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In Aug-02 The Carlyle Group and Welsh, Carson, Anderson & Stowe agreed to acquire Qwest Communication International’s directory publishing business: Qwest Dex for a total amount of US$7.05bn (excluding fees and expenses). This implied a multiple of 451% of restated 2001 revenues (US$1,53bn), 7.1 times restated 2001 EBITDA (US$993m, 65% margin!), 7.3 times restated EBITA (US$969m, 63% margin).

The transaction was divided in two parts: unregulated directories (Dex Media East) and regulated directories (Dex Media West). Dex Media East was acquired in Nov-02 for US$2.75bn in cash, based on a multiple of 7.4 times baseline adjusted EBITDA. Dex Media West was acquired in Sep-03 for US$4.29bn. This implied a multiple of 6.5 times 2001 baseline adjusted EBITDA.

The acquisitions were financed with a total of US$3.39bn in senior secured term loans (senior debt 3.4x 2001 EBITDA), two US$100m revolvers, US$2.14bn in senior subordinated notes (total debt 5.6x EBITDA) and approximately US$1.62bn in equity from the sponsors (approximately 80/20 debt to equity).

In Nov-03 and Feb-04 a red hot high yield market allowed Dex Media, Inc. to pay dividends of US$750.2m and US$250.5m from the proceeds of three newly issued loan notes of which approximately US$500m in the form of unsecured senior subordinated discount notes due November 2013 (in other words: all the way in the back of the line and no cash interest until May-09).

In May-04 Dex Media, Inc. filed for a public offering of US$1.5bn worth of primary and secondary shares. Pro forma EBITDA in 2003 amounted to US$921m, down over 7% from 2001 as the margin decreased from 65% in 2001 to 56% in 2003 on a 6.6% increase in revenue.