Woodward Partners Mark Clare is featured in the New Zealand Herald today talking about Yellow Pages Group.
Yellow Pages sale plans fall through – NZ Herald
Mark Clare has written a lot of commentary on the sale of Yellow Pages Group by Telecom ($TEL.NZ) to Hong Kong-based Unitas Capital and Canada’s Ontario Teachers’ Pension Plan (for $2.24 billion in March 2007). This commentary is on the Valuecruncher blog. Here are some highlights:
November 8 2006 – Initial Valuecruncher valuation NZ$897 million
November 9 2006 – A revision of the initial valuation making more aggressive debt assumptions (NZ$1.1 billion)
March 16 2007 – With the information that to be part of the final short-list required a bid of NZ$2.1 billion Valuecruncher look at how a bid of this size can be justified. The answer – very cheap debt that was available for private equity investors. The key quote:
“The ultimate reason the price has gone so high is that there is an unprecedented amount of cheap debt available to fund these types of private equity acquisitions. Is this cheap debt a sustainable on-going condition? Too hard to call – but if a big private equity transaction goes bad and some big lenders lose significant capital things may change. For now private equity buyers can finance certain acquisitions (Yellow Pages Group is an example – a combination of size and stable cash flows) with very cheap debt. This gives them a big advantage over potential strategic acquirers (i.e. Telstra’s Sensis with Yellow Pages Group).”
March 14 2010 – With the news of the issues at Yellow Pages Group appearing in the media, Valuecruncher look at the lessons learned
So where might the business be valued today? The Valuecruncher interactive analyst report for Yell Group (a resonable comparator) gives a 5.5x EV (Enterprise Value) / EBITDA multiple for Yell Group and assuming a NZ$130 million EBITDA for Yellow Pages (estimate) gives an enterprise value for Yellow Pages Group of NZ$715 million. Enterprise value is the value of the whole business (equity and debt).
One of the big themes that we are seeing around the New Zealand early-stage capital raising space is a need for a lead investor. There is angel money available for opportunities – but a lot is “following money” not “lead money”.
Lead money – or a lead investor will:
Conduct the initial due diligence on an investment opportunity. Usually the lead investor has the largest stake (or close to it) in a prospective round. IMPORTANT - The lead investor will negotiate the terms of the capital raising round (including valuation) with the entrepreneur. Other investors then co-invest on these terms, often after being pulled in by the lead investor or the entrepreneur (the “following money”).
In New Zealand we have a lot of “following money” but very little “lead money”.
Elad Gil a San Francisco-based entrepreneur (ex-Google, start-up Mixer Labs recently bought by Twitter – where he currently works) has articulated a reserve strategy to the traditional “lead money” approach called a Party Round.
A focus of Gil’s analysis is the achieving of a higher valuations for entrepreneurs in a Party Round. Our view is that, for the majority of New Zealand start-up companies, the expertise that a high-quality lead investor brings (like a Rowan Simpson) greatly increases the likelihood of a start-up succeeding. Our advice to start-up companies is to get the highest-quality team of investors you can that will help you succeed – valuation should be a secondary consideration.
But – in the New Zealand context there is a lack of “lead money” so we would recommend start-up companies look closely at the Party Round concept. Not because it will get companies a higher valuation – but because it might be the only way that you end up getting funded. If you can get a lead investor – we strongly recommend that route. But if you can’t find a lead investor and are struggling to get a round complete – look at the Party Round approach.
One final point – if you are an entrepreneur looking at a Party Round. Please get some good advice around valuation and deal structuring.
Woodward Partners Mark Clare is featured in the New Zealand Herald today talking about South Canterbury Finance.
SCF ‘unlikely’ to be brought as single entity – NZ Herald
