GTT Communications Buys MegaPath Managed Services Business For $145 Million

Global Telecom & Technology (GTT) Communications has acquired for $144.8 million cash the telecommunications company MegaPath's managed services business, the company said. GTT said the move is the next step forward for the global cloud networking provider's objective to reach $400 million in revenue, while also providing added opportunities for the channel.

"We're excited about this deal. We think it's the next step forward as we continue to grow," said CEO and President Richard Calder in an interview with CRN. "We have a stated strategy of growing to the next financial objective of getting to $400 million in revenue ... We think this move of acquiring MegaPath managed services accelerates our growth path towards that as we continue to build an increasing scale that we think is very attractive to many channel partners."

On Thursday, GTT, which touts itself as the leading global cloud networking provider to multinational clients, said it will pay $144.8 million in cash and $7.5 million in GTT common stock for MegaPath's managed services business, which generates recurring revenue of $124 million and adjusted EBITDA of $20 million.

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The companies are expecting to close on April 1 after obtaining regulatory approvals. GTT said it is engaging with KeyBanc Capital Markets and Webster Bank to arrange the debt financing related to the deal.

Calder said his McLean, Va.-based company currently is around $250 million revenue run-rate. In a major acquisition last October, GTT bought UNSi, a communications company providing data services to large enterprises and carrier clients, for $40 million. In 2013, it acquired Inteliquent's Tier 1 IP and Ethernet network for $54.5 million.

MegaPath's managed service business provides private wide-area-networking (WAN), Internet access services, managed services and managed security to more than 500 multinational clients.

Calder said security is a big issue today for many CIOs in the IT industry.

"Their services business is very consistent with our strategy -- it provides ubiquitous connectivity for their clients; they have the same cloud networking portfolio … including an interesting set of managed security solutions, which are some of the key hot-button issues for CIOs now-a-days," said Calder.

David Schwed, CIO and general counsel at MASS Communications, a New York-based GTT partner, said the added security from the acquisition will benefit his company.

"Given all the security events that have happened recently, even over the past five to 10 years, security is becoming more of an important factor that most businesses either have been ignoring or haven't been doing anything they could," said Schwed. "So I think anything that's done in the security space to bring awareness or to bring services to other companies that maybe didn't have the expertise to do it in-house that can leverage a larger company like GTT is great."

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Schwed said the acquisition of MegaPath's managed services business fits nicely with the UNSi purchase last year.

"To be able to evaluate and possibly bring in now a complementary security solution will definitely benefit us," he said.

MegaPath said in a release the agreement enables the company to leverage GTT's global footprint to deliver ubiquitous network connectivity services worldwide and offer more high-capacity services at competitive price points.

"In 2014, MegaPath made the strategic decision to consolidate our business and place increased focus on high-growth, strategic opportunities," said Craig Young, executive chairman at MegaPath in a release. "This agreement with GTT is the second of two strategic initiatives that further our strategy of becoming a leading global cloud communications provider."

PUBLISHED FEB. 20, 2015