IPO Launch: Dun & Bradstreet Proposes Terms For $1.3 Billion IPO

IPOStreet

Dun & Bradstreet (DNB) intends to raise $1.32 billion in an IPO of its common stock, according to an amended registration statement.

The company provides a variety of credit and sales business information services to enterprises of all sizes worldwide.

DNB has some uncertainties about the timing of its revenue growth equaling that of 2018’s figure; however, the IPO has strong investor support, the firm has reignited growth, has promising industry prospects, the ostensible benefit of a recent reorganization and enticing free cash flow.

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To listen to an audio version of this report, click on the graphic below:

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Short Hills, New Jersey-based Dun & Bradstreet was founded to provide business information such as company size, financials and credit background to assist other businesses in their research activities.

Management is led by CEO Anthony Jabbour, who has been with the firm since its take private transaction in early 2019 and previously held several senior positions in the financial services industry.

Below is a brief overview video of the firm's Across the Enterprise approach:

Source: Dun & Bradstreet

The firm counts more than 135,000 clients worldwide, with 90% of the Fortune 500 and 60% of the Global 500.

Dun & Bradstreet has received investment via a take-private transaction in 2019 from investors including Black Knight (BKI), Thomas H. Lee Partners, Cannae, and CC Capital.

The firm acquires large and medium enterprise customers through an in-house, dedicated, direct sales and marketing force focused on specific solutions and geographies.

The company also provides numerous self-service tools for small businesses to update their information or subscribe to a variety of online services.

Selling & Administrative expenses as a percentage of total revenue have been uneven as revenues have fluctuated.

The Selling & Administrative efficiency rate, defined as how many dollars of additional new revenue are generated by each dollar of Selling & Administrative spend, was 1.8x in the most recent reporting period.

According to a 2018 market research report by Technavio, the global market for business information is expected to grow by $32 billion from 2019 to 2023.

This represents a forecast CAGR of 5.0% from 2019 to 2023.

The main drivers for this expected growth are the continuing need for companies to remain current on changing customer preferences, financial and economic conditions.

Major competitive or other industry participants include:

  • Equifax
  • Experian
  • Bureau van Dijk
  • Creditsafe
  • Sinotrust
  • Numerous and fragmented solutions

Dun & Bradstreet’s recent financial results can be summarized as follows:

  • Uneven topline revenue
  • Variable operating margin and profit
  • Uneven cash flow from operations

Below are relevant financial results derived from the firm’s registration statement:

dnbpl2

Source: Company registration statement

As of March 31, 2020, Dun & Bradstreet had $167.6 million in cash and $6.5 billion in total liabilities.

Free cash flow during the twelve months ended March 31, 2020, was $158.8 million.

DNB intends to sell 65.75 million shares of common stock at a midpoint price of $20.00 per share for gross proceeds of approximately $1.32 billion, not including the sale of customary underwriter options.

Certain existing shareholders have indicated an interest to purchase shares of up to $400.0 million in total in a concurrent private placement at 98.5% of the IPO price. This is an unusual ‘discount’ but is otherwise a positive signal to prospective IPO investors.

Assuming a successful IPO at the midpoint of the proposed price range, the company’s enterprise value at IPO would approximate $12.0 billion.

Excluding effects of underwriter options and private placement shares or restricted stock, if any, the float to outstanding shares ratio will be approximately 16.41%.

Per the firm’s most recent regulatory filing, the firm plans to use the net proceeds as follows:

We intend to use $1,273.0 of these net proceeds from this offering and the concurrent private placement to redeem all of our Cumulative Series A Preferred Stock (the "Series A Preferred Stock"), $342.3 million to repay a portion of our 10.250% Senior Unsecured Notes outstanding due 2027, plus to pay fees and expenses related to the repayment and accrued interest and $30.0 million to make a payment to C/B Star Holdings, L.P. in connection with the waiver and termination of its anti-dilution rights in the Star Parent Partnership Agreement. Any remaining net proceeds will be used for working capital and other general corporate purposes, which may include the repayment of additional indebtedness.

Management’s presentation of the company roadshow is available here.

Listed underwriters of the IPO are Goldman Sachs, BofA Securities, JP Morgan, Barclays, Citigroup, Credit Suisse, HSBC, Jefferies, RBC Capital Markets, Wells Fargo Securities, Deutsche Bank Securities, BMO Capital Markets, SunTrust Robinson Humphrey, TD Securities, Raymond James, Stephens, William Blair, Academy Securities, and Loop Capital Markets.

Commentary

DNB is seeking to go public again after only a short time as a private company, during which the firm was reorganized.

The company’s financials show that revenue dropped in 2019 and then rose again in the first quarter of 2020, indicating the firm is back on track.

The question is whether and how long it will take to equal or exceed 2018’s result.

Investors in the IPO won’t know until well after making the decision.

The IPO has received a strong show of existing investor support, with the four firms buying up to $400 million of the IPO at a 1.5% discount to the IPO price.

Leave it to the private equity firms to give themselves a sweeter deal than everyone else...

The market opportunity for selling enriched business information via an integrated platform is large and expected to grow moderately in the years ahead, so the firm has plenty of market share to pursue.

Goldman Sachs is the lead left underwriter and IPOs led by the firm over the last 12-month period have generated an average return of 111.9% since their IPO. This is a top-tier performance for all major underwriters during the period.

As to valuation, the IPO appears on-balance about equal to that of public competitor Experian (EXP), so the valuation doesn’t appear to be a problem.

DNB is also producing free cash flow yield of 2%, an impressive figure.

Although there are uncertainties about its revenue growth equaling that of 2018’s figure, given the strong investor support, its growth rate, industry prospects, recent reorganization and free cash flow, my opinion on the IPO is a BUY at up to $20.00 per share.

Expected IPO Pricing Date: June 30, 2020; Trading date: July 1, 2020

Glossary Of Terms

(I have no position in any stocks mentioned as of the article date, no plans to initiate any positions within the next 48 hours, and no business relationship with any company whose stock is mentioned in this article. IPO stocks can be very volatile in the days immediately after an IPO. Information provided is for educational purposes only, may be incomplete or out of date, and does not constitute financial, legal, or investment advice.)

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