Yell eyes the US for growth with £829m TransWestern acquisition

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TheYellow Pages publisher Yell Group is spending $1.58bn (£829m) buying TransWestern, the California-based directories business, triggering a $157.5m windfall for the American company's management.

TheYellow Pages publisher Yell Group is spending $1.58bn (£829m) buying TransWestern, the California-based directories business, triggering a $157.5m windfall for the American company's management.

Led by chairman Larry Bloc, an ex-investment banker, and Rick Puente, the chief executive, TransWestern management owns about 10 per cent of the company while Thomas H Lee Partners, a private equity fund, is the single biggest shareholder with 20 per cent. The other large shareholder is CIVC Partners, another investment fund.

Yell wants to consolidate its position among independent publishers of commercial telephone directories in the US. The scale of the deal has prompted Yell to refinance its existing bank debt, putting in place a £2bn credit facility with a syndicate of banks led by ABN Amro.

TransWestern had sales of $ 358m last year and earnings before interest, tax, depreciation and amortisation (ebitda) of $99.3m.

Yell said it expected the TransWestern deal to be generating annual synergies worth $69m in three years for its enlarged US operations which would come from savings on sales forces, procurement and production expenses. However, the company is expecting the deal to add substantial extra revenues as well and Yell has committed to investing up to $20m in marketing and distribution.

John Condron, the chief executive of Yell , said under his management the TransWestern sales force could increase average sales per person from $190,000 a year to the $331,000 a year achieved in the rest of Yell's US business. He said TransWestern had grown sales about 5 per cent last year compared with Yell's 22 per cent US sales growth while delivering a 40 per cent increase in underlying profit.

Mr Condron said Yell was paying a multiple of ebitda of 10-11 times for TransWestern once the expected additional revenues were factored in. This compares with Yell's whole US business which is valued at an ebitda of 13.5 times.

Independent directory publishers in the US compete with the directories published by the large incumbent telecoms groups. At the moment independents have about 17 per cent of the US market, although this is forecast to grow to 25-30 per cent in a few years. Yell, through its Yellow Book USA operation, is the dominant independent player and currently has a 12 per cent market share.

Mr Condron said he expected Yell to lead the increase in the independent sector's market share.

Yell, which also said yesterday that annual sales for the 12 months to 31 March were up 8.3 per cent to £1.3bn and profits up 11.9 per cent at £402.8m, has been on a buying spree in the US since 1999 in an effort to diversify away from its UK business which is subject to price controls.

Its shares have been hit by scares over a tougher regulatory environment after the Office of Fair Trading said it was referring the whole UK directories industry to the Competition Commission, raising the prospect of tougher price caps on Yell in the UK.

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