GTT In $2.15B Deal To Sell Infrastructure Unit To I Squared; Shares Jump 7%

Shares in GTT Communications closed almost 7% higher on Friday after the cloud networking provider struck a $2.15 billion deal to sell its infrastructure division to I Squared Capital.

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As part of the sale agreement, GTT (GTT) will receive an upfront payment of $2.02 billion at the closure of the transaction and total deferred payments of up to $130 million. The acquisition is expected to close during the first half of 2021, subject to regulatory approvals and contingencies included in the agreement.

GTT offers cloud networking services over its global Tier 1 IP network that includes traditional and software-defined wide area networking, global SIP trunking, advanced solutions, security and internet services.

“The divestment of the highly differentiated infrastructure division assets will ensure greater focus on network investment and development of high-speed infrastructure services under the more specialized ownership of this experienced investor,” said interim CEO Ernie Ortega. “The deal enables GTT to reinforce its capex light business model as well as its cloud networking focus and will benefit both enterprise and infrastructure clients alike.”

GTT’s infrastructure division provides pan-European, North American, sub-sea and trans-Atlantic fiber network and data center infrastructure services to customers. The division includes selected network and data center assets accumulated from several GTT acquisitions, including Interoute, Hibernia, and KPN International. One of its main assets is a 103,000 route kilometer fiber network with over 400 points of presence, spanning over 31 metro areas and interconnecting 103 cities across Europe and North America.

Shares in GTT have lost 53% of their value this year as the company failed to submit its quarterly financial reports on time.

Commenting on the deal, Raymond James analyst Frank Louthan said he views I Squared as “a very credible buyer” adding that the estimated EBITDA multiple of about 18 times with the earnout “is a solid multiple for the infrastructure” assets.

The analyst, who called the deal “a good step toward getting investors past the accounting and reporting irregularities that GTT has faced since last summer,” is sticking to his Sell rating on the stock for now. (See GTT stock analysis on TipRanks)

Oppenheimer’s Timothy Horan, who has a Hold rating on the stock, said that although he sees the asset sale as a positive catalyst, there are still many “risks on the horizon”.

“We expect the core business to see revenue and FCF missing Street ests. due to the recession and increased cable competition,” Horan wrote in a note to investors. “We also think it could be a few more quarters before the company can file financial statements.”