Yellow Pages auction up a gum tree?

Sources close to the business say that potential bidders have been notified of the process, and include both large private equity firms – possibly previous bidders CVC Capital Partners, Kohlberg Kravis Roberts & Co. and Pacific Equity Partners – and industry-related companies, such as Australian directory aggregator Sensis, an arm of the formerly government-owned telecommunication giant Telstra Corp.

Both Hong Kong-based Unitas Capital and Teacher’s Private Capital, an arm of Ontario Teachers Pension Plan, jointly paid NZ$2.165 billion ($1.57 billion) for the asset in 2007 from Telecom New Zealand. However, a combination of digitizing media habits as well as the recession’s effect on advertising dollars have drained Yellow Pages of its top worth, with analysts estimating its value as now NZ$900 million-1 billion ($651.8-724.2 million).

New Zealand Yellow Pages’ balance sheet is additionally weighed down by the NZ$1.8 billion ($1.32 billion) owed to a 25-member consortium of lenders lingering from its 2007 acquisition. In April, AVCJ reported that bank lenders who provided the leverage for Unitas and the Teachers’ Private Capital’s LBO agreed to a standstill on debt repayments until end May.

To navigate the situation, Yellow Pages hired UBS to advise on its options for restructuring its finances. Much of the leverage comes in the form of senior debt, plus mezzanine and PIK loan tranches. By April, leverage from the deal, classed as distressed debt, was already trading in Australasia’s secondary debt market.

“Taking a step back and examining the cash flow Yellow Pages is generating, the asset has elements of being distressed, but if it weren’t for its debt to these lenders, its balance sheet is still in a good position,” a market source says. “Now, the multiple of EBITDA or cash flow that someone would be willing to pay is not the 13-14x seen in 2007, but maybe around 8x, which would still be respectable.”

In New Zealand, Yellow Pages is still the biggest brand in its industry, and is additionally coasting on a heightened profile following a highly successful marketing campaign in 2008 that garnered global acclaim. The push, called “Yellow Tree House,” chronicled one woman’s endeavor to build a restaurant in a tree house by only using contacts obtained through the Yellow Pages print and online directory. It is elements like this that are still in play in 2010, and could still seduce a myriad players to a Yellow Pages auction. 

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• Topics
• Australasia
• Exits
• Media
• Buyouts
• Unitas Capital
• KKR
• CVC Capital Partners
• Pacific Equity Partners