Phone directory company Yellow Media Inc., owner of the iconic Yellow Pages, is continuing its push for more digital growth with the acquisition of Vancouver-based local web search engine and directory publisher Canpages in a $225-million deal.
If approved by the federal Competition Bureau, Tuesday’s deal will combine two of Canada’s biggest publishers of advertising directories and local web search engines.
“Essentially, what we’re looking to do is accelerate our business transformation to the digital world,” said president and CEO Marc Tellier.
The Canpages acquisition was announced at the same time the Montreal-based Yellow Media revealed it had struck a deal to sell its U.S. operations.
The Canpages deal is the latest acquisition for the publisher of the Yellow Pages directories as it deals with the rising importance of online advertising and search engines, that included a recent rebranding and supporting advertising campaign.
Tellier said 23% of Canpages’ revenue comes from digital sources, while about 20% of Yellow Media’s revenues are expected from digital applications in 2010. He said it’s too soon to project what annual digital revenues of both companies would be.
“This really allows us to capitalize on the online momentum that Canpages has built,” Tellier said of the acquisition. “There’s clearly an opportunity to grow the online reach.”
Canpages, which publishes 84 printed directories, also operates the Canpages.ca search engine and employs about 700 people, including more than 450 sales representatives.
To acquire Canpages, Yellow Media will pay $75 million in cash and issue $150 million worth of promissory notes to an investor group led by private equity firm HM Capital Partners.
The notes can eventually be converted into shares of Yellow Media, giving the current owners of Canpages a minority stake.
Tellier said if the transaction is approved by federal regulators, the reach of the combined companies would still be small because the market is fragmented to serve small and medium-sized businesses.
“We’re competing for website dollars, we’re competing for the coupon dollars, we’re competing with the flyers, we’re competing with all of the other media choices that are being made by those businesses,” he said.
RBC Capital Markets analyst Drew McReynolds agreed the acquisition bolsters Yellow Media’s online capabilities.
“We believe the transaction strengthens the competitive position of Yellow Pages in Canada, while allowing the company to participate in new online growth opportunities in the U.S.,” McReynolds wrote in a note.
Even though Yellow Media has business deals for traffic, distribution and content with major U.S. search engines such as Google, it also competes with them.
The deal is expected to bump up Yellow Media’s monthly online unique visitors to almost 12 million a month, Tellier said.
Tellier also said the deal will give Yellow Media more potential advertisers and more product offerings, noting that Canpages has a digital application for the iPhones that allow consumers to point the phone’s camera at a building and find out what businesses are located there.
In a separate transaction announced at the same time Tuesday, Yellow Media has a deal to sell its U.S. directory operations to Ziplocal. Financial details of that deal weren’t released.
In addition to the Yellow Pages directories and phone listings that are the core of its business, Yellow Media also produces the Auto Trader and related directories and operates various websites such as YellowPages.ca and Canada411.ca.
