An Unexpected Journey - Yellow Search TODAY!
Transcription
An Unexpected Journey - Yellow Search TODAY!
NORDICS CIS An Unexpected Journey November 2014 BALTICS – REGIONAL GATEWAY CEE ESTONIA Tartu mnt. 2, 10145 Tallinn, Tel +372 6650 280, Fax +372 6650 281 LATVIA Ulmana gatve 86F, LV-1046 Riga, Tel +371 6721 4225, Fax +371 6735 6395 LITHUANIA J.Jasinskio 16B, LT-01112 Vilnius, Tel +370 5254 6713, Fax +370 5254 6978 § About BaltCap § Investment rationale § An industry in transition § Acquisition strategy § Future prospects 2 BaltCap is the leading Baltic private equity firm Experienced team § Most seasoned team in the Baltics – 100+ years in PE § Over 60 investments and 30 exits § On the ground coverage of all three countries through local offices Proven strategy § Active operational involvement and partnership with first-class management teams § Clear emphasis on buy-and-build and organic growth to create regionally leading companies Attractive market § Outperforming results in both good times and bad* § Baltics is showing strong growth § The region has solid economic fundamentals § Baltic PE market has limited competition providing many attractively priced acquisition opportunities * According to EBRD private equity funds data, BaltCap has been consistently outperforming other Baltic managers. BPEF I shows top quartile performance according to Pevara benchmarking data as of 30.09.2013 for small and medium sized buyout funds in Europe 3 Pan-Baltic investment activity since 1995 1995-97 Baltic Investment Fund I & II ($25m) § 14 Investments § 14 Exited 2000-01 Baltic Investment Fund III (€36m) § 10 Investments § 8 Exited Baltic SME Fund (€10m) § 12 Investments § 11 Exited Offices opened in Tallinn, Riga, Vilnius 2007-08 BaltCap fully independent (MBO) BaltCap Private Equity Fund (“BPEF”) (€63m) § Pan-Baltic buy-out and later-stage expansion § 8 portfolio companies, fully invested § F irst successful exit completed Signatory of UNPRI 2010 2014 BaltCap Latvia Venture Capital Fund K.S. (€30m) BaltCap Private Equity Fund II (€100m target) § E a r l y - s t a g e a n d expansion capital to local SMEs § Actively investing § 11 portfolio companies § F irst successful exit completed § First close at €51m in Jan 2014 § Second close at €82m in July 2014 § First transaction completed in March 2014 Lithuania SME Fund KŪB (€20m) § E a r l y - s t a g e a n d expansion capital to local SMEs § Actively investing § 8 portfolio companies 4 § About BaltCap § Investment rationale § An industry in transition § Acquisition strategy § Future prospects 5 In 2008 BaltCap acquired FCR Media (Prev. Interinfo), a leading YP company in the Baltics Estonia - #1 directory operator § § § § Online:1182.ee, ee.ee, kontakt.ee, Arikataloog.ee Print: Ekspress Kontakt!, Arikataloog Voice/Call: 1182, call center Other: Google AdWords services § § Latvia - #1 directory operator and official Lattelecom partner Online:1188.lv (owned by Lattelecom) Print: Google AdWords services Lithuania - #1 directory operator § § § § § Key highlights • Acquired in February 2008 • Aggressive structure - 8.1x 2007 EBITDA, 75% debt financed • In hindsight, market timing was bad (at the time economic forecast ‘hard landing’ scenario was 0% GDP growth) § Online: visalietuva.lt, imones.lt, 1588.lt Print: Visa Lietuva, Statyba Plius Voice/Call: 1588, 1666, Call centre services Other: Google AdWords services Projections +9,6% Revenue CAGR EBITDA margin 9% 17% 17% 18% 18% 18% 2010F 2011F +10,7% E B I T D A CAGR 2006A 2007F 2008F Source: Investment Recommendation (2007) 2009F 6 Investment decision was based on 6 core hypotheses § Catch-up to Western European levels by growing AVO § Double-digit growth of the Advertising market Potential for improvement § Limited effort from the previous owner, particularly in product development Capable management § Local management quite strong based on initial evaluation Broad customer base § Customer base is large and diversified § More defensive than general ad market Strong cash flow § Possibility to use leverage and in such way increase equity value Solid exit opportunities § Excellent expected ROI § Large pool of potential buyers, including Telcos, international Growth directory publishers, and other PE-backed directory players 7 § About BaltCap § Investment rationale § An industry in transition § Acquisition strategy § Future prospects 8 None of the 6 initial investment hypotheses held true by early 2009 Expectations Reality Growth § Sales fell by 50% in 18 months to Q3 2009, exactly the same rate as the Baltic ad market Potential for improvement § Limited product development options § Most significant improvements came from a number of cost-cutting rounds (personnel, print-runs, offices, marketing) Capable management § Management was strong in growing market, but not prepared for serious strategy change (MDs, CFO, CEO changed) Broad customer base § Internet has become the key channel for information search significantly reducing the need for the print directories Strong cash flow § Leverage clearly too high 12 months into the investment (EBITDA negative), continuous bank negotiations since 2009 Solid exit opportunities § Double trouble: more rapid industry change than anticipated in 2007 & economic collapse with double-digit GDP declines in markets § Deteriorating market sentiment for YP companies 9 Rapid changes in consumer behavior led to a significant revenue decline in the YP industry Changes in consumer behaviour… § Internet has become the key channel for information search reducing the need for print directories …led to revenue decline of majority YP companies worldwide Revenue 2009-2013 (m€) Solocal Group (Pages Jaunes) § Customers increasingly rely on Google search Seat Pagine Gialle -14% 1,164 1,125 1,102 -58% 1,066 999 1,210 § Due to increasing penetration of mobile internet and smartphones the number of contact info DA queries is decreasing (since contacts are easily “googled”) 1,986 1,034 957 § Consumers look for a particular product rather than company or industry § User generated content is becoming more important as people look for reviews, ratings and opinions of other customers Supermedia 659 -46% 930 503 1,298 1,071 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 2009 2010 2011 2012 Eniro Greek Yellow Pages Dex One -44% 716 579 470 60 435 44 398 1,741 -77% 34 20 2009 2010 2011 2012 2013 -41% 784 1,171 1,028 14 2009 2010 2011 2012 2013 2009 2010 2011 2012 Source: Company Financial Statements 10 Falling revenues, unclear growth potential and deteriorating market sentiment is reflected in the share price of listed YP companies Share price development of peer companies 5 years Share price development of peer companies 52 weeks +25% +150% 0 +100% -25% +50% -89% -50% 0 -47% -75% -50% 2010 2011 2012 2013 2014 Nov 2013 Jan 2014 Mar 2014 May 2014 Jul 2014 Sep 2014 Nov 2014 Source: Investing.com stock quote data 11 After a long and painful industry transition YP companies have to adapt to a low-margin business model with limited growth prospects § Market position eroding • Competition for SMEs increases from online (Google) and apps • Product usage declines as Google and other search engines become users’ preferred tools for search § Revenues declining, online growth not yet offsetting print decline § EBITDA and margins shrinking rapidly § Lack of systems for efficient non-print product development and publishing § Many companies have unsustainable debt loads • Restructurings and Chapter 11 processes follow as a result 12 § About BaltCap § Investment rationale § An industry in transition § Acquisition strategy § Future prospects 13 Recession fuelled a large number of takeovers, divestments, and distressed transactions in 2009-2013 and opened a growth opportunity 2009 2010 2011 2012 2013 § 2009 - Zap (form. Golden Pages Israel), creditor takeover when Babcock Brown went into administration § 2009 - SuperMedia (form. Idearc) - Chapter 11 § 2010 - Dex One (form. R.H. Donnelley) - Chapter 11 § 2010 - Truvo Group (former World Directories) - Chapter 11 § 2010 – FCR Media acquired Ekspress Hotline from listed media company Ekspress Group in Estonia § 2010 – Eniro divested Finnish (Suomi24, Eniro Finland) operations § 2010/2011 – Truvo Group sells its Irish operation to FCR Media Group § 2011 – European Directories’ Danish company De Gule Sider acquired by Eniro from bankruptcy estate § 2012 - Contact Holding (Baltics) debt restructuring, creditors take partial ownership, PE-fund invests new cash § 2012 - European Directories - Triton seizes control ending a long debt restructuring § 2012 – AT&T sells majority stake in the most successful YP publisher in the US to Cerberus at 1.8x § 2013 – Dex One and SuperMedia complete merger creating Dex Media 14 FCR Media successfully used the market opportunity to consolidate YP companies across Europe 2010 2011 2012 2013 2014 FCR Media Group countries • Estonia Acquisition of yellow pages company Ekspress Hotline 15 FCR Media successfully used the market opportunity to consolidate YP companies across Europe 2010 2011 2012 2013 2014 FCR Media Group countries • Ireland Acquisition of Golden Pages, the leading YP company in Ireland 16 FCR Media successfully used the market opportunity to consolidate YP companies across Europe 2010 2011 2012 2013 2014 FCR Media Group countries • Sweden Acquisition of yellow pages company Lokaldelen • Czech Republic & Slovakia Acquisition of yellow pages company Mediatel 17 FCR Media successfully used the market opportunity to consolidate YP companies across Europe 2010 2011 2012 2013 2014 FCR Media Group countries • Finland Established Finland startup • Hungary Acquisition of MTT Media, the leading Hungarian YP company • Russia Acquisition of local YP company • Romania Acquisition of Romanian YP company Pagini Aurii 18 FCR Media successfully used the market opportunity to consolidate YP companies across Europe 2010 2011 2012 2013 2014 FCR Media Group countries • Croatia Acquisition of MTI, a local Croatian yellow pages company 19 Even at low margins reasonable returns can be achieved through high sales volume in newly acquired geographies FCR Media markets and number of clients in 2014 Revenue (m EUR) TOTAL: § 12 markets § 145k clients 73,6 71,3 2013 2014B 39,1 33,825 500 11,5 11,0 11,9 2009 2010 2011 2012 EBITDA (m EUR) and EBITDA margin (%) 5,000 9,408 5,444 4,7% -7,0% 1,4% 4,1% 2,7% 3,0% 1,6 2,0 2,2 2012 2013 2014B +IE, CZ, SK +SE +RO, RU, HU, FI 10,216 11,956 29,062 11,321 24,927 0,5 2,500 1,000 0,2 -0,8 2009 2010 LT, LV, EE 2011 Source: Company data 20 § About BaltCap § Investment rationale § An industry in transition § Acquisition strategy § Future prospects 21 We expect the market to maintain low profitability levels in the medium term with slow margin growth Revenue (m EUR) and CAGR (%) +5% 71,3 69,3 73,4 2,2 4,1% 6,0% 2,9 4,4 Revenue growth projections are fairly moderate in the medium term § Sales are forecast to pick up pace again as late as 2017 § EBITDA margin is expected to grow but remain at a fairly low level § Low CAPEX levels due to increasing share of 3rd party product sales and cautious expenditure on internal product development 81,6 EBITDA (m EUR) and EBITDA margin (%) 3,0% § 9,3% 7,6 CAPEX (m EUR) and CAPEX as a share of revenue (%) 1,2% 0,7% 0,6% 0,7% 0,9 0,5 0,4 0,5 2014B 2015F 2016F 2017F *Does not include Russia, Finland, and Croatia Source: Company data 22 We have embraced the ‘new industry standard’ § After losing the dominant position in competition for SMEs to Google and apps, Yellow Pages providers should shift the focus to sales and maintaining the client base § Declining product use and increasing competition leaves no choice but to accept low EBITDA and profit margins Profitability through volume § Low levels of profitability forces Yellow Pages companies to seek growth by increasing sales volumes 3rd party products § Up-sell of third-party products to a large client base is a viable solution to increasing volume Focus on sales Low margins 23 What’s next? Exit ü Optimal capital structures Recapitalisation ü Bank financing ü Co-investors ü Restructuring Corporate governance ü Strengthening management team ü Incentive schemes ü Alignment of interest ü Monitoring Capital structure Strategy Entry Strategic planning ü Buy-and-build Organic growth ü International expansion ü Repositioning CSR û Reasonable valuation û Avoid auctions 24 Contact us § Simonas Gustainis Managing Partner, BaltCap § § § T: +370 5254 6713 E: [email protected] Jon Martinsen Group CEO, FCR Media § § T: +43 676 660 7000 E: [email protected] ESTONIA Tartu mnt. 2, 10145 Tallinn, Tel +372 6650 280, Fax +372 6650 281 LATVIA Ulmana gatve 86F, LV-1046 Riga, Tel +371 6721 4225, Fax +371 6735 6395 LITHUANIA J.Jasinskio 16B, LT-01112 Vilnius, Tel +370 5254 6713, Fax +370 5254 6978