Donnelley Financial Solutions [NYSE:DFIN], a risk and compliance solutions company, could seek partnerships to further build out its technology offering, said Craig Clay, president of global capital markets.
The Chicago-based company could turn to partnerships rather than acquisitions as assets can be “pretty expensive,” Clay said. On its path to becoming a one-stop shop for transactions, it could, for instance, consider partnering with a market leader in US Food and Drug Administration (FDA) approvals, he added.
DFIN, which has a market cap around USD 950m (GBP 680m), expects to focus this year on growing its software offerings, including ActiveDisclosure, Clay said. The product, which was launched in January, is a collaborative tool for creating formal reports, such as a SPAC filing or IPO pricing as well as Forms 8-K and 10-K.
Earlier this month, DFIN announced a partnership with FloQast, an accounting workflow automation software company. The partnership aims to improve accuracy and transparency in the financial close and reporting processes, particularly for companies planning to go public.
“Where we are right now is really delivering on the promises that we have in the software growth and adding on advantages through partnership,” Clay said. “Sometimes those lead to other things, but that's the strategy today.”
DFIN initially invested in AI-based data extraction and contract analytics software solutions company eBrevia in 2016 before acquiring it two years later.
In DFIN’s 4Q20 earnings call last month, President and CEO Dan Leib said acquisitions remain “very expensive, despite our enhanced financial flexibility.”
The company reduced net leverage to 0.9x at the end of 2020, from 2x a year earlier, according to its latest earnings release. Free cash flow was USD 123.1m (GBP 88.1m) last year, a substantial increase from USD 9.7m (GBP 6.9m) in the prior year, driven by higher adjusted EBITDA, lower interest expense, reduced capital expenditures and an overall reduction in working capital, the company said on the earnings call.
Among virtual data room (VDR) providers, DFIN mainly competes with Minneapolis-based Datasite (formerly Merrill Corp) and SS&C IntraLinks, Clay said, adding that DFIN’s offering goes beyond just a VDR point-solution. Datasite hired an external tier-one consultant to assess acquisition opportunities and plans to accelerate growth through acquisitions backed by its new sponsors CapVest Partners, CEO Rusty Wiley told this news service in January.
SS&C Technologies Holdings [NASDAQ:SSNC] acquired Intralinks in 2018 for USD 1.5bn (GBP 1.07bn) at 13x EBIDTA, and DFIN divested its language solutions business to SDL Plc [LSE:SDL] also in 2018 for USD 77.5m (GBP 55.4m) at 13.4x EBITDA, according to Mergermarket data.
DFIN’s Venue is the only data room product with artificial intelligence built in, according to Clay. Teams using the room can, for example, automatically analyse indemnification, change in control, assignment, insurance and anything that has to go to arbitration, among other features. The AI makes deal teams more efficient, reducing the time and cost of M&A diligence, Clay added.
DFIN has 30%-40% of market share across transactions to a varying degree when broken down to specific segments, Clay said. For instance, it has a higher share of larger deals that require its advisory and technology services, and a smaller share of the smaller deals, he noted.
It had adjusted EBITDA of USD 173.4m (GBP 124.1m) for full-year 2020, up from USD 137m (GBP 98m) for the prior year. It posted a GAAP net loss of USD 25.9m (GBP 18.5m) last year, compared with a net income of USD 37.6m (GBP 26.9m) in 2019.
by Rachel Stone in Charlottesville, Virginia
Mergermarket, an Acuris company