3i has sold its stake in European telephone directories business Yellow Brick Road (YBR) to a consortium led by Australia's Macquarie Capital Alliance.

YBR was formed in March 2004 when 3i and Veronis Suhler Stevenson (VSS) combined three directories businesses they had purchased separately: De Telefoongids, Fonecta and Mediatel. With operations in five countries and an international presence, YBR is one of the fastest growing directory businesses in Europe. Its operations include printed and online directories, and search and directory assistance.

Benefiting from knowledge-based investing
The origins of YBR date back to 1997, when 3i backed Gary List to buyout Thomson Directories, the UK's second largest operator, in a €133m buyout that turned 3i's original €38m into nearly €200m - more than five times the original investment. We identified the yellow pages sector as a promising sector, at a time when the telecoms bubble had just burst and operators were offloading their directories businesses.

Capitalising on local relationships
In 2002 we bought Fonecta for €112m. Our relationship between 3i's Finnish venture capital team and telecoms group Sonera, provided the inside track, whilst our Thomson Directories experience gave s the credibility. In 2003, 3i and VSS then led further buyouts, alongside new management teams, of De Telefoongids (€500m) from KPN directories based in the Netherlands and Mediatel (€270m) from Verizon directories based in Austria and central Europe. This brought the combined investment by 3i in these separate businesses to €140m.

Strong performance through operational improvement
Benefiting from the Thomson experience, 3i supported management in driving through cost savings - especially in the area of printing. We also developed the electronic media side of the business, improved sales efficiency and took advantage of the fast-growing eastern European markets. Earnings grew from a pro-forma €126m in 2002 to €160m in 2005. Cash flow was particularly strong with over €400m generated over the three years, and 3i was actively involved in implementing several smaller bolt-on acquisitions, especially in Finland.

A truly pan-European strategy
In 2004, working with advisers and management from 17 different nationalities, we merged Fonecta, De Telefoongids and Mediatel to form YBR We brought back Gary List to act as chairman and help drive through a number of organisational changes. A refinancing of the combined group raised €1bn of new debt and delivered cash returns for 3i of €224m, a cash-to-cash multiple of 1.5x.

The market recognises the success of 3i's vision and business model
The merger outperformed the plan on the back of strong individual company trading and sharing of good management practices between the businesses This success was recognised by the market and we considered floating the company, carrying out a further refinancing of the business or leading a secondary buyout. The result was a tightly-controlled auction delivering a €1.825bn sale price - more than 11 times the 2005 earnings - and proceeds of more than €600m for 3i and its investors

Crevan O'Grady, director, UK Buyout team, 3i, said: "Creating such a unique and valuable business over the last few years would not have been possible without a great management team, the shareholders' media expertise and our international network. We wish the management and Macquarie well in taking the business forward to its next stage of growth."

Jonathan Russell, 3i's head of Buyouts, said, "A 110% IRR is great news and a terrific example of creating value for 3i Group, the investors in our Buyout fund and of course the management team who have done an excellent job."

Gary List, chairman of YBR, said: "3i was uniquely placed to achieve this. I can't think of anyone else who could have had the market access to make the original investment in Fonecta, De Telefoongids and Mediatel and then the ability to put them together so successfully."