Investing.com -- Fitch Ratings has put all ratings of Dun & Bradstreet on a Ratings Watch Negative (RWN), following the company’s announcement that it will be acquired by Clearlake Capital Group. The RWN, which includes the ’BB-’ Long-Term Issuer Default Rating of Dun & Bradstreet Corporation (NYSE: DNB_old ) and Dun & Bradstreet Holdings, Inc., is due to the anticipation that the soon-to-be private company will have a significantly higher EBITDA leverage.

The RWN is motivated by the expectation that the company’s capital structure will become more aggressive compared to its previous levels. Despite this, credit positives for Dun & Bradstreet remain, such as a strong base of recurring revenue with high retention rates, steady organic growth, and a stable EBITDA margin profile.

Dun & Bradstreet has agreed to be acquired by Clearlake Capital for approximately $7.7 billion, a move that will make the company private. The company has also announced bridge loan commitments of $5.75 billion. If the post-transaction capital structure includes debt of $5.75 billion or more, leverage will be significantly higher. This expectation for higher leverage is the primary reason for the RWN.

Fitch anticipates that EBITDA leverage will remain above 5.0x and could reach as high as 6.0x for more than a year after the Leveraged Buyout (LBO) is completed. The company already manages its cost structure effectively, and Fitch does not foresee a structural change to the business.

Dun & Bradstreet reported an adjusted EBITDA margin of 38.9% in 2024, up from 38.6% in 2023. The company continues to expand its client base, especially in the small business segment. It is also using its database to create new products and services, such as analytics and sales and marketing. Fitch projects this growth will continue in 2025.

As a data and analytics processing company, Dun & Bradstreet is well-positioned. The demand for its products and services is expected to grow in the foreseeable future, and the company should be able to capture some of this growth.

Fitch establishes a parent-subsidiary relationship between Dun & Bradstreet as parent, assessing it to have a weaker standalone credit profile than its operating subsidiary and issuer of Dun & Bradstreet Corporation debt. Fitch rates the parent and subsidiary on a consolidated basis.

Dun & Bradstreet’s business profile as a data analytics provider is supported by its market position, holding a significant market share of core commercial credit in North America, and an approximately 90% recurring revenue base with subscriptions representing more than three-quarters of revenue.

The completion of the take-private transaction could lead to a negative rating action or downgrade due to higher leverage. Conversely, an upgrade is unlikely given the RWN.

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