news The nation’s biggest telco Telstra this morning revealed it would sell 70 percent of its ailing directories and advertising business Sensis to US-based private equity firm Platinum Equity, with the sale to net the telco $454 million.
Among other operations, Sensis is responsible for Telstra’s White Pages and Yellow Pages business, which had historically brought in substantial profits for the company, but has recently suffered dramatically from the shift to digital directories rather than print directories. Sensis has suffered financially from the issue and has gone through multiple rounds of redundancies.
Platinum Equity is a leading global private equity firm with a highly specialised focus on business operations and 18 years of success in acquiring and operating businesses which have been part of large corporate entities. Among the transactions Platinum Equity completed in 2013 were carve outs from AP Moeller Maersk, CBS, CheckPoint Systems, Emerson and Deutsche Post DHL.
In a statement issued this morning, Telstra said the sale excluded the voice services business and included “economic benefits to Telstra from services it will continue to provide to Sensis”. Telstra will retain a 30 per cent shareholding with Sensis now valued at A$649million.
Telstra chief executive David Thodey said he was committed to the new partnership and believed the agreement was the right strategic fit for both Telstra and Platinum Equity. He said the new partnership would maximise the value of the Sensis asset for Telstra shareholders.
“We have spent the last two years enhancing our print directories business with a rich set of digital directory offerings. Sensis is now the leading digital marketing services and directories business in Australia. To drive further momentum, we believe it is the appropriate time to introduce Platinum Equity, as a strategic partner,” said Thodey. “Platinum Equity will operate Sensis as a separate entity, giving it the focus it needs to extend and enhance customer offerings and benefits in an agile digital world.”
The transaction price is equal to a multiple of 2.4 times Sensis’ FY14 forecast EBITDA after adjusting for the voice directories business (which is being retained by Telstra) and stand alone costs of operating the business. This is consistent with valuations for recent directories transactions globally.
In Telstra’s statement, Platinum Equity Chairman and CEO Tom Gores said he was pleased about the strong relationship his firm has developed with Telstra.
“We have had great collaboration with Telstra and we believe the partnership will provide Sensis a level of consistency that is good for the business as it transitions to a standalone enterprise,” Gores said.
Gores said the Platinum Equity team looks forward to working with management to drive the business forward. “We will empower management’s focus on the core directories business while evaluating and pursuing prospective new strategic initiatives,” added Gores.
Thodey said Telstra had run a competitive sale process to select the right partner to maximise the value of the business. “The fact that we have retained a 30 per cent stake in Sensis shows our belief it will continue to lead the market and deliver value to Telstra shareholders,” said Thodey. “Sensis has been an important business for Telstra shareholders and the cash flow generated by Sensis over time has contributed significantly to our ability to invest in the growth of our core telecom businesses.”
Sensis will continue producing and distributing the White Pages Directory as required under conditions of Telstra’s Carrier Licence. Telstra will also continue to provide directory assistance (1223) services as required under conditions of Telstra’s Carrier Licence. Voice services including the 1234 and 12456 services are a part of Telstra’s core telecom offering and will continue to be operated by Telstra as an ongoing supplier to Sensis.
This is a good move by Telstra. It’s handing most of the risk for Sensis to a prvate equity firm, which specialise in acquiring ailing business, re-shaping them radically, cutting costs and installing highly competent management. I wouldn’t be surprised to see Sensis eventually list its own operations on the ASX as a separate business, which is precisely what has happened recently with other local companies such as Myer and Dick Smith which have been acquired by private equity firms. With its 30 percent share, Telstra will retain some control over Sensis and avoid the appearance that it is breaching its carrier licence by not publishing the White Pages any more. And it may eventually end up with quite a large profit in the event that Sensis is listed or sold.
Will Platinum be able to turn Sensis around? Hard to say at this point, but it’s clear that such private equity firms don’t get involved with an ailing business division such as Sensis unless they smell opportunity. I would agree that Sensis has been poorly managed for years. Just look at the state of its existing web site … it’s amateur hour times a thousand.
Image credit: Telstra