IPO Preview: Dun & Bradstreet Files For U.S. IPO

IPOStreet

Dun & Bradstreet (DNB) has filed to raise $1 billion in an IPO of its common stock, according to an S-1 registration statement.

The firm provides a range of business information and services to enterprises of all sizes.

DNB has been reorganized but it is still early to tell if the reorganization combined with a heavier debt load is producing a better company and investment opportunity.

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 headed 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 (EFX)
  • Experian (EXPGF)
  • 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.

Dun & Bradstreet intends to raise $1 billion in gross proceeds from an IPO of its common stock, although the final amount may differ.

Management says it will use the net proceeds from the IPO to redeem all or a portion of the Series A Preferred Stock that was issued in connection with the Take-Private Transaction in 2019.

Management’s presentation of the company roadshow is not available.

Listed bookrunners of the IPO are Goldman Sachs, BofA Securities, J.P. Morgan and Barclays.

Commentary

Dun & Bradstreet is seeking to go public after having been taken private by a consortium of private equity firms in early 2019 for about $7 billion.

After being acquired, the firm was reorganized into two reporting segments, North America and International and new management was installed.

The firm’s financials indicate it has resumed revenue growth after a drop in 2019, although it hasn’t yet reached its 2018 revenue results.

Selling & Administrative expenses as a percentage of total revenue are the lowest they’ve been since 2018; its Selling & Administrative efficiency rate has rebounded to 1.8x.

However, total liabilities have grown by $2.5 billion since the take private transaction. The firm will have paid $160 million in non-cash dividends to its Class A shareholders by the end of June, 2020.

Management intends to use the IPO proceeds to redeem ‘all or part’ of the Series A stock and doesn’t currently plan to pay dividends on the publicly held common stock.

The global market opportunity for business information is quite large and is expected to grow at a moderate rate of 5.0% in the coming years.

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 88.1% since their IPO. This is a top-tier performance for all major underwriters during the period.

DNB has been reconstituted into presumably more efficient and responsible operating units. The problems with the IPO are that it is too early to tell if the reorganization is delivering better results than the previous structure and the firm is heavier with debt.

These factors aren’t surprising given that the firm is private equity owned. Heavier debt, slower growing firms seem to be the norm when private equity firms become involved.

When we learn more about the IPO’s pricing and valuation assumptions, I’ll provide a final opinion.

Expected IPO Pricing Date: To be announced.

(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. 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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