Yell Group consists of two businesses that are operating across countries. Yellow Pages is a classified directory business in the UK, while Yellow Book is an independent directory business in the USA. These businesses are currently owned by British Telecom which is contemplating a sale in order to reduce its leverage. Apax Partner and Hick Muse are two private equity firms that are interested in buying the Yell Group. The private equity firms face a challenge when valuing a cross border business involved in a LBO. It is believed that Yell Group can be best valued using the Adjusted Present Value Approach, which individually measures the debt and equity of a company. The equity can be valued by discounted the Capital Cash Flows by the unlevered cost of equity capital. Whereas, the value of debt equals the tax shield generated by each strand of debt. During the valuation process, the management’s calculations are evaluated and complemented to arrive at a proposed bid price for the Yell Group.
1. How much is Yell worth? How much would you bid?
2. How much is the “carry” worth to PE investors?
3. What are the key value drivers of the Yell Group?
4. Is Yell a good LBO candidate?
5. Why is BT selling the directories business?
6. How similar are the US and UK businesses?
7. What are the issues when valuing the two businesses in two different geographies? How much should Apax/Hicks Muse pay for the global business?
8. How does Yell’s projected debt affect its valuation?
9. How does the cross-border nature of the Yell deal affect the calculation of the firm?
10. How much is Yell worth? How much would you bid? (For your cash flow projections, you can rely on the forecasts prepared by the case writer in Exhibit TN1-TN3)
11. Should the Apax/Hicks Muse team trust the management projections? Why (not)?
12. If you were Apax/ Hicks Muse would you do the deal?
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