Cannae Holdings, Inc. (CNNE)

Executive Summary / Key Takeaways

• Cannae Holdings is executing a deliberate strategic pivot from passive public equity investments to active private asset management, using $630 million in Dun & Bradstreet (DNB) sale proceeds to repurchase shares at a 31% discount to net asset value while redeploying capital into higher-return opportunities like sports franchises and activist investing.

• The capital return program has returned over $500 million to shareholders since February 2024, repurchasing 23% of shares outstanding and directly accreting NAV per share, demonstrating management's commitment to closing the persistent discount that has plagued the stock.

• Portfolio composition has been radically transformed from 70% public securities to just 20%, with capital redirected into differentiated private assets including Black Knight Football Club (44.7% stake), JANA Partners (50% stake), and Watkins Company (majority stake), creating a more defensible and higher-margin business model.

• The investment thesis faces material execution risks: the Restaurant Group is deteriorating with O'Charley's same-store sales down 13.6%, Alight (ALIT) has recorded $2.3 billion in goodwill impairments in 2025, and an ongoing proxy contest threatens to distract management and disrupt strategic implementation.

• Trading at $16.86 with price-to-book of 0.72 and a 27% discount to NAV, Cannae remains priced for significant execution risk despite a clear capital allocation strategy that has already narrowed the discount from nearly 40% to current levels.

Setting the Scene: From Investment Pass-Through to Active Value Creator

Cannae Holdings, founded in 2014 as a principal investment firm, spent its first decade operating as a passive holder of public and private equity stakes, taking meaningful ownership positions but largely collecting distributions rather than driving operational change. This approach left the company trading at a persistent discount to its net asset value, often exceeding 40%, as investors questioned the sustainability of its model and the timeline for value realization. The February 2024 strategic plan marked an inflection point, with Bill Foley returning as CEO and internalizing the external manager, signaling a shift from passive ownership to active value creation.

The company's core business model involves acquiring controlling or significant minority stakes in quality companies and employing a long-term ownership approach without preset time constraints for exit. This patient capital structure differentiates Cannae from private equity firms focused on 3-5 year hold periods, allowing management to pursue transformational changes that require sustained investment. The strategic plan explicitly targets three objectives: improving portfolio company performance, making new investments primarily in private companies, and returning capital to shareholders through buybacks and dividends. This framework provides a clear lens through which to evaluate every capital allocation decision and operational initiative.

Cannae operates in a competitive landscape dominated by larger, more diversified holding companies like Berkshire Hathaway and Markel Group , which benefit from insurance float and massive scale. Unlike these peers, Cannae's sub-$1 billion market cap and concentrated portfolio of 5-10 key holdings create both vulnerability and opportunity. The company cannot match Berkshire's $354 billion cash hoard or Markel's stable insurance underwriting profits, but its agility and willingness to take concentrated positions in undermanaged assets offer a different value proposition. This positioning matters because it explains why Cannae must be more active in its operations—its survival depends on creating value through operational improvement rather than financial engineering alone.

Technology, Products, and Strategic Differentiation

Cannae's "technology" is not software or hardware but a proprietary methodology for identifying, acquiring, and transforming underperforming assets. This approach combines deep sector expertise in consumer businesses, financial services, and technology with an activist mindset that drives operational change. The company's differentiation lies in its ability to take concentrated positions—often 40-50% ownership stakes—and work directly with management teams to implement strategic initiatives, cost reductions, and growth investments that passive investors cannot execute.

The Restaurant Group exemplifies this methodology in action. When O'Charley's faced double-digit same-store sales declines and guest count drops of 18.3%, management didn't simply cut costs; they implemented SKU reductions, moved to a headquarters 80% smaller, installed new leadership, and closed six underperforming locations. These moves are expected to cut seven figures annually from support costs while improving the guest experience. These actions demonstrate Cannae's willingness to make difficult operational decisions that create long-term value, even at the expense of short-term revenue. The 99 Restaurants brand, which continues to outperform casual dining benchmarks with flat same-store sales, shows the approach can work when executed well.

In technology-enabled services, Cannae's 7.7% stake in Alight reveals both the power and peril of its concentrated strategy. While Cannae recognized $81.7 million in equity losses in Q3 2025, coinciding with Alight's $1.3 billion goodwill impairment, the underlying business shows operational improvement: adjusted EBITDA margins expanded 460 basis points to 24.1% in Q2 2025, and free cash flow jumped from $26 million to $102 million in the first half. This divergence between accounting impairments and operational metrics highlights Cannae's ability to identify assets with improving fundamentals that the market has mispriced, even as short-term earnings volatility creates headline risk.

The sports investment platform represents Cannae's most differentiated bet. Black Knight Football Club, with its 44.7% stake, has evolved from a single-club investment into a leading multi-club operator spanning the English Premier League (AFC Bournemouth), French Ligue 1 (FC Lorient), Scottish Premiership (Hibernian), and Portuguese Primeira Liga (Moreirense). This strategy creates a unique asset class with multiple revenue streams: broadcast rights, commercial partnerships, player trading, and stadium operations. AFC Bournemouth's 81% increase in match day and commercial revenue since acquisition, combined with its record-breaking ninth-place Premier League finish, demonstrates the value creation potential of Cannae's active management approach in a sector where traditional financial investors have limited expertise.

Financial Performance & Segment Dynamics: Evidence of Strategic Execution

Third quarter 2025 results provide clear evidence that Cannae's strategic pivot is working, despite headline losses. Operating revenue of $107 million declined 6% year-over-year, driven primarily by restaurant closures and same-store sales declines, but this top-line weakness masks significant progress in capital allocation and portfolio quality. Total operating expenses fell $12 million to $120 million, reflecting the benefits of terminating the external management agreement and reducing corporate overhead. This cost discipline matters because it shows management is willing to shrink inefficient operations while reallocating capital to higher-return opportunities.

The segment performance reveals a tale of two portfolios. The Restaurant Group generated $94.6 million in revenue but posted an $8.3 million net loss as O'Charley's struggles offset 99 Restaurants' relative stability. This deterioration is significant, representing 88% of Cannae's consolidated revenue, which makes the segment's performance critical to overall valuation. However, management's aggressive actions—closing six locations, reducing headquarters size by 80%, and installing new leadership—suggest the worst may be behind the segment. The key question is whether these operational fixes can stem the 13.6% same-store sales decline at O'Charley's before the segment consumes more capital than it generates.

Alight's performance illustrates the complexity of valuing Cannae's equity method investments. While Cannae recognized $81.7 million in equity losses in Q3 2025, coinciding with Alight's $1.3 billion goodwill impairment, the underlying business metrics tell a different story. Alight's adjusted EBITDA grew 21% in Q2 2025, margins expanded 460 basis points, and free cash flow quadrupled. This divergence suggests Cannae's carrying value may be overly conservative, and operational improvements could drive a future revaluation. However, management's reduction of revenue guidance due to lengthening sales cycles and flat participation counts indicates that growth challenges remain, creating uncertainty about the timing of any recovery.

Black Knight Football Club emerges as the portfolio's crown jewel. BKFC's equity earnings of $26.6 million in Q3 2025, up from $14.4 million in the prior year, were driven by record player trading income and AFC Bournemouth's higher Premier League placement. Total revenues increased 22.9% to $95.6 million for the quarter ended June 30, 2025, with player trading income contributing approximately $73.8 million. This performance validates Cannae's thesis that sports assets can generate venture capital-like returns while providing tangible assets and cash flows. The Sportico valuation of AFC Bournemouth at $630 million—40% above invested capital—provides external validation of the value creation strategy.

Outlook, Management Guidance, and Execution Risk

Management's commentary reveals a clear strategic roadmap focused on three priorities: completing the portfolio transformation, maximizing capital returns, and improving operational performance at key holdings. The company expects to sell additional non-core assets—both public and private—in the coming months to utilize expiring tax benefits that could generate up to $55 million in cash tax refunds. This provides a near-term catalyst for both cash generation and portfolio simplification, further distancing Cannae from its historical identity as a passive investment vehicle.

The board's directive to concentrate future capital allocation in sports and sports-related assets signals a major strategic bet. This focus leverages Cannae's demonstrated expertise in building BKFC into a multi-club operator and reflects management's belief that sports are evolving into an institutional asset class capable of generating long-term outsized returns. The planned two-phase renovation of AFC Bournemouth's Vitality Stadium, which will increase capacity from 11,300 to 20,000 seats and double hospitality offerings, represents a tangible investment in infrastructure designed to drive recurring revenue growth. The first phase, expected to be completed by the start of the 2026-2027 season, will increase seating to 17,000 and is projected to generate mid-teen unlevered returns on invested capital.

For Alight, management has lowered expectations while maintaining optimism about operational improvements. The company reduced its 2025 revenue guidance midpoint to $2.3 billion, citing a lengthening sales cycle and flat participation count, but reaffirmed its adjusted EBITDA guidance of $633 million. This suggests Cannae is realistic about near-term challenges but believes the underlying business can deliver on its mid-term targets of 4-6% organic revenue growth and 30% EBITDA margins by 2027. The key execution risk is whether Alight can accelerate revenue growth before operational improvements plateau, as margin expansion alone cannot sustain long-term value creation.

The Restaurant Group's outlook remains challenged but potentially stabilizing. Management is focused on driving improvement at O'Charley's through menu engineering, back-of-house improvements, and the closure of underperforming locations. The 99 Restaurants brand continues to perform at or above casual dining benchmarks, providing a stable foundation. However, the segment's 6.5% revenue decline through the first nine months of 2025 indicates that headwinds persist, and management has not provided specific guidance on when same-store sales might turn positive.

Risks and Asymmetries: What Could Break the Thesis

The most immediate risk to Cannae's strategic transformation is the ongoing proxy contest with Carronade Capital, which is pushing for board changes and potentially altering the company's governance structure. Management estimates the contest will cost $5.9 million in excess of normal annual meeting expenses, but the real risk is distraction and potential disruption to the capital allocation strategy. If the dissident shareholder succeeds in changing board composition, there is no assurance they will pursue initiatives aligned with Cannae's current strategy, potentially derailing the portfolio transformation at a critical juncture.

The Restaurant Group's deterioration represents a significant operational risk that could consume capital just as management is reallocating resources to higher-return opportunities. The 13.6% same-store sales decline at O'Charley's and 18.3% drop in guest counts reflect fundamental challenges in the casual dining segment that may not be fixable through cost cuts alone. If the segment cannot stabilize, it may require additional capital injections or face further closures, both of which would reduce the capital available for buybacks and private investments.

Alight's persistent impairments create both accounting volatility and fundamental uncertainty. While operational metrics are improving, the $2.3 billion in goodwill impairments in 2025 suggests Cannae's carrying value may still be too high. Further declines in Alight's fair value, deterioration in its results, or adverse macroeconomic changes could lead to additional impairment charges, materially impacting Cannae's equity earnings and potentially triggering covenant issues on its margin loan, which is now secured solely by Alight shares.

The class action lawsuit filed in October 2025 related to the Dun & Bradstreet sale, alleging breaches of fiduciary duty and claiming the transaction undervalued DB's stock, creates legal overhang and potential liability. While Cannae intends to vigorously defend the claims, the litigation could delay or complicate future monetization events and create reputational damage that makes it harder to attract partners for future transactions.

Valuation Context: Pricing Execution Risk

Trading at $16.86 per share, Cannae's valuation metrics reflect a market still pricing significant execution risk. The price-to-book ratio of 0.72 and enterprise value-to-revenue multiple of 2.0x sit well below typical holding company ranges, indicating investors remain skeptical of management's ability to realize stated NAV. The 27% discount to net asset value, while improved from the nearly 40% discount that existed when the strategic plan was announced, still represents a substantial gap that can only be closed through successful execution of the portfolio transformation.

Comparing Cannae to direct peers reveals both challenges and opportunities. Berkshire Hathaway (BRK.B) trades at 1.54x book value with 18% profit margins and $354 billion in cash, reflecting its scale and stability. Markel Group (MKL) trades at 1.52x book with 12.8% profit margins and insurance float providing low-cost capital. Compass Diversified (CODI) trades at 1.49x book but faces accounting restatements that have eroded investor confidence. Icahn Enterprises (IEP) trades at 1.70x book but carries higher debt and energy sector volatility. Cannae's 0.72x book value and negative profit margins reflect its transitional state, but its 3.56% dividend yield and aggressive buyback program provide immediate returns while investors wait for the private asset strategy to mature.

The most relevant valuation metric for Cannae is the discount to NAV, which management has made the central focus of its strategy. The company's ability to repurchase shares at a 31% discount while simultaneously investing in assets like BKFC that are appreciating 40% above cost creates a powerful value creation engine. If management can successfully execute the portfolio transformation and demonstrate consistent operational improvement at key holdings, the discount should narrow toward peer levels of 10-15%, implying 16-23% upside from current levels, with potential for up to 37% upside if the discount fully closes. However, continued operational stumbles at the Restaurant Group or further impairments at Alight could keep the discount wide, limiting returns despite the attractive capital allocation strategy.

Conclusion: A Transformation in Progress

Cannae Holdings has embarked on a radical transformation from passive investment vehicle to active asset manager, and the early evidence suggests the strategy is working. The $630 million Dun & Bradstreet monetization provided the capital to repurchase 23% of shares at a substantial discount to NAV while funding investments in a sports platform that is generating venture capital-like returns. The portfolio rebalancing from 70% to 20% public holdings reduces market correlation and creates a more defensible business model focused on operational improvement rather than financial engineering.

The investment thesis hinges on two critical variables: management's ability to stabilize the Restaurant Group before its deterioration consumes additional capital, and the successful execution of the sports-focused private asset strategy. The 99 Restaurants brand provides proof that Cannae's operational methodology can work, while BKFC's 40% appreciation and record player trading profits validate the sports investment thesis. However, O'Charley's persistent declines and Alight's impairments demonstrate that concentrated positions cut both ways, creating both opportunity and risk.

For investors, Cannae represents a unique combination of immediate capital returns through dividends and buybacks and long-term optionality on the sports and activist investing platforms. The 27% discount to NAV provides a margin of safety, while management's alignment through share-based compensation and Bill Foley's continued involvement as non-executive Vice Chairman ensures incentives remain aligned with shareholders. The proxy contest and class action lawsuit create near-term noise, but the strategic direction appears set. Success will be measured not by quarterly earnings but by the gradual narrowing of the NAV discount as the market recognizes the value creation potential of Cannae's transformed portfolio.