GTT holding off all major acquisitions after Interoute buyout
02 March 2018 | Natalie Bannerman
GTT president and CEO Rick Calder says that Interoute will be the company's last large-scale M&A for a while.
While GTT focuses on integrating the newly acquired company, Calder indicated that the company’s ‘M&A funnel’ would still open to small and potentially non-material deals.
Earlier this month GTT announced that it was acquiring Interoute, one of Europe’s largest independent fibre network operators, for $2.3 billion. The deal marks GTT’s sixth purchase over the last eighteen months and a decision that was motivated by three key factors. According to Calder Interoute had a “strong strategic fit” and in a way like “the GTT of Europe”. Second it had “the ability to integrate quickly and seamlessly” and lastly a strong “post-purchase return’.
In 2017 GTT acquired seven new companies adding to its already growing portfolio, a move that Calder said was driven by the need for increased growth and to better serve its clients.
“We closed our two largest ever acquisitions Hibernia Networks and Global Capacity, and completed five smaller acquisitions; Mammoth, Giglinx, Perseus, Transbeam and Custom Connect, to better serve our clients and increase rep driven growth.”
Speaking about the progress of some of those acquisitions Calder said: “On the integration front, Global Capacity is nearly done, with the organisational integration completed in Q4 2017, systems integration now complete and network integration on track to be completed in Q2 2018.
“The Transbeam integration is right on the heels of Global Capacity with organisational integration completed in Q4 2017, systems integration due to be completed in Q1 2018, and network integration due to complete in Q2 2018. Organisational integration for Custom Connect has already been completed, with the systems and network integrations due to be completed in Q2 2018,” he added.
As for the financial results, 2017 was a positive year for GTT in that aspect as well. The company reported an increase of 57% to a total of $827.9 million in comparison to 2016. Despite the increase in revenues, net loss for the company also increased to $71.5 million. The company says this is largely due to nonrecurring costs which included: $41.5 million in exit, transaction and integration costs related to the acquisitions of Hibernia, Perseus, Global Capacity and Transbeam, $8.6 million spent on debt repayments, $17.3 million in tax expenses due to the changes in US tax laws and $29 million on the recording of valuation allowance against US deferred tax allowance.
Its results for the quarter were also up 80.7% to $249.2 million compare to Q4 2016 and up 23% compared to Q3 2017. Just like the net loss for the year, net loss for the quarter was also up because of nonrecurring costs. Net loss for the quarter reached $49.5 million in Q4 2017 whereas Q4 2016 and Q3 2017 reached $0.9 million and $9.5 million respectively.
The net loss for this quarter has been equated to $5.8 million in exit, transaction and integration costs related to the Global Capacity and Transbeam acquisitions, $17.3 million in tax expense related to the change in US tax law and a further $29 million in tax expenses related to the recording of a valuation allowance against US deferred tax assets.
Commenting on the finances, Calder said: “2017 was a terrific year for GTT as we grew revenue and adjusted EBITA by 57% and 77% respectively. We moved to three new divisions: Enterprise, carrier and EMEA enabling us to increase our investment in both direct and indirect sales resources.”
Adding to conversation, Mike Sicoli GTT’s chief financial officer, said that acquisitions drove most of the company’s year-on-year growth, particularly Hybernia and Global Capacity. “On a proforma basis revenue grew 5% year-on-year and 2% sequentially while adjusted EBITA grew 11% year-on-year and 5% sequentially. Hybernia and Global Capacity slowed our profroma growth based on their pre-close trajectories but we’re aggressively investing in the resources needed to produce consistent rep driven growth and keep up with our ever increasing revenue base.”
Although Sicoli remains positive about those figures increasing as the newly acquired companies become better integrated. “We continue to expect that we will grow our margins back up into the 20% area throughout 2018 as we fully realise the synergies associated with our recent acquisitions.”
“We remain focused on rapid growth and progressing toward our next financial objectives of $2 billion in revenue and $550 million in Adjusted EBITDA,” concluded Sicoli.
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7h | James Pearce
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8h | Alan Burkitt-Gray