The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

By Jonathan Guilford

NEW YORK, March 24 (Reuters Breakingviews) - A company paid to crunch troves of financial data is illustrating an important point about deals with just anecdotal evidence. Dun & Bradstreet DNB.N, which traces its roots back to 1841, unveiled plans to be acquired again, six years after it last went private and nearly five since its subsequent initial public offering. Buyout shop Clearlake Capital has agreed to pay $7.7 billion, about the same as in the target’s 2019 sale, crystallizing the problems of such M&A nowadays.

Dun & Bradstreet has been seeking new ownership since at least August, according to Reuters. Previous buyers Cannae, CC Capital and Thomas H Lee Partners still hold stakes, to which public investors keep ascribing less value. Since the company’s 2020 IPO, its shares have tumbled by roughly two-thirds even though EBITDA has increased 60% over the last six years.

The outcome is anathema to the private equity playbook. Between 2010 and 2022, only 39% of buyout returns came from revenue growth or fatter profit margins, according to an analysis by advisory firm StepStone cited by McKinsey. More borrowing and higher multiples of earnings supplied the rest, but now-richer valuations will make this more difficult.

THL and Cannae already cashed out much of their D&B investment in better times, so unloading the rest now makes sense. And there is a “go-shop” provision that clears the way for an interloper. The lengthy talks and apparent complexity involved make finding another suitor less likely.

After all, the earlier consortium enlisted three named banks to fund its deal. Clearlake hired 10 of them, plus funds run by private credit shop Ares Management ARES.N. Debt is also pricier now, with benchmark rates underlying buyout debt having nearly doubled since 2019.

Assuming it costs 10% to borrow for the buyout and lenders are willing to provide 5.5 times Dun & Bradstreet’s estimated $965 million in EBITDA this year, per Visible Alpha, Clearlake would have to write a $2.4 billion equity check. If revenue grows at about 5%, margins hold steady and Clearlake can sell the company again in five years at the same 8 times EBITDA it is paying, the annualized return would be about 16%, Breakingviews calculates.

In better days, the result would be disappointing, but it perhaps exemplifies today’s reality. Dun & Bradstreet is also one of the few companies that keeps getting cheaper and is willing to sell. It’s just one example, but the story is unlikely to change much even when more buyout data accumulates.

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CONTEXT NEWS

Financial data vendor Dun & Bradstreet said on March 24 that it had agreed to be acquired by private equity firm Clearlake Capital in a $4.1 billion deal, or $7.7 billion including debt.

Dun & Bradstreet was previously acquired by a private equity consortium that included CC Capital, Cannae and Thomas H Lee Partners in 2018 in a $6.9 billion deal, including $1.5 billion of debt and pension obligations. The company subsequently completed an initial public offering in 2020.

Bank of America is advising Dun & Bradstreet on the sale. Morgan Stanley, Goldman Sachs, JP Morgan, Rothschild, Barclays, Citigroup, Deutsche Bank, Santander and Wells Fargo are advising Clearlake, while Ares Credit Funds and HSBC also participated in the deal’s financing.

(Editing by Jeffrey Goldfarb and Maya Nandhini)

((For previous columns by the author, Reuters customers can click on GUILFORD/ Jonathan.Guilford@thomsonreuters.com))