ASX-listed telco, M2 Telecommunications (ASX: MTU), will acquire Commander's wholesale network services subsidiary, Unitel Australia, for about $12.5 million.
The purchase price includes $10 million upfront and a further $2.5 million for meeting performance targets over the next three years. The deal is due to be completed by February 22.
Under the terms of agreement, Commander will continue to supply Unitel's wholesale network for up to three years. The share sale agreement does not extend to Unitel's local distribution rights and inventories for telco vendor, Polycom.
Unitel is the first of many non-core assets expected to be offloaded by Commander in coming months as it tries to turnaround its profitability. The proceeds of the sale will be used to reduce Commander's bank facilities. The integrator's first $3 million payment is due on February 28, with a following $7 million to be paid on October 31.
Commander CEO, Amanda Lacaze, said she was pleased M2 would continue to operate Unitel as a continuing business.
"This transaction will not only benefit Commander's balance sheet, it will also provide recurring network revenue, consistent with our turnaround strategy," she said in a statement.
M2 is one of several suitors that approached Commander after it opened a data room sales process late last year.
M2 CEO and managing director, Vaughan Bowen, said Unitel's products and services allowed M2 to round out its network wholesaling business, M2 Wholesale. The latest acquisition follows M2's purchase of data services wholesaler, Wholesale Communications Group, in May last year.
"Wholesale has not been a high priority for Commander for some time, but it's a significant adjunct of our business," Bowen said. "We have an established wholesale arm and are strong in ADSL data and mobile but had a gap in our wholesale proposition. Unitel is well established in the fixed line and access area and has a strong customer base, so it made sense.
"We were actually a customer of theirs years ago, so it's a case of the customer buying the supplier.
M2 will retain all 9-10 Unitel staff and will take over the company's Sydney office. Bowen said there was very little customer overlap between M2 and Unitel's wholesale customer bases.
"The opportunities for cross-selling products to Unitel's customer base is huge," he said.
M2 was founded in 1999 and provides a range of telco services to consumers and businesses including fixed line, mobile, broadband and data services. The company listed on the Australian Stock Exchange in 2004 and is based in Melbourne.
The acquisition of Unitel should add $39 million in annual revenue to M2's bottom line taking it to $140 million.
"Unitel gives substantial bulk in the value of our business which we can use to improve our pricing across the board," Bowen added.