When the telecom industry plunged into turmoil, it needed to find quick fixes to raise money. The solution: Sell off the yellow-pages business.
Over the past few years, there has been a variety of such multibillion-dollar deals. In fact, recently Verizon (NYSE:VZ) sold its SuperPages Canada for $1.54 billion.
In fact, the yellow-pages business is perfect for buyout firms, such as Kohlberg Kravis Roberts & Co., Bain Capital, Carlyle Group, and Welsh, Carson, Anderson & Stowe. Such businesses have strong cash flows and are easy to maintain.
Now, the buyout firms are reaping the gains from their investments by taking the yellow-pages businesses public. An example is Dex Media (NYSE:DEX), which hit the public markets in July. In 2002, the Carlyle Group and Welsh, Carson, Anderson & Stowe purchased the company from Qwest (NYSE:Q) for $7.05 billion.
Last week, Dex reported its quarterly earnings. For the third quarter, the company posted revenues of $404.6 million, which was up from $362.6 million in the same period a year ago. The company had a net loss of $33.7 million, which compares with a $7.6 million net profit last year. But Dex generated strong free cash flow, which amounted to $93.7 million in the third quarter.
Dex is taking steps to bring efficiencies to its operations. For example, it implemented software solutions from Amdocs (NYSE:DOX).
Yet, for the most part, the traditional yellow-pages business is mature. Thus, to get the interest of investors, Dex needs to find ways to grow. Unfortunately, there are barriers, such as increased competition from Yellow Book USA and even Verizon.
So, is there hope? Perhaps. With the surge in online search, Dex could be a beneficiary -- especially as search becomes localized. And, to the company's credit, it recently signed a content deal with the king of search, Google (NASDAQ:GOOG).
Fool contributor Tom Taulli does not own shares mentioned in this article.
