For the second time in two days, Welsh, Carson, Anderson & Stowe has purchased a Yellow Pages business. Yesterday, Local Insight Media, a portfolio company of WCAS, bought “100 percent of the membership interests” of CBD Media Holdings from Spectrum Equity Investors. The positioning of that agreement was that Local Insight and CBD are “combining their print and Internet directory businesses” to create the sixth-largest directory publisher in the U.S.
Today Windstream Corp. announced it has entered “an agreement to split-off its directory publishing business, Windstream Yellow Pages, in a tax-free transaction to affiliates of Welsh, Carson ” The release says the total value of the transaction is $525 million, a multiple of 7.8x relative to EBITDA for the 12 months ended Sept. 30. However, “on a taxable equivalent basis, the transaction value corresponds to approximately $850 million representing a multiple of 12.6x relative to EBITDA.” The amount that WCAS paid for these properties is consistent with what we have seen for Yellow Pages deals of all sizes globally over the past two years.
Windstream was created earlier this year when Alltel separated its wireless from its wireline business and renamed the wireline and Yellow Pages businesses. One of the advantages that people inside Windstream cited at the time of the split from Alltel was that they would have more freedom to do the right thing for Windstream. Similarly, an executive at Windstream Yellow Pages told us this new split gives the directory group a lot of opportunities it didn’t have when it was associated with the telephone company.
Even if WCAS combines Local Insight with Windstream Yellow Pages, it will have a relatively small impact on the Yellow Pages landscape. There are currently five mega publishers in the U.S. (soon to be four with the completion of the merger of AT&T and BellSouth) with sales of more than $1 billion, followed by four medium-size directory companies with revenues over $100 million and then everybody else. It will take a lot of M&A for anyone to get into the mega group, but look for the medium-size group to have some company.