Dun & Bradstreet has seen a thing or two. The 179-year-old business analytics firm that helps companies assess everything from website traffic to credit risk has filed a prospectus to go public. It contrasts with new-fangled tech companies, like Lemonade, that are hitting up public investors, thanks to rising equity prices and excitable investors. The established business has helped private equity owners cut costs, and they’ll benefit from riding a rising initial public offering tide. It’s an old-fashioned playbook.
A group of private buyers including Thomas H. Lee Partners and CC Capital bought the firm in February 2019 for $6.9 billion including debt, according to public filings. The investors injected roughly $2 billion of their own cash, financing the rest with debt and a $1 billion preferred note that will be repaid from proceeds coming out of the IPO.
The business itself has transformed dramatically over the decades – it once included Nielsen, Moody’s, and yellow pages directory company R.H. Donnelley. But now it mostly helps other companies assess the credit risk of their corporate customers and has a business that processes data from website and social media usage. So the private equity firms are going to cash in by doing what they do best – trimming the fat, including nearly a fifth of the staff. The company’s EBITDA margin increased almost 3 percentage points in 2019, to almost 36%, despite falling revenue.
The quick flip back to the public market could produce some promising returns for the insiders, at least on paper. Similar companies including Verisk Analytics and Experian have grown their enterprise-value-to-EBITDA multiples significantly over the past 15 months. Assuming that Dun & Bradstreet can fetch a 15 times multiple, roughly a quarter higher than what its current owners paid, that revenue can get back to $1.7 billion – where it was in 2018 – and that margins stay roughly the same, the private equity firms will about double their initial investment.
Investors taking up shares in Dun & Bradstreet may wonder if any goodies are left for them. And the business may look staid when stacked up against the likes of tech-based insurance provider Lemonade, whose sales have grown 30 times since its inception in 2016, even if they still stand at only $67 million. But as far as private equity firms are concerned, old is new in the frothy IPO market.