Dun & Bradstreet (NYSE:DNB) is back. The leading corporate data information company long traded as DNB stock. In 2019, it disappeared when private equity firms acquired the firm. Now D&B has returned to the stock market, and under the same ticker symbol no less.
Dun & Bradstreet just completed one of 2020’s biggest initial public offerings. So, you have the chance to invest in DNB stock again, but should you?
For those unfamiliar with the company, D&B has been in business for more than a century. It’s now arguably more famous for the companies it has spun off than its legacy operating business.
Longtime D&B owners have received stock in:
That’s a superstar list of corporate offspring, with Moody’s in particular being a home run investment. So naturally, investors are curious if the original company that spawned all that still has any more gas left in the tank.
Turning $5 Billion Into $10 Billion
Earlier this month, Dun & Bradstreet raised $1.7 billion at a nearly $9 billion overall valuation. With the stock trading up following the IPO, D&B is now worth more than $10 billion.
This would be newsworthy in any case, it’s not every day that a $10 billion company goes public.
But what makes this particularly crazy is that D&B was a public company until very recently. Get this: Private equity announced a takeover deal for D&B in 2018, and it closed early last year. That investor consortium took D&B private for an equity price of $5.4 billion plus associated debt and pension obligations.
In just 18 months, the clever folks behind this takeover have managed to put a new coat of paint on the company and wheel it back out to the public at a $10 billion price tag.
Dun & Bradstreet: A Stagnant Business
Since D&B was public until 2019, we have access to a nearly complete set of financial results. In fact, you can see the last 10 years of earnings up through 2017.
Of note, for an entire decade, revenue was dead flat. From 2008 on, the company has consistently earned between $1.6 billion and $1.8 billion in annual revenue, which is actually significant shrinkage once you account for inflation. EPS was also essentially flat, though it actually started to go down the last few years before it was acquired.
So, private equity actually paid a fairly steep price, paying more than 3x sales for a stagnant to slowly shrinking business. On an EPS basis, the private equity firms paid nearly 30x earnings to take it private. Too rich a price, right?
Nope, they were just getting started, in fact. Now, 18 months later, with scant additional revenues, apparently the company is worth twice as much as it was then. Fortunately, there is an explanation for this.
Adding Some Sizzle to the Mix
So why was the IPO oversubscribed and people rushing to buy the stock?
Simple: The power of marketing. Some of the people involved, namely William Foley, have a great reputation in the sector.
Foley, for those unfamiliar has been involved with Fidelity National (NYSE:FNF), the country’s leading title insurer, since in the 1980s. He subsequently headed Fidelity’s mortgage data business, which went through a bunch of spin-offs and name changes and currently trades as Black Knight (NYSE:BKI).
Black Knight in particular is compelling. Its stock has performed great, and proven Foley to be a capable manager in the data analytics space.
Foley has also been involved in private equity and running a variety of non-insurance businesses aside from Fidelity and Black Knight. Hence, he’s a logical person to put Dun & Bradstreet’s data business in a more compelling light.
There is some additional valuation from taking Dun & Bradstreet from poor management and putting it in the hands of a data marketing expert who also is good at telling Wall Street a story. Still, the valuation doubling with no improvement in fundamentals is a bit much, at least at this point.
DNB Stock Verdict
Dun & Bradstreet is a stable high-quality business. There’s a lot of appeal as a long-term investment. Unfortunately, at the current price, it looks distinctly less attractive.
Give credit to the private equity folks for doing an excellent marketing job. They’ve certainly made Dun & Bradstreet out to be quite the hot new IPO this year. Once the initial hype wears off, however, people will see that they’re now paying a $10 billion valuation for something that was worth less than $6 billion last year.
Now sure, earnings will be up versus where they were trading prior to the 2019 go-private deal. However, that’s primarily because Dun & Bradstreet’s new owners fired a sixth of their workforce. It’s easy to cut costs that way.
It’s much harder to maintain let alone grow revenues while putting massive staff reductions in place. And without revenue growth, $10 billion is simply too high a market capitalization for a firm that produces just $2 billion a year in revenues with little to no organic growth.
Given Dun & Bradstreet’s flat operating results for many years, it’s not likely that the value of the business increased nearly 100% inside of 18 months. As such, expect shares to trade lower in coming months.
If you want to own DNB stock again now that it is public once more, it’s one to put on your watch list. I imagine you’ll get a chance to buy it at $20 per share in coming months if you so desire.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek. At the time of this writing, he held no positions in any of the aforementioned securities.