And then there were none.
Sprint Corp. late last month took the only North American directories deal off the auction block by accepting a $2.23 billion offer from strategic buyer R.H. Donnelley Corp., a Purchase, N.Y.-based seller of yellow pages advertising. The deal for Sprint’s Publishing and Advertising Group (SPA) had received strong interest from a number of private equity houses, but Donnelley always seemed to have the inside track thanks to its status as the exclusive ad sales agent for 41 SPA directories.
“R.H. Donnelley had to win the Sprint auction,” said Cindy Szabo, senior editor of the Yellow Pages & Directory Report. “Their business would have taken a bad bump if they lost to someone like Thomas H. Lee Partners [through its majority-owned Trans Western Publishing], who would have canceled the contract Donnelley has to sell Sprint’s books.”
Unlike the previous two North American yellow pages transactions, the buyer in this deal was a corporation, not an LBO firm. However, Donnelley did get some assistance from the private equity world in the form of Goldman Sachs Capital Partners, which made a $200 million equity investment in Donnelley through the purchase of convertible preferred stock with an 8% coupon. As part of the transaction, Goldman Sachs will take two Donnelley board seats and receive warrants to purchase 1.65 million additional shares of company stock. A majority of the $2.23 billion sale price will be financed by $2.4 billion in committed debt from Bear Stearns, Salomon Smith Barney and Deutsche Bank.
The deal was sold at a multiple of 8.6x projected EBITDA, although Donnelley said it expects that figure to drop to under 8x EBITDA after integrating the SPA business and realizing increased operational efficiencies and cost savings. During a conference call with Donnelley management, some analysts expressed skepticism over that prediction and wrote reports using different multiples. Bank of America telecom analyst David Barden, for example, listed a multiple of 8.2x projected EBITDA.
In addition to TH Lee Partners, other private equity firms said to have been gunning for SPA included Clayton, Dubilier & Rice; Kohlberg, Kravis Roberts & Co.; Texas Pacific Group, Hicks, Muse, Tate & Furst; Spectrum Equity Investors; and Apax Partners. Although most of those firms already own directories businesses. SPA is the nation’s sixth-largest directories publisher with 260 yellow and white pages directories garnering a circulation of 18 million over the 18 states where Sprint serves as a local telecommunications provider.
So far this year, over $11 billion has been spent on directories buyouts. No new offerings are being marketed in North America, although there is a deal set to close in The Netherlands and another potential directories divestiture in Hong Kong.
Contact Dan Primack