Dun & Bradstreet Is Back in Play
Dun & Bradstreet Corp. is a longtime buyout target whose time may have come.
The company, which provides business data, analytics and risk-management services, soared more than 10 percent on Tuesday on news that its chairman and CEO Bob Carrigan is out and its lead director will take over while a permanent replacement is sought. Investors seem to be betting that the window of leadership uncertainty will provide an opening for private equity firms that have circled the company before, only to be rebuffed.
Some background: In early 2014, Dun & Bradstreet was sued for rejecting a buyout offer from a consortium that included two private equity firms and a unit that it had spun off but later bought back, Dun & Bradstreet Credibility Corp. The offer, made in September 2013, valued the company at $115 to $125 a share, representing as much as a 40 percent premium to its average price in the preceding 12 months.
Could a comparable offer be re-tabled now? The idea has merit. Factoring in Tuesday's price jump, Dun & Bradstreet's market value has rebounded to $4.6 billion, back to where it was before stock markets crumbled earlier this month. But in recent years, it has substantially underperformed the benchmark S&P 500 Index, leading management to acknowledge that it should be growing revenue and profit at a faster clip -- a problem often sought and solved by private equity buyers.
At current levels, Dun & Bradstreet is trading at roughly 16.3 times its forward earnings, which is higher than the 15.3 multiple implied by the rejected September 2013 buyout offer. But that needn't put a damper on buyout hopes because, for context, the broader S&P 500 is now valued roughly four multiple turns higher than it was in 2013. And as we've seen, higher valuations haven't had a chilling effect on other M&A and buyouts.
Including debt, D&B trades at an enterprise value to forward Ebitda ratio of 11.3, which is less than its 12.1 handle from 2013. Its business model -- which includes a dominant market position, a stream of recurring revenue and more than $250 million in annual free cash flow -- is favored by private equity, in part because it can support a larger debt burden. 1
And while any buyout firm or firms would obviously need to pay a premium, the math still checks out. To illustrate, assuming an acquirer offers a conservative premium of 25 percent, or roughly $153 a share, Dun & Bradstreet would be valued at around 13.3 times its 2018 Ebitda, which isn't overly pricey. Compare this to the valuations of rivals such as Experian PLC and Equifax Inc. -- at 13.1 and 13.2, respectively -- and it's understandable why shareholders are getting jazzed.
Importantly, Dun & Bradstreet's interim CEO -- plucked from its board of directors -- said Tuesday that the company is "open-minded about considering all options available to us," when asked about the possibility of a full or partial sale. For buyout firms, maybe this time's the charm.
Dun & Bradstreet also said it expects to repatriate $265 million of its existing cash balance to repay debt, which some buyout firms may view as creating space on its balance sheet for new borrowings.
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