Description

DNB is an interesting speculative merger arb with 10-15% no-deal downside vs. >50% upside. 

I expect an acquisition announcement by the end of the year with a bid from private equity or a strategic at 12x EBITDA ($18/share and $11.5bn EV) or higher. 

Reuters reported that DNB was “exploring options including a potential sale” on 8/2, and DNB confirmed this 8/5. The stock was $10.30 before the Reuters story (8x 2025 EBITDA and 12x FCF) and I consider this price as a likely floor.

Downside is limited because DNB is a pretty good business with decent recent results: sustainable 3-4% organic growth and 39% EBITDA margins that will improve going forward. 

Shares are now trading at 9x EBITDA and 14x real FCF following a small run-up after the Reuters article. (The higher reported adj EPS number adds back $80m stock comp and perpetual restructuring charges, because this is a Foley company so of course the non-GAAP accounting is aggressive.)

Background (Why the Stock Has Been Disastrous)

Foley privatized DNB in 2019 for a $6.9bn EV and then re-IPO’ed it in 2020 for $13bn/$22 per share. He had quickly improved margins by 1000 bps to 41% via cost cuts while accelerating organic growth from 0-1% to 3-4%. The company had been sclerotic before his takeover.

Most of Foley’s 22% control is held via CNNE. Cannae has been very vocal recently about selling down its public equities to instead repurchase its own shares at a 30% NAV discount and acquire private companies. Foley appears to want to sell DNB (although Reuters suggested that Cannae would roll its DNB shares into the forthcoming privatization), so the real question is whether anybody wants to buy this thing.

DNB management has overpromised and underdelivered since the 2020 IPO, but the business results have been fine. The international side (30% of total revs) gained the necessary scale it had previously lacked with the BisNode acquisition in 2020. Intl margins (34%) are lower than US DNB (44%) and likely to continue improving towards 40%. Smaller competitors lack the DNB database’s global reach, an important reason why DNB wins and retains large enterprise contracts. Foley’s crony, DNB CEO Anthony Jabbour, owns 2% of shares and bought $1.2m personally at $10.74 last year.

On the negative side, total EBITDA margins have declined 200 bps since 2020 due to the lower-margin European acquisitions, higher personnel costs, and higher IT/cloud spending. DNB has publicly aspired towards HSD organic growth and 50-100 bps of annual operating leverage. But the company missed these aggressive targets, which helps to explain why the stock initially traded up to $27/share or 30x *2025* P/E in 2020. EPS has declined since 2021 due to 3.7x turns of floating rate debt.

My opinion of Foley is not high, but we are aligned in this instance as we were during the end days of independent Black Knight, a similar high-margin financial data business model to DNB. Black Knight was cheap before its sale (for 16.5x peak EBITDA) to ICE in 2022 due to investors’ dislike of Foley’s egregious related party behavior. (BKI had bought Optimal Blue for $2bn from Foley while Foley was BKI Chair in 2020, then BKI sold OB to Constellation Software for $700m as part of the ICE deal antitrust concession.)

Foley has not committed any comparable related party tomfoolery at DNB (although BKI’s balance sheet originally helped finance his DNB acquisition), but I believe that DNB now trades at a similar Foley control discount as BKI once did. That discount is unmerited now that DNB is on the auction block while performing well.

Business 

For its first 180 years, DNB was the only good option to assess U.S. SMB creditworthiness and reliability for potential trade partners. Walmart won’t stock your products and large suppliers won’t extend you trade credit unless you’re verified by D&B. 90% of the Fortune 500 pays D&B for data and analytics on 550m businesses globally. These are mostly multi-year deals with annual pricing escalators. Customer retention is 96%, with >80% of total revs recurring. 

DNB’s DUNS number is effectively a social security number for businesses that costs $229 to establish. Its PAYDEX score is the top measurement of SMB payment history, somewhat analogous to a consumer’s FICO. This Finance and Risk segment is 60% of total DNB sales.

DNB’s Sales and Marketing segment (40% of revs) provides data for customers' CRMs and ERPs, including contact info and company structure. Salesmen use this every day. DNB also does audience targeting and visitor intelligence, ie who is visiting my company’s website and what is their email.

The S/M data is less proprietary than DNB’s legacy Finance/Risk, with Zoominfo as the primary competitor. But S&M is nevertheless a pretty sticky business for DNB with substantial switching costs, as large customers plug DNB data feeds directly into their APIs. >60% of Sales/Marketing revs come from enterprise customers and these are stickier relationships than SMBs. DNB's prices are higher than most S/M competitors because it has a reputation for cleaner data.

You can read more background about the business and people involved here in a 2021 VIC post from cablebeach. The author was mostly correct about the business trajectory and quality, but overpaid at $21 (14x EBITDA). Leverage is also lower now (3.7x vs. 4.6x then).

Bear case

The problem for DNB’s core Finance/Risk business is that the consumer credit bureaus (Experian, Equifax, TransUnion) are now offering similar SMB Finance/Risk analytics at lower prices. DNB is no longer the only trustworthy aggregator and reseller of SMB payment histories. Market share losses are difficult to quantify as there is no single share-taker or market size definition, but happening gradually.

DNB’s Sales and Marketing segment is lower quality, as in addition to Zoominfo's blitz it has become easier for start-ups to acquire similar datasets through email scraping and price them more cheaply than DNB’s. The European side of Sales and Marketing is also threatened by new EU regs.

Hypothesis 

Yet DNB retains strategic value due to its enterprise distribution and the ubiquity of the DUNS number and PAYDEX score, which competitors have not matched. The competitive pressures have not resulted in adverse revs growth or margin compression – recall that DNB was zero organic growth and <30% EBITDA margin in 2018 vs. much better now on both fronts and not slowing down.

The segments are severable with little strategic overlap or cross-selling. Finance/Risk would fit into a competing consumer credit bureau (Experian, Equifax, Transunion) or credit ratings conglomerate (MCO, SPGI). If Khan won’t let DNB Sales/Marketing mate with Zoominfo to create a juggernaut, then it would compliment most of the larger independent AdTech companies. (If Trump does win, Foley is a long-time Heritage donor fwiw.) 

Somewhat more speculatively, DNB’s data should become more valuable in a near-future software world with actual B2B use cases for AI automation and LLM bots, such as CRM’s Einstein. 

Other Likely Acquirers 

TH Lee, an original participant in the 2019 buyout, still owns 5% of DNB, despite selling $127m last November at $9.50/share.

A second 2019 buyout participant, CC Capital, owns 3%. 

Five other PE firms signed NDAs during the 2018 auction. One of them ultimately bid, but slightly less than Foley’s coalition. 

Then there is IBM, always my favorite overpaying tech acquirer.

Catalyst

Sale at $18+