Billionaire Gores has a new turnaround challenge with Sensis

The new owner of Telstra Corp’s ailing directories business, Sensis, is not unused to turnarounds in business and life.

Tom Gores, founder and chief executive of Platinum Equity LLC, is the billionaire son of immigrant parents who worked his way through Michigan State University as a janitor and telemarketer. He went on to start his own buyout firm in 1995 and its success has enabled the 49-year old to make Forbes’ list of the mega rich.

Platinum Equity for the past 18 years has made a name for itself in acquiring unwanted businesses of large corporations and turning them into profitable stand-alone companies. The Beverley Hills-based firm has made more than 150 acquisitions, but it is Gores himself who has made the most high profile acquisition.

In 2011 Gores paid $325 million for the National Basketball Association’s Detroit Pistons that had lost a quarter of its value in the 12 months before the Platinum Equity’s CEO’s purchase.

A similar situation to the sickly state of Pistons basketball confronts Gores with Sensis, whose earnings before interest, tax, depreciation and amortization (EBITDA) are expected to plunge $120 million to $450 million in the 12 months to June 30 this year, according to Telstra.

Sensis’ printed white and yellow pages directories make up about 70 per cent of its annual revenue. These sales are deteriorating and are not being replaced quickly enough by digital directory sales that make up about 30 per cent of Sensis’ annual sales.

Australians are increasingly using the internet to search for services if they live in major cities. But rural parts of Australia continue to demand a yellow pages printed business directory, says Telstra’s executives. Such demand for print directories and Telstra’s unwillingness to move most of the directories business online where possible may be holding back Sensis’ turnaround, say analysts.

On a conference call with reporters Telstra chief executive David Thodey insisted Sensis’ new owners will have the “freedom to get on and do what they have to do”.

Platinum Equity is expected to put in place an incentive scheme for Sensis management. This is likely to be accompanied by a focus on operational improvement and a shifting of the directories business to an online platform that will offer services that appeal to businesses looking for help, especially those small to medium sized firms.

Still, few expect a quick turnaround for Sensis.

Like Gores' beloved Pistons basketball team that is suffering through its third straight losing season despite an extensive reorganization and a firing of a coach, an improvement in Sensis will not be easy.