Image source: The Motley Fool.
Cannae Holdings, Inc. (CNNE 0.91%)
Q2Â 2020 Earnings Call
Aug 7, 2020, 11:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good morning, and welcome, ladies and gentlemen, to the Cannae Holdings Second Quarter 2020 Earnings Conference Call. [Operator Instructions]
I'd now like to turn the conference over to Shannon Devine, Investor Relations for Cannae Holdings. Please go ahead.
Shannon Devine -- Analyst
Thank you, operator, and good morning, everyone. We appreciate your participation in our second quarter 2020 earnings conference call. Joining me today are Cannae's Chairman, Bill Foley; Chief Executive Officer, Rick Massey; Executive Vice President, Corporate Finance, David Ducommun; and Chief Financial Officer, Bryan Coy. As a reminder, a replay of this call will be available through 11:59 p.m. Eastern Time on August 14, 2020.
Before we begin, I'd like to remind you that this conference call may contain forward-looking statements that involve a number of risks and uncertainties. Statements that are not historical facts, including statements about our expectations, hopes, intentions or strategies regarding the future are forward-looking statements. Forward-looking statements are based on management's beliefs as well as assumptions made by and information currently available to management. Because such statements are based on expectations as to future financial and operating results and are not statements of fact, actual results may differ materially from those projected. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. The risks and uncertainties which forward-looking statements are subject to include, but are not limited to, the risks and other factors detailed in our press release, which was released this morning and in the statement regarding forward-looking information, risk factors and other sections of Cannae's Form 10-K and other filings with the SEC.
Let me now turn the call over to Bill.
William P Foley -- Chairman
Thank you, Shannon. Through the second quarter, we continued to monetize investments, nurture our portfolio companies, make new investments and prospects for future investment opportunities. During my career, I have endured many challenging environments, all of which helped shape my investment philosophy. Despite a more uncertain economic outlook, our strategy is unchanged. As a result, Cannae was built with a fortress-like balance sheet to weather the storm and take advantage of market dislocation. Over the last few months, we have seen our deal pipeline expand and are pleased with our new investment opportunities we have both been presented and sourced.
Given this backdrop, we have made real progress deploying our capital into attractive investments that we believe will grow the franchise value of Cannae. Our primary accomplishment in the second quarter was the initial public offering of Dun & Bradstreet, or D&B, where they listed their shares on the New York Stock Exchange on June 30 at a price of $22 per share, having raised $2.4 billion in net proceeds. Cannae invested in a concurrent private placement at a share price of $21.67 and currently owns approximately 18% of D&B. Cannae's ownership position is valued at $1.95 billion, given D&B's closing price of $25.50 on July 31, 2020. We look forward to continue to supporting D&B's strategic transformation and growth. To capitalize on the many larger investment opportunities we see, Cannae entered into a forward purchase agreement with Foley Trasimene Acquisition Corp., or FTAC, in which Cannae now has a 20% share of the promote. As an anchor investor and a member of the sponsor group, we look forward to working with our partners at THL to identify prospective target businesses with the industries of financial technology or business process outsourcing. We are actively evaluating targets for this capital tool, and we'll update you once we have definitive agreement with a target.
In addition to Cannae's investment in FTAC, Cannae entered into a forward purchase agreement with Trebia Acquisition Corp., or Trebia, in which Cannae is an anchor investor with a 15% economic interest and a founding member of the sponsor group. Again, we look forward to working with Frank Martire and the team, lending our experience with this transaction. More recently earlier this week, on August three, Cannae entered into a forward purchase agreement with FTAC Acquisition Corp. two for $150 million on similar terms to Trebia. Subsequent to the quarter end, Black Knight announced its definitive purchase agreement to acquire Optimal Blue, a leading provider of secondary market solutions and actionable data services for an enterprise value of $1.8 billion. Black Knight will combine its Compass Analytics with Optimal Blue, a newly formed entity in which Cannae will own approximately 20% ownership interest for an equity contribution of $290 million. Lastly, Cannae disclosed ownership interest in partnership with Senator Investment Group of approximately 12 million shares and economic equivalent to CoreLogic during the second quarter. On June 26, Cannae, along with Senator Investment Group, submitted an unsolicited proposal to acquire CoreLogic for $65 a share, a 37% premium to the unaffected share price. After spending nearly a year performing extensive outside due diligence, there are no material uncertainties on our proposal, including financial or regulatory. We are disappointed that CoreLogic has declined our proposal. Subsequent to quarter end, on July 29, we announced the initiative and processed to call a Special Meeting of Shareholders in order to elect nine independent and highly accomplished directors to the CoreLogic Board of Directors. Unfortunately, given where we are in this process, I am unable to provide any further updates at this time or answer questions regarding this matter. To finance these investments and further rebalance our portfolio, we sold 3.7 million shares of Ceridian at a price of $64.40 a share. This resulted in gross proceeds of approximately $238.3 million, and we recorded a gain of $53 million. As of July 31, 2020, Cannae owns 16.1 million shares of Ceridian stock worth $1.3 billion.
We also completed a secondary offering of approximately 12.65 million shares of Cannae, in which we raised proceeds of approximately $455 million. This offering helped us broaden our institutional shareholder base, provide capital to fund future transactions and reintroduce the Cannae story to the investment community. To conclude, we have made significant progress expanding our portfolio of investments, which we believe positions Cannae for continued value creation and outperformance. We are well positioned to deploy our capital as potential deals arise and we remain very optimistic about our future. Before I turn the call over to Bryan Coy, our new Chief Financial Officer, I want to first thank Rick Cox for his service to Cannae. Rick resigned from the company two weeks ago, and we are excited to have Bryan join our team. I've got to know Bryan very well over the course of the last few years as he is the CFO for Black Knight Sports and Entertainment, the Vegas Golden Knights. And I look forward to working with him in his role with Cannae.
With that, I will now turn the call over to Bryan to provide a brief overview of our financial results.
Bryan D. Coy -- Chief Financial Officer
Thanks, Bill. I'm looking forward to working with you and the team here at Cannae. Turning to our results, the major items of note were similar to the preceding quarter, mark-to-market gains in our investments and equity and the earnings and losses of our affiliates. Cannae recorded $471 million of fair market value gains on Ceridian stock, along with $53 million of realized gain on the shares sold during the quarter, complementing $42 million of unrealized gain on our investment in CoreLogic stock. From our unconsolidated affiliates, Cannae recorded a $56 million loss from Dun & Bradstreet and $138 million gain on its investment in the equity fund, offset by smaller items for a net $58 million in earnings.
On the liquidity front, we entered the second quarter with $399 million in cash. As Bill noted above, Cannae created liquidity by selling 238 million of Ceridian shares ahead of a $455 million equity offering of its own, offset mainly by an additional $100 million investment in the equity fund. That provided Cannae with nearly $1 billion in corporate cash and short-term investments at quarter close as well as $100 million of undrawn capacity under the FNF revolver. Of that amount, a total of $225 million was committed during the quarter to FTAC and Trebia. And in early July, $200 million was deployed via the D&B private placement. Subsequent to quarter end, our $290 million forward purchase investment in Optimal Blue as well as a forward purchase agreement on FTAC two for $150 million. During the quarter, we repurchased over 123,000 shares of our own at an average price of $29.37. On June 30, 2020, Cannae's book value was $3.1 billion or $34 per share as compared to $1.5 billion or $18.72 per share on December 31, 2019.
Now let me turn the call over to Duke, who will touch on our pipeline and potential investment opportunities.
David Ducommun -- Corporate Finance
Thanks, Bryan. As evidenced in our second quarter performance, the Cannae team has kept busy. In addition to the transactions we've announced publicly, we've been busy behind the scenes looking for our next deal. We've screened literally hundreds of potential transactions, both public and private. We've met with CEOs, private equity owners, large public institutional shareholders, and we believe this is a great time to deploy capital. We find that current owners are in general, marginally more willing to transact with us as their long-term outlook is increasingly more uncertain, and their strategies and, in some cases, leadership needs to change.
We, at Cannae, are buyers of long-term value. We have no maximum holding period for an asset as evidenced by a lot of our historical investments. Our outlook, coupled with build operational expertise and deal structuring creativity is a one of a kind asset for Cannae. I should also add that we can act quickly when needed. We're not a bureaucratic organization, and Bill has a robust bench of managers and industry experts, all of whom help us be decisive quickly on transactions. We believe this makes us the preferred counterparty for sellers and businesses in need of capital.
Our focus for new investments will be primarily in the industries Bill has discussed related to payments, data and analytics and fintech. We're looking for companies with enterprise values ranging from $1 billion to $10 billion, and our equity checks have generally been in the $100 million to $500 million range. But as you've seen through the various SPAC and other JV partnerships, we've been able that we've sponsored, our economic firepower actually far outstrips our existing liquidity. It's important to us that our targets have defensible market position and the ability to benefit from the leadership and capital Bill brings to the table. We'll be back to update you as soon as we have a definitive agreement with a target to announce.
I'll now turn the call back over to Grant, our operator, to begin the Q&A session.
Questions and Answers:
Operator
[Operator Instructions] Our first question will come from John Campbell with Stephens. Please go ahead.
John Robert Campbell -- Stephens Inc. -- Analyst
John. Hey guys, good morning. Bryan, congrats on the new role. Looking forward to working with you. You guys must have a pot of coffee brewing about 24/7 at the Trasimene offices. It's been a really, really busy four past couple of months for you guys, but I just wanted to get your latest thoughts on a couple of the moving parts. And if we could just maybe start with Optimal Blue. I'm sure we're going to hear a lot from Black Knight next week. But how do you see Optimal Blue just kind of transforming the Black Knight model and then the value proposition? And then any thoughts on the kind of ICE and Ellie Mae combo that was announced last night?
William P Foley -- Chairman
Sure. Duke, why don't you take the Optimal Blue piece?
David Ducommun -- Corporate Finance
Yes. So we think this is a transformative deal for Black Knight. Optimal Blue really has the industry-leading set of what they call PPE tools, product pricing engine tools for mortgages. So as you know, Black Knight has a dominant position in mortgage processing. We think they have a very defensible moat and this is a high-growth product that we think they can bolt-on to their existing offering, and frankly, it accelerates the growth of that business even faster than it's been growing on its own. So we think it's a high-quality asset, and we're excited to see with A.J. and the team do with it. We honestly couldn't be more supportive. But I'll let them kind of defer to their specific operating plans for the business. We're the equity investor here, but we obviously we love the asset, and we think it does a lot to accelerate growth for Black Knight.
William P Foley -- Chairman
On the ICE and Ellie Mae piece, both Ellie Mae and ICE were involved in the Optimal Blue mini auction. We basically pre-empted the stage and made a firm proposal of $1.8 billion. So the seller gave Black Knight exclusivity. So I think you could say that the reaction by ICE and by Ellie were probably in part due to the fact they did not were not able to acquire Optimal Blue. And I'm sure that Ellie will be a very nice asset for ICE. I mean they're a major competitor. They're a well-run company, and they've now taken another player basically out of the marketplace and combined it with themselves. So congratulations to ICE.
John Robert Campbell -- Stephens Inc. -- Analyst
Yes, that makes sense. I couldn't agree. I couldn't agree more. How should we be thinking about the various SPACs and kind of how they play into Optimum Blue and then maybe in CoreLogic? Or is there a pretty big pipeline beyond those two?
William P Foley -- Chairman
No. There is a big pipeline. And we're kind of as you said, we're brewing coffee all the time because we're looking at so many different transactions kind of all at once. And what I'd like to think about is in terms of developing a vaccine. Phase one for us in terms of the SPACs was from the launch of Trasimene one in late May through July four weekend, we were really screening and investigating various companies and trying to understand how a company might fit with our philosophy, management needed how what their growth prospects were. And then I'd say, we went we culled down for about 100 companies plus down to about 10 companies. And we went we began Phase 2, which was really dealing with the bankers on the various companies that were of interest. Then we always went to the bankers that have presented the company to us in terms of a deck of companies, which is what most of them do. And we went to the bankers. We tried to deal with the sponsor representative at the particular bank to learn more about the core meaning or the core values of the particular transaction that we were looking at. Then I would say, we started Phase three our Phase three trials really in late July. And that Phase three means we started talking to management at the various target companies and evaluating management, evaluating their core business principles, their core offerings. And again, culling the herd down and then expanding the herd because there'd be others oftentimes that something pops up, and we accelerate a Phase one review and get into Phase two and then Phase 3. So at this point, I've just on the Trasimene SPAC, we have probably talked to five different management teams at this point, all of which are very interesting to us. We've got a couple of different companies that we're extremely interested in and that we're trying to pursue to see if a transaction can be developed with those companies. And now we have the advantage of assuming the markets, and they want us to do many things. But if the market stay with us for another 1.5 weeks or so, then we'll have a second SPAC which will be even larger than Trasimene 1, and it gives us the ability to really expand our search process again and looking for large targets. All of these SPACs that we have, normally if they find something that's interesting, it just won't be for the amount raised in the SPAC. It will include a pipe, so we can reward our SPAC investors with a non-promote piece of the business. And plus, we have a number of sponsors who are very interested in investing with us. So we really feel like we don't have a there's not a top limit on what we can look at and what we can seriously consider, and I would expect us to make a couple of major acquisitions on or about year-end and closing them on or about year-end. So that's kind of the that's the SPAC opportunity. And additionally, we continue to have Cannae be a partner to both Black Knight and Dun & Bradstreet when they find different companies that they feel are interesting to them, that would be core to their expansion of their business, then Cannae stands ready to make the kind of investment we did with Optimal Blue, sub-$500 million. So that's kind of our philosophy. Cannae is like a sub-$500 million investor, Trebia is probably $1 billion investor and Trasimene one and two could be up to $4 billion, $5 billion, $8 billion, $10 billion investment opportunities. So long answer, but I hope I covered everything.
John Robert Campbell -- Stephens Inc. -- Analyst
No, that was very good. It's amazing, all this kind of started from a single small little title company. Last one for me. You guys closed the quarter at almost $1 billion in cash. Obviously, there's kind of a flurry of events here post quarter. You're either, I guess, deploying or set to deploy about $640 million, and then that leaves you, I guess, with about $325 million in cash post all this. Does that sound about right? Or am I missing anything in that math?
William P Foley -- Chairman
I think that's right. Does that sound right to you, Bryan?
Bryan D. Coy -- Chief Financial Officer
That sounds actually a little bit high with the last we might not be counting the last SPAC in there, the $150 million for FTAC 2.
John Robert Campbell -- Stephens Inc. -- Analyst
Okay. Got it. That's helpful.
William P Foley -- Chairman
Of course, those forward purchase agreements are deployed when there's actually an acquisition. So that's not a pending disbursement.
John Robert Campbell -- Stephens Inc. -- Analyst
Okay, great, thank you guys.
Operator
Our next question will come from David Eller with Wells Fargo. Please go ahead.
David Luke Eller -- Wells Fargo Securities -- Analyst
Hey, good morning and thank you for taking the questions. I think you've kind of answered some of my questions in part, but I can I guess, I'll ask them maybe a little different way. But maybe can you start off, can you just talk about your plans for your Dunn & Bradstreet stake? I think you mentioned the $1.9 billion. What are your plans for that following the IPO?
William P Foley -- Chairman
Well, we're locked up for six months. And the end game in Dunn & Bradstreet has not yet been told. Dun & Bradstreet is now in its own acquisition mode. And because of the size of the offering, we were able to accomplish. Dun & Bradstreet has $0.5 billion or so in cash available and can make some very accretive transactions. So we feel that Dun & Bradstreet story is just unfolding. And we don't have any plans to dispose of any of the Dun & Bradstreet shares. We really feel like there's going to be a lot of value created in Dun & Bradstreet over the next 18 months. And after that time period, we would probably then start looking at a slow dispersal of or disbursement of some of the shares over a long period of time. Just as we've done with Ceridian, where we started with about 39 million shares that we owned, and over the last few years, we've that share count has dropped down to about 16.1 million. What I don't want to do is unless there's a serious need for a very large amount of capital, I don't want to leave the party too soon, and that's the way I feel about Ceridian. And I certainly feel that way about Dun & Bradstreet, which is it's probably in the first or second inning of its turnaround in my view.
David Luke Eller -- Wells Fargo Securities -- Analyst
Got it. And you kind of touched on it and it kind of segues into my second question. You think about the Dun & Bradstreet, after the IPO they put a lot of cash on the balance sheet. But they still do have a good bit of debt. So you talked about, I think in the past, there've been a lot of interesting M&A opportunities, but the leverage was kind of a constraining factor there. So can you talk about just expectations there for how to allocate capital with that excess cash?
William P Foley -- Chairman
Yes. We don't have plans to we're locked into our senior secured notes and unsecured notes until, I believe, it's February of 2022. So we were able to do on the IPO. We were able to claw back 40% of that of those two debt instruments. And of course, we completely paid prepaid the preferred. It is expensive, but we need to get those we need to get this balance sheet in much better shape. So I don't see us paying down the unsecured or secured until February of 2022 when we can do so, and there won't be a make-whole because the make-whole is pretty prohibitive. So I see Dun & Bradstreet making tuck-in acquisitions and looking very seriously at the international market. As you may recall, Dun & Bradstreet is a was a significant international player across the world. And over time, they sold many of those businesses, frankly, to create a short-term gain, so they can meet numbers, but they really mortgage their future. So we're very active in looking at international partners that may be ready to sell back to Dun & Bradstreet. So that's going to be a major focus of our acquisition strategy plus tuck-ins, because Dun & Bradstreet needs to have more products, needs to develop products. And if we can make a small tuck-in acquisition of a product that fits within their core offerings, then that's the way Dun & Bradstreet will really accelerate its growth and gets some quarter-over-quarter serious revenue growth. So that's really the Dun & Bradstreet philosophy at this point. And a lot more will be revealed over the next two or three quarters as we move down that path.
David Luke Eller -- Wells Fargo Securities -- Analyst
Got it. And then last question for me, Optimal Blue. Can you talk about the funding structure there, provide a little more detail? Will Black Knight raise debt themselves? Or will that be raised in a separate box? Or how do you expect that to be funded?
William P Foley -- Chairman
There will be debt associated with Optimal Blue, about $500 million. That debt will be raised by Black Knight and will be a mirror note into the subsidiary Optimal Blue at a premium interest rate. So Black Knight will raise money at X, and will fund the transaction at X plus Y. And then the THL and ourselves that are 20% owners, we're minority owners in a subsidiary of Black Knight and Black Knight will own 60%. So that's kind of the way we put together this structure. It largely, it would have been great if Black Knight could have acquired the company itself, but it would have really fouled up their debt-to-cap ratios. And what we're trying to do is to keep Black Knight at 3.9 debt-to-cap with a way to see this down to the high 2s pretty quickly. So that's really the reason for the structure.
David Luke Eller -- Wells Fargo Securities -- Analyst
Great, thank you for all the detail.
Operator
Our next question will come from Carter Trent with Stephens. Please go ahead.
Carter Andrew Trent -- Stephens Inc. -- Analyst
I just got one quick question. On the press release, I was looking at the cost of invested capital section and noticed that the equity fund was broken out separately from CoreLogic. Just to confirm, is the equity fund separate from CoreLogic? Are they making their own investments in other companies?
William P Foley -- Chairman
Bryan?
Bryan D. Coy -- Chief Financial Officer
No. Fair enough. The equity fund is...
David Ducommun -- Corporate Finance
It's CoreLogic.
Bryan D. Coy -- Chief Financial Officer
It's CoreLogic, yes.
Operator
This concludes our question-and-answer session. I would like to turn the conference back over to Bill Coy for any closing remarks.
Bryan D. Coy -- Chief Financial Officer
Thank you for your time today. To conclude, we are very pleased with our second quarter results. We remain optimistic that the current market environment will continue to offer attractive opportunities for our team. Cannae continues to vet potential investments that arise as we work to expand our portfolio and deliver long-term value to our shareholders. Please continue to stay safe and healthy, and thank you for your time today.
Operator
[Operator Closing Remarks]
Duration: 28 minutes
Call participants:
Shannon Devine -- Analyst
William P Foley -- Chairman
Bryan D. Coy -- Chief Financial Officer
David Ducommun -- Corporate Finance
John Robert Campbell -- Stephens Inc. -- Analyst
David Luke Eller -- Wells Fargo Securities -- Analyst
Carter Andrew Trent -- Stephens Inc. -- Analyst
