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GTT Communications: Interoute Acquisition Biggest In History


  • GTT Communications has returned more than 1,700% since 2013, obliterating any benchmark.
  • The company hits a lot of checkmarks for investors in today's market: a successful roll-up, low capital needs, heavy free cash flow generation, great end market.
  • The Interoute deal is massive and nearly doubles the size of the company.  The move into Europe will provide excellent cross-sell opportunities.
  • Today, the company looks fairly valued to asset-light comps. Strong deal execution leaves room for more upside for bulls.

Successful roll-ups are not common, but GTT Communications (GTT) is one of them. As of this writing, shares are up 1,718% since the beginning of 2013. The company has nearly everything investors are looking for in common equity nowadays. Cloud-based technology? Check. Recurring revenue? Check. Asset-light business model? Check. Excellent revenue growth? Check.

Valuation multiples at GTT Technologies have gotten pretty stretched compared to peers, but that hasn’t kept shares down. Management has built a reputation as a leading consolidator in the space and recently announced a game-changing acquisition: the $2,300mm buy-out of European-based Interoute. It’s by far the largest acquisition in company history, but investors have already written this off as another feather in the cap of a compelling management team. Does the valuation on the deal make sense, and perhaps more importantly, has management bitten off more than they can chew this time around?

Business Overview

GTT Communications owns and operates cloud infrastructure and fiber connectivity lines. The company’s IP backbone, built off of more than five hundred points-of-presence ("PoPs) facilitates the flow of information across different local area networks (“LANs”) or subnetworks and is one of the largest in the world. While the jargon can be confusing, simplistically GTT Communications helps customers both connect to the internet and send and receive data cross it.

As no internet service provider (“ISP”) has complete network coverage globally, it also sells access to its assets to other network providers as everyone tries to connect in the most efficient manner. In the same vein, it has relationships with thousands of regional suppliers so that it can re-sell space on assets it leases from these companies to provide the best user experience (low latency, minimal downtime, large data limits) to its customer base.

Contrary to what one might expect for those familiar

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This article was written by

Michael Boyd profile picture

Michael Boyd is an energy specialist with a decade of experience in both the investment advisory and investment banking spaces, with stints in portfolio management, residential mortgage-backed securities, derivatives, and internal audit at various firms. Today, he is a full-time investor and "independent analyst for hire.”

Michael leads the Investing Group Energy Investing Authority. The service focuses on finding total return opportunities within the energy sector, ranging from upstream producers to pipelines to refineries. Features include: model portfolios, real time trade alerts, high quality research, and an active and vibrant chatroom of professional investors. Learn More.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (4)

Time for a followup article? What do you think their prospects are looking forward? Has your outlook changed at all given the recent call?
Good interview with their CEO on Mad Money 3/10. I have a number of cloud infrastructure bets, including ANET (fast switches and routers) and EQIX (colocation services for data centers).

Thanks for the GTT writeup
Thanks to you Michael once again; I always enjoy your articles. I enjoyed the write-up on GTT because it gave me insight into the rapidly developing landscape of hardline internet and its importance to our future; through the internet of things, smart cities, and ubiquitous integration of sensor technology. I know very little about this very important market, but I sense its tremendous importance. I've heard it referred to as the modern toll roads, I guess because companies like GTT will be able to charge a fee to wireless carriers to implement 5G, as well as make money from cloud computing contracts. I'f you get a few free minutes I would really appreciate it if you could expand on the importance of these types of businesses to our future. Am I correct in my estimation of their significance?
Michael Boyd profile picture
You're spot on.

It's definitely an area of the market I'm working myself to understand more. Cisco's white paper on the cloud (recently updated) does a great job of concisely putting together consensus growth alongside likely trends:


The volume of data being sent globally is massive on both the public and private side. It will only grow larger. GTT, focusing on the commercial side, will benefit from these trends.

As a cautionary tale, because the cloud data growth story is relatively new, there is a lot of money flying around. Multiples are high, and there are going to be some major losers when a shake-out happens. Putting your money behind quality management in my view. GTT management has proven they've got the chops to navigate this environment properly.
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