GTT Communications announced today that it has signed a definitive purchase agreement to sell its infrastructure division to Miami-based, I Squared Capital, an infrastructure-focused private equity firm, for $2.15bn.
Of the $2.15bn total price, $130m is in the form of an earnout (equating to a $2.02bn “Base Purchase Price”) and $75m in a holdback, pending certain financial measures are met. Therefore, GTT will receive $1.95bn at closing. Closing will occur during the first half of 2021, pending regulatory approvals and contingencies included in the agreement.
Transaction Overview
GTT’s infrastructure division consists of the company’s business providing pan-European, North American, subsea, and trans-Atlantic fiber network and data center infrastructure services. The division includes network and data center assets from several prior GTT acquisitions. Specifically, these prior acquisitions include Interoute, Hibernia, and KPN International, meaning the infrastructure division comprises:
- Network of 64k fiber route miles with over 400 points of presence. This network spans 31 metro areas and interconnects 103 cities across Europe and North America
- Three trans-Atlantic subsea cables, including GTT Express, the lowest latency route between Europe and North America
- 14 Tier-3 data centers and over 100 colocation facilities
Impact to GTT
The sale of its infrastructure division will enable GTT to de-lever and to focus on its capex-light business strategy as well as cloud networking.
GTT’s infrastructure division currently generates $370m in revenue and $170m of EBITDA. Therefore, on an unadjusted basis, I Squared’s offer values GTT’s infrastructure division at 12.6x EBITDA. However, EBITDA needs to be reduced by $42m for non-cash deferred revenue recognition from past indefeasible right of use (IRU) sales. Consequently, this translates into a “cash EBITDA” of $128m. Therefore, applying I Squared’s headline purchase price of $2.15bn, the value of GTT’s infrastructure division is higher, at 16.8x cash EBITDA.
Post-transaction, the remaining GTT business will have $1.3bn in revenue and $195m in EBITDA. Assuming a 15% effective tax rate on the total sale proceeds of $2.15bn, GTT would recoup $1.8bn in net proceeds. As a result, these proceeds would allow GTT to reduce its net debt from $3.3bn to $1.5bn. In turn, the company’s net leverage ratio would reduce from 8.5x to 5.5x.
Transaction Advisors for GTT and I Squared
GTT’s financial advisors were Credit Suisse and Goldman Sachs, and legal advisor was Goodwin Procter. I Squared’s financial advisor was Morgan Stanley, debt advisor was Rothschild and legal advisor was Linklaters.
GTT operates a Tier 1 internet network and fiber network. Additionally, this network includes over 600 unique points of presence spanning 6 continents and provides services to 140+ countries.
