Recently, GTT Communications, Inc. announced an agreement to acquire Hibernia Networks, a leading provider of global, high-speed network connectivity solutions and owners of subsea and terrestrial fiber assets. This includes Hibernia Express, the lowest-latency, transatlantic cable system.
So, how will the acquisition benefit GTT?
First and foremost, it will provide GTT with leased and owned dark fiber assets including five owned subsea cables and eight cable landing stations. This will add breadth and depth to GTT’s global Tier I IP network.
The acquisition will also expand GTT’s cloud networking portfolio, which currently offers wide area networking, managed services, Internet, and voice services. GTT will now be able to offer optical and low latency transport and CDN services.
Additional benefits include:
- Video Transport: GTT will obtain a world-class video transport platform for broadcasters, content rights holders, OTT providers and cable companies.
- More Customers for GTT: GTT will grow its client base by adding marquee clients with depth in the media, financial services and entertainment, Web-centric and service provider segments.
- A Financial Boost: GTT will enhance its financial profile by adding a substantial, highly complementary recurring revenue business with strong cash flow characteristics.
The $590 million transaction consists of $515 million in cash, and 3.3 million shares of GTT common stock which will be issued to the sellers at closing. These shares are valued at $75 million. The transaction is set to close by the end of 1Q17. It is subject to certain regulatory approvals and other customary closing conditions. The Bank Street Group LLC is serving as exclusive financial advisor to Hibernia during the transaction.
“This acquisition accelerates GTT’s growth strategy by expanding our portfolio of cloud networking services, significantly increasing the scope and power of our global network, and growing our multinational client base,” stated Rick Calder, GTT president and CEO following the announcement. “Hibernia Networks has a demonstrated track record of growth, and brings unique, strategic network assets featuring high-bandwidth, low latency connectivity. We are very excited to welcome Hibernia Networks’ clients and talented team members to GTT. Following our successful, proven acquisition template, we expect to complete integration within two to three quarters post-close, and to achieve a post-synergy multiple of seven times Adjusted EBITDA or better on a pro forma basis.”
Hibernia Networks’ chief executive officer Bjarni Thorvardarson commented on the agreement as well.
“GTT’s acquisition of Hibernia Networks provides great benefit to the entirety of our customer base as well as our two organizations,” stated Thorvardarson. “GTT gains world class global fiber assets, including ultra-low latency routes between key financial markets, as well as optical, low latency and content services, and exceptional employees with a proven track record of network and commercial leadership, and exemplary customer service. Hibernia Networks clients around the world will benefit from the expansive reach of GTT’s Tier 1 IP network, the broader portfolio of products and services, improved scale, and the company’s expertise in delivering cloud networking solutions and managed services to multinational clients.”
Here are some important deals about the agreement.
Transaction Financing: As mentioned, the purchase price under the terms of the agreement is $590 million. It is subject to customary adjustments for working capital and other items, composed at $515 million in cash, plus about 3.3 million shares of GTT common stock. The stock — valued at $75 million — will be issued to the sellers at the time of closing. The cash portion of the purchase price will be funded using proceeds from additional debt assistance. It will consist of secured term loans and senior unsecured notes.
The debt syndication process will be led by KeyBank National Association and Credit Suisse, who provided committed financing for the deal.
The ratio of total net debt to Adjusted EBITDA at closing is expected to be about 4.5:1, using annualized pro forma combined third quarter 2016 Adjusted EBITDA plus expected cost synergies. The ratio of total net debt to Adjusted EBITDA is expected to be at or below 4.0:1 within one year of closing. This will reflect continued Adjusted EBITDA growth and cash generation.
Hibernia Financial Data: How is Hibernia performing financially? For three months ending Sept. 30, 2016, Hibernia reported revenue of $45.5 million on an unaudited basis. It also reported Adjusted EBITDA of $16.1 million and capital expenditures of $1.9 million.
For the nine months ending Sept. 30, 2016, Hibernia reported a base revenue of $138.6 million on an unaudited basis, as well as Adjusted EBITDA of $49.1 million and capital expenditures of $12.7 million.
In 2015, Hibernia reported revenue of $148.9 million, Adjusted EBITDA of $34.2 million and capital expenditures of $161.5 million. Revenue and Adjusted EBIDTA growth from 2016 to 2016 is driven primarily by completion of the Hibernia Express low latency transatlantic cable system in September, 2015. This includes the impact of some prepayments for long-term indefeasible rights of use (“IRUs”) from anchor tenants.
These reports are reported by Hibernia Networks, without expected future cost synergies and without any pro forma adjustments. Within the next several weeks, detailed Hibernia results and pro forma information will be made available in a form 8-K.
3Q16 results: GTT has released its 3Q16 performance results. You can find them by clicking here.
Conference Call: On Nov. 9, GTT held a live conference call. If you missed the call, you can access a telephonic replay. The replay will be available for one week. To access the call, dial +1.877.344.7529 or +1.412.317.0088 and use the passcode 10093979. The webcast will be available in the investor relations section of GTT’s website.