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selloffs,
spin and acquisitions
This note considers churn and consolidation in the colour
pages industry.
It covers -
introduction
As noted on the preceding page, investors and managers have
essentially adopted three approaches to the colour pages
industry in recent years.
One is to cash out, either because colour pages publishers
consider that an opportunity is too good to refuse or because
sale will allow the owner to pay down debt, invest in infrastructure
or acquire a competitor.
A second approach has been to seek economies of scale, with
large publishers taking advantage of ready access to capital
(whether through loans or from investors such as private
equity funds) in acquiring peers and smaller competitors.
As in other industries highlighted elsewhere on this site,
that acquisition activity has often spurred a round of sales
and takeovers as publishers and their financiers embrace
an 'eat or be eaten' model. Some have also expanded into
other regions, with several EU publishers for example launching
operations in Eastern Europe.
A third approach has been to leverage offline assets by
taking existing print directories online and by creating
new online-only directories on the basis that "all
search is local" (or merely that an online presence
will allow the publisher to address perceptions that future
revenue growth involves the web).
cashing out or catching up?
Some telecommunication companies have identified their directories
units as candidates for disposal: solid earners that are
unlikely to enjoy significant growth over the coming decade
and may indeed see sharply declining sales.
In late 2005 for example Verizon indicated that it might
sell or spin off its directories arm - Verizon Information
Services (VIS) - in 2006. Observers commented that VIS might
fetch US$17 billion (ten times its 2004 pretax profit of
US$1.7 billion on revenue of US$3.6 billion), useful in
paying down debt from acquisition of MCI. VIS employs 7,300
people, publishing 1,750 directories in 44 US states and
Washington DC, along with SuperPages.com, claimed as the
largest US online colour pages. Sales fell 5.7% in 2004.
Competitor Qwest sold its print directories operations for
US$7 billion in 2002. Sweden's Telia spun off its directory
arm as Eniro in 2000. In the UK debt-hobbled BT sold its
Yell directories arm to Apax
Partners and Hicks Muse Tate & Furst (HMTF) for £2.14
billion in 2001, accompanying disposal of its mobile phone
operations. Yell went on to pay US$600 million for McLeodUSA
Media Group, the directories arm of US telco McLeodUSA.
Netherlands-based publishing conglomerate VNU, having progressively
exited from newspapers and magazines, unloaded its VNU World
Directories arm (with over 115 directories in Europe, South
Africa and Puerto Rico) to Apax Partners and Cinven
for €2.1 billion in 2004.
Other publishers have sought to catch up and consolidate,
rather than cashing out.
In 2005 for example Yell acquired TransWestern Holdings
from Thomas H Lee, CIVC and TransWestern executives for
US$1.5 billion. At that time Yell published 111 directories
in the UK and 565 in the US. TransWestern, a leading independent
colour pages publisher in the US, boasted revenue of US$358
million and EBITDA of US$99.3 million from 332 directories
(24.7 million books) distributed in 25 states. It had 2,528
employees.
During the same year the Yellow Pages Group (YPG) through
its Yellow Pages Income Fund acquired Advertising Directory
Solutions (ADS), Canada's second largest directory publisher.
ADS was the incumbent directories publisher in Alberta and
British Columbia. It was purchased from an affiliate of
Bain Capital for C$2.55
billion (Bain having acquired ADS for US$1.5 billion during
the preceding year). The combined business became the leading
directory publisher in most major Canadian markets, with
some 337 directories and around 28 million copies, along
with leading online directories such as YellowPages.ca and
Canada411.ca.
RH Donnelly acquired Dex Media for US$9.5 billion in 2005.
Donnelly had been spun off from the Dun & Bradstreet
publishing conglomerate after an earlier bout of irrational
exuberance, going on to acquire some of its smaller directory
publishing competitors.
Yellow Pages Group, Canada's largest telephone directories
publisher, announced a strategic alliance with Google in
2005 and agreed to pay US$436 million for Trader Media,
which had 65 print publications including AutoTrader. Trader
specialises in auto and real-estate advertising; it described
itself as Ontario's largest publisher of classified advertising
publications and websites. In May 2006 it agreed to pay
C$760 million for Classified Media (Canada) Holdings Inc.,
a deal promoted as extending its online retail reach to
about 45% of all Canadian web users. Classified Media at
that time had 137 publications and nine websites
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