Sizing up Commander

Commonwealth Bank, Westpac and NAB today moved a step closer to finding out how badly burned they will be on their $350 million exposure to Commander Communications, the telecommunications and IT managed services business that collapsed earlier this month.

Receivers and managers, Peter Anderson, Chris Honey and Joseph Hayes of McGrathNicol have already received interest in the business from about 60 parties including serious industry players, opportunistic bottom-feeders and the usual tyre kickers.

The Commander business has been split into two main operations – managed services with turnover of about $110 million and telecommunications with turnover of about $345 million.

It is hard to know what the two businesses are earning because the latest accounts from Commander for the six months to December were clouded by write-offs and bad debts. In addition, the costs of running each business were not attributed to each business in the most recent segment reporting.

However, the managed services business with its mix of corporate and government clients was listed in the accounts as having a gross profit margin of about 43 per cent while the telco business had a gross margin of about 10 per cent.

Parties that put forward formal expressions of interest will be given an information memorandum with pretty general information about the businesses. The information memorandum will include the latest accounts for the year to June and management's forecast for the year to June 2009. But more detailed financial data will be preserved for a select few.

It is believed that the entire Commander business had earnings before interest, tax, depreciation and amortisation of about $8 million.

Peter Anderson, of McGrathNicol, said today that the sales process will take about 10 to 12 weeks, a time frame he regarded as very quick considering the issues involved. He expected to sort through the expressions of interest to be in within a fortnight and to winnow that down to about three potential buyers for each business.

He is happy to sell both businesses together.

Commander was put up for sale by its board of directors last year and ABN Amro managed the process and provided many potential buyers with access to a data room. But with the weight of debt no buyer came forward. It is believed Optus and Telstra are interested.

Anderson said the advantage of having the company in receivership was that the debt is removed from the equation and potential buyers can assess the businesses as stand-alone entities.

He said that the managed services business makes excellent margins and is a solid continuing business. He said both managed services and the telco businesses had maintained full customer services despite the receivership.

Commander's 1,250 employees have been operating under a mantra of "business as usual” but it is not clear whether they will all keep their jobs as the businesses transition to new owners.