Case Yell Group

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Executive summary2
PART 1: Valuation of the Yell Group3
LBO Potential3
Financial structure3
Ownership structure4
Potential cultural differences4
Valuation4
PART 2 : Readings10
Bond prices and takeovers10
Abnormal Bond Returns10
Impact on bond returns of different legal standards in case of cross-border acquisitions11
Sources of financing takeovers11
References14

Executive summary
The Yell group is consists of
BT Yellow Book Yellow Pages USA

and several smaller UK based companies.
In terms of being a god LBO candidate:

* The Yell Group has a well-established position in a growing market generating stable revenue streams that are reasonably recession proof. * The market position is good and leaves room for further expansion especially in the USA. In the UK new business initiatives have been set-up in order to probe new technologies for their applicability in the directory and related business. These initiatives could provide growth but growth(potential) has to be closely monitored. * Yell group is very capable of paying its debt. The ratio’s found in the Yell case seem high but we believe that the near future will show even higher leverage ratio’s * As a candidate for an LBO the Yell group provides good possibility for an exit as several market parties are interested and for the coming years an consolidation of the market is foreseen. * On the following pages an evaluation of the Yell Group is performed to assess the potential for a LBO. Below is a summary of this valuation.  |  |  |  |  |  |  |

 |  |  |  |  |  |  |
 | Total Value of Yell Group|  | |  |
 |  |  |  |  |  |  |
 | BT YELLOW PAGES|  | 1,515,588|  |
 | YELLOW BOOK USA|  | 203,393|  |
 | Loans|  |  |  | 162,484|  |
 | Other UK business|  | 101,707|  |
 | Total Value|  |  | 1,983,172|  |
 |  |  |  |  |  |  |
 | Equity|  |  |  | 533,172|  |
 | Debt|  |  |  | 1,450,000|  |
 | Total Value|  |  | 1,983,172|  |
 |  |  |  |  |  |  |
 | Price of Consultancies etc. for the takeover| 99,159|  |  |  |  |  |  |  |  |
 | Total Acquisition price including fees| 2,082,331|  |  |  |  |  |  |  |  |
PART 1: Valuation of the Yell Group

LBO Potential
The Yell Group has well-established business lines in both Great Britain and the USA. While both environments differ substantially, Yell’s business lines generate reasonably steady cash flows. In the U.K. growth is on pace with market growth and the cash flows seem to be very stable on the side of BT Yellow pages: … and tended to be more stable than other forms of media advertising and did not fluctuate widely with economic cycles… Many sources however indicate chances are the Office of Fair Trading (OFT) will cap growth of prices to inflation minus a large(r than inflation) adjustment. This indicates increasing advertisement volume is a possibility to maintain revenues in the traditional business. Growth in classified directories advertising market has been declining over the last few decades and will probably continue in this fashion even though the total advertising market has seen increasing growth. This is an indication that revenues stemming from traditional business might decline, however other U.K. Businesses could be compensating for this given their aim at different media and the growth potential in these areas. In the U.S. independent directory providers represented an area of substantial growth. In terms of industry life-cycle Yellow Pages USA was still in the growth phase. Management expects EBITDA to increase as the portfolio matures. At that point there was no indication the regulatory framework would prevent YP USA to maintain their growth potential. The possibility to expand in the market at a, compared to other industries, relatively low cost is quite substantial. Good LBO candidates...
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