”;
fourteen Tier 3 data centres and over 100 colocation facilities;
KPN International, not mentioned in any of the rumours around the industry before Friday’s announcement.
“KPN International feeds into the backbone – it is on Interoute fibre,” El Ghazzar told Capacity.
In July 2019 GTT said that KPN International operated a global IP network serving enterprise and carrier clients. It bought the business for €50 million in cash to “help to expand the global cloud networking provider’s network scale and market footprint in Europe”.
Rick Calder, then GTT president and CEO, said at the time: “The acquisition of KPN International deepens our market presence in the European region.” Calder later left the company, having seen the share price collapse from $60.25 in March 2018 to $6.71 in August 2019 – and then further down to $4.30 in August 2020.
GTT’s share price spiked on Friday from $5.02, where it had started the day, to $6.56, but then fell back to $5.35 on the close on the New York Stock Exchange. The closing price means GTT’s market cap is $315 million: proceeds of the infrastructure sale will go to paying off debts.
Comments on the news emailed to Capacity included: “Great outcome for GTT,” from a US banker; “Good luck to them, even if I think they’re insane! This deal certainly feels a bit ‘dot-com-ish’, from a senior telecoms executive; and: “Very interesting and a surprisingly high valuation, I think,” from a telecoms lawyer.
El Ghazzar said to Capacity that ISQ “likes to bolt on acquisitions”, hinting that it might be looking for further purchases to add to the Interoute/Hibernia/KPNI purchase once it is completed in the first half of 2021.
“There are a lot of bolt-ons you could do – tier 2 and tier 3 cities and data centres.”
He said the GTT infrastructure division “has a fantastic management team”, with “very high quality people that came with the carve-up” of the unit from GTT’s services operation.
“We have a lot to do for the next six months,” he said, referring to regulatory filings to get the deal approved. “After completion we’ll just be diving into the business plan. This is an exploding market and we’re going to be part of it.”
ISQ is also “looking at the US market”, he added. There are “a lot of opportunities in the US and Latin America”. ISQ has “a big Latin American practice “and there are some interesting opportunities we are looking at” in business-to-business networks and fibre-to-the-home.