Apax, Hicks Muse back bolt-on buy to Yell

Venture capitalists Apax Partners and Hicks, Muse Tate & Furst, have agreed to buy US directories business McLeodUSA Publishing for $600m.

The purchase will be bolted onto Yell, the directories business the pair bought from British Telecom for £2.14bn in June 2001. The deal signifies a major US expansionary manoeuvre for Yell, said John Condron, the company’s CEO. “It provides us with exciting new growth opportunities in the largest directory market in the world,” he said. 

Yell already owns US directory publisher Yellow Book USA. The McLeodUSA deal doubles the number of states that the group will operate in, and brings in additional annual revenues of around $300m with EBITDA estimated at $58m. 

The deal is not expected to face a regulatory investigation, but is dependent on acceptance of  the  financial restructuring McLeodUSA Inc., is currently undergoing.

Selling the directories business is part of a restructuring plan of MacLeodUSA to avoid bankruptcy.  Prior to Apax and Hicks Muse entering the fray, MacLeodUSA had received a $535m bid for the unit from rival private equity buyer Forstmann Little which has over $1bn invested in the struggling parent company. This offer was structured so that McLeod would face no penalty if a better bid came along.

A stipulation has been added to the deal that if it is not closed by 30 April, the purchase price will drop by $200,000 a day. The price cannot fall for more than 90 days however, below $582m.

The deal is the latest in a string of transactions where private equity firms buy the steady cash flows of directories businesses. It is understood that Boston-based firm Thomas H.Lee also bid for the US directories business. Last year the US firm Texas Pacific Group bought the directory arm of Norwegian company Telenor and a group of firms led by Thomas Lee Partners and Providence Equity Partners bought TransWestern Publishing.