SEEING YELLOW

Two major “yellow pages” exits show that timely investments in directory companies were good calls.

Another day, another directories deal. Last month, New York media merchant bank Veronis Suhler Stevenson and London-listed 3i Group succeeded in selling pan-European directories group Yellow Brick Road (YBR) to a private equity consortium led by Macquarie Capital Alliance for €1.825 billion ($2.3 billion) in cash.

The sale took place little more than a year after the two firms created YBR through a three-way merger in April 2004. Veronis Suhler and 3i first acquired Finnish telephone directories business Fonecta in 2002 and then Netherlands-based De Telefoongids from KPN in 2003. In April 2004, Mediatel was added to the group and the three bonded to became YBR.

According to Marco Sodi, a Veronis Suhler partner based in London, his firm achieved a 121 percent IRR over the approximate two and a half years it held YBR. Veronis Suhler shared the original €280 million ($352 million) investment with 3i on a 50-50 basis, owning approximately 88 percent of the company, with the rest held by YBR management.

Veronis Suhler is no stranger to the directories publishing business. In 1997, it acquired Yellow Book USA, which it later sold to British Telecom in 1999. The firm's current portfolio also includes The User-Friendly Phone Book, which serves the US market.

Sodi says the directories publishing business is attractive to private equity because of its high profit margins. “Depending on the country and its market, a firm can achieve anywhere from 25 percent to 50 percent profit margins, the best in any industry, with very low capital expenditure.”

He also points out that with thousands of small customers, high renewal rates and very low volatility, “it would take a really big recession to impact those types of revenues”.

Indeed, private equity firms have been striking successful deals in the directories publishing sector for years now. In another May exit success, Boston buyout firm Thomas H. Lee Partners, along with Chicago's CIVC Partners and company management, agreed to sell US yellow pages publisher TransWestern Publishing to London-based Yell Group for $1.575 billion (€1.25 billion) in cash. (Yell, a former Hicks Muse and Apax investment, is now owned by British Telecom. It bought TransWestern through its US subsidiary, Yellow Book USA, VSS's former investment).

Thomas H. Lee and CIVC bought TransWestern Publishing in 2001 for $141 million. Later in the year, the firm led an add-on acquisition of WorldPages.com, an online and print directory business, for $900 million.

“Even as the Internet and mobile services are growing like weeds, the printed revenues are still growing” Sodi says. “There is a way to grow the new revenue streams without compromising the old revenue streams.”

HICKS MUSE UNLOADS CLEAR CHANNEL
After investments ranging over 11 years and three private equity funds, Hicks Muse Tate & Furst has finally exited its holdings in publicly traded radio station and entertainment conglomerate Clear Channel Communications, resulting in a loss for its Fund IV investors. Investors in both Funds II and III will see a return of capital, although the considerations paid to each set of limited partners vary, reflecting the differences in age and basis among the two vehicles. As of September 30, 2004, Fund IV had approximately $665 million invested in the company, representing an average cost per share of $38. At the time of the August 1999 merger between Clear Channel and AMFM, Hicks Muse's portfolio company, the stock price was in the range of $70 per share.

BLACKSTONE FLOATS SATELLITE OPERATOR
Less than four months after its successful flotation of German petrochemical company Celanese, which it had purchased a mere nine months prior, The Blackstone Group took six-month old portfolio company New Skies Satellite public in an offering valued at approximately $196 million (€152 million). The New York firm's equity stake is now worth $300 million. Blackstone acquired New Skies in November 2004 in a $983 million transaction. In connection with that transaction, Blackstone contributed $163 million of equity. In February, New Skies distributed $88 million to existing shareholders, primarily Blackstone.

FORSTMANN LITTLE BUYS HEALTH CLUB CHAIN
The buyout giant, in what could be its last major private equity investment ever, agreed to acquire 24 Hour Fitness from Menlo Park private equity firm McCown De Leeuw in a deal worth about $1.6 billion (€1.2 billion). Forstmann Little's equity and subordinated debt funds will provide $900 million of the transaction financing. The buyout of 24 Hour Fitness will leave Forstmann Little with only about $400 million in uncommitted capital, a relatively small amount for a firm that over its twenty seven-year history has often pursued multi-billion dollar buyouts.

RIPPLEWOOD LEADS MAYTAG BUYOUT
New York- and Tokyo-based private equity firm Ripplewood Holdings agreed to privatise home appliance maker Maytag for $2.1 billion (€1.67 billion), including about $975 million in assumed debt. Joining Ripplewood are GS Capital Partners, the J. Rothschild Group of Companies, and RHJ International, the Euronext-listed holding company that was until recently Ripplewood's Japan limited partnership. The firm took RHJ public in March on the Brussels stock exchange. Maytag CEO Ralph Hake will remain at the helm of the company.

TPG, WARBURG BUY NEIMAN MARCUS
Private equity firms Texas Pacific Group and Warburg Pincus are acquiring upscale department store chain Neiman Marcus in a $5.1 billion (€4 billion) deal. The ([A-z]+)-based retailer also specialises in luxury goods in the US, with 37 stores across the country, as well as an established catalogue business, two Bergdorf Goodman stores in Manhattan and fashion labels like Kate Spade and Gurwitch Products. Neiman Marcus also has a credit card division, which will reportedly be sold before the sale is completed. The retailer reportedly will expand into new markets, including Seattle, and possibly develop the high-end Bergdorf Goodman line of stores.

TRIMARAN SELLS SAFETY PRODUCTS TO ODYSSEY
New York buyout firm Odyssey Investment Partners has agreed to acquire safety products maker Norcross from a group of investors including Trimaran Capital Partners, John Hancock Life Insurance Company and Chicago's CIVC Partners for $495 million (€394 million). Based in Oak Brook, Illinois, Norcross makes protective equipment for the industrial and utility markets. The company's products include respiratory protection, protective footwear, hand protection and related products under the brands North, Morning Pride and W.H. Salisbury. Norcross generated worldwide revenues of $440 million in 2004. Trimaran, an affiliate of CIBC World Markets, is led by Jay Bloom, a vice chairman of CIBC and co-head of the CIBC Argosy Merchant Banking Funds.

SENTINEL TRADES OUT OF FAST FOOD
New York-based private equity firm Sentinel Capital Partners has sold its stake in a Church's Chicken franchise business. Details of the deal were not disclosed. Sentinel is selling ([A-z]+)-based Falcon Holdings, which operates 101 Church's Chicken franchises throughout the Midwest, to the company's CEO Aslam Khan, also a partner in the investment. Sentinel purchased Falcon in 1999 with around $8.2 million in equity. The investment came from the firm's second fund, which closed on $126 million. According to John McCormack, a co-founder and senior managing partner at Sentinel, the franchises had a negative cash flow in 1999, prompting the new owners to make improvements to the restaurants and staff with the help of Khan, who had worked his way up through the Church's chain.