How I brought CommQuest back from the dead: William Scott

The chief executive of beleaguered digital marketing group CommQuest has admitted he was caught out with too much debt when the market went into a tailspin last year but claims the company he founded is a “good business with bad balance sheet” that is now on the road to recovery.

Yesterday, William Scott pulled off what many commentators will see as the great escape when he announced that CommQuest had managed to strike a deal with Sydney-based investment group Co-Investor (which is backed by the wealthy family of Victor Smorgon) to recapitalise the heavily-indebted group.

Under the arrangement, Co-Investor will inject $13 million into CommQuest to reduce the company’s debt by half, to around $13 million. The company will also consider a capital raising which would further reduce debt to around $8 million.

Co-Investor managing director Roger Sharp will become chairman of CommQuest, while Scott will serve as chief executive for six months while the company is stabilised. After that, he will move to a consulting role with the company in which he is the second-largest shareholder.

Despite the fact he will be out of the chief executive chair in six months, Scott insists he was not pushed.

“I think it would be a good time to hand it over gracefully without pressure,” Scott says.

“We are getting to the stage where a few of us are a bit tired. Another six months and I will be interested in extending some of my other investments.”

Scott says he is particularly keen to spend more time on his food business Aussie Farmers Direct and a power business he has approached to look at.

Scott says he is very proud to have pulled off the recapitalisation deal. CommQuest’s shares have been suspended for almost four months while Scott and his management team tried to find a way to restructure the group, and many commentators said the company had little chance of survival. One media report even declared the company had actually collapsed.

“Most people thought that administration was our only answer. All the experts sat down and said to me that it was over and we were finished,” Scott says.

“I’ve lost pretty much more than anyone, but it’s still pleasing that the business will continue to survive and grow.”
Scott started digital marketing agency SMART Group in 2000 and rolled this company into CommQuest in 2007 before listing the group. CommQuest, following similar strategies used by Photon Group and BlueFreeway, then went on an acquisition binge, buying a collection of more than 15 businesses that covered everything from public relations and digital marketing to mobile marketing, events management and direct sales.

But most the acquisitions were funded by debt and when the credit crisis struck in September last year, CommQuest was immediately in trouble. A sharp fall in revenue from what Scott calls the company’s “traditional media” businesses (including its public relations and parts of its advertising businesses) also hurt the company.

“In hindsight there probably were mistakes made,” he admits. “We bought quality assets at the top of the market with debt. The bottom line is we were carrying too much debt for our earnings.

“But we had come out of a totally different environment with totally different valuations, where debt wasn’t such a dirty word. This (recapitalisation) wasn’t the original plan, but the market changed and we needed to move quickly.”

CommQuest has now shut or sold off a number of its businesses and has just seven divisions left: Smart Group, Next Digital, Austral Media, Inspirus, Infodial, SMS Central and Green Made Easy.

“I would be proud to say that the business which we originally vended in – the Smart Group – has been a strong point of the company. It’s kept our head above water at a very difficult time.”

Scott says he plans to buy more shares in any CommQuest capital raising and believes the company is now well-placed to move forward.

“Moving forward from this point, this is a good business with a good balance sheet,” he says.

“I firmly believe that what we’ve achieved is a very good benchmark. We certainly didn’t run away from our problems.”