Yellow Pages Transformation Strategy

Scott Galloway discusses investing in the declining yellow pages business and transforming it into a CRM software company, which turned into a successful investment despite being an unsexy industry.

Yellow Pages Business Transformation

• Invested about $4 million in Dex Media, a yellow pages company
• Yellow pages was a declining but still profitable business:
  • $600 million in revenue
  • $280 million in EBITDA
  • Declining at 12% per year
  • Still used in rural parts of America

Acquisition Strategy

• Buy yellow pages companies at 2-3x EBITDA (low multiple due to known decline)
• Acquired companies in different regions:
  • Biggest yellow pages company in the south
  • Biggest yellow pages company in Canada
  • Biggest yellow pages company in Australia

Post-Acquisition Playbook

• Close headquarters
• Keep only 30% of the best salespeople
• Let go of everyone else
• Cut costs faster than the 12% annual revenue decline
• Remain cash flow positive through consolidation

Business Transformation

• Leveraged core asset: relationships with tons of small and medium-sized businesses
• Transitioned from yellow pages to a CRM software company
• Started selling calendaring and clienteling software to existing SMB customers

Investment Results

• Bought in at $2-3 per share
• Stock later reached $15-20 per share
• 4-5x return on investment

Key Insight

• Unsexy, declining businesses can provide excellent returns if you can:
  • Buy at low multiples
  • Manage the decline efficiently
  • Transform the business model using existing assets