[Research] Corporate Chaos - Canada Edition

The Dye & Durham story takes a new series of dramatic turns

Not held.

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I wrote a short summary of Dye & Durham’s post-Covid corporate history about this time last year:

Dye and Durham (DND.TO): Drama While Walking and Chewing Gum

I summed up that piece with the following:

As of this writing we sit at the edge of a precipice. Proud remains at the helm, although Chairman Brian Derksen will not stand for re-election. Engine is seeking three board seats at the upcoming Special Meeting. A number of ‘Darkhorse’ outside shareholders are circling. The big question at the moment is whether or not management will issue a significant number of new shares to try and protect their position. Engine has posted a public letter to shareholders warning of this action. If management were to do so, it would be calamitous for shareholders from a corporate governance and value perspective.

A year ago feels like another age, and the narrative I explored last time around now feels comically out of date.

For background, this time last year Canadian legal software roll-up Dye & Durham was facing a number of both formal and informal independent challenges for control as a consequence of a series of rather unfortunate events. At the centre of this great piece of corporate theatre was now former CEO Matthew Proud. I wrote a little about Proud’s background and mercurial corporate style in my last piece. The players on the board have shuffled around now and, with a rapid succession of chief executives, the next steps for the company feels as obscure as it ever has. And that’s saying something.

The Dye & Durham (D&D) name is a storied name in legal circles. With over a century of brand recognition it was a useful plug-and-play rebrand for Proud’s earlier moves with Bermuda-based holding company Plantro and its original rigmarole with OneMove Technologies. You may be wondering why I, like many other investors of my persuasion, are interested in such a situation. The answer is that underneath the personalities, and the stunning amount of debt, is quite a good business.

Through a kind of Game-of-Thrones-like series of transactions and manoeuvres, D&D ended up with a very dominant position in Western Canadian econveyancing. Conyenancing is, of course, the process of legally transferring property ownership from a seller to a buyer. This is one of the longest standing legal mechanisms in the Anglo-Saxon world, finding its roots in the Conqueror’s (William that is) seizure of the English crown in 1066. When the British later took to the high seas they took their system of land ownership with them. A similar conyenacing process prevails in Australia, Canada, Malaysia, Britain, Ireland, and indeed the United States.

In any transfer of real estate there are multiple parties present and the process follows a number of formalised steps. Initially there is engagement - literally engaging the services of a notary of lawyer. While seasoned real estate investors may already have a lawyer, newer entrants generally get introduced to one via the good offices (wink, wink) of a mortgage broker or real estate agent. Next comes the collection of client information. Parties to a transaction may also delegate power of attorney to their representatives at this stage, allowing their agents to sign and execute documents on their behalf. After the these formalities have concluded, lawyers will conduct search and due diligence functions. These will vary depending on whether a representative is acting for a buyer or seller. Typically this step includes another round of fees mostly associated with searches and on various databases. For example, during due diligence a lawyer acting for the buyer will conduct a title search (inferring information about the title to the property, leins, etc), confirm a tax certificate (make sure there are no outstanding property taxes against the property), register insurances, complete certain strata title forms if necessary, and preform a specific property registration search of the seller. The buyer’s lawyer, or notary, then arranges for closing documents to be prepared and signed by both sides - this typically involves collecting documents that will allow title to be cleared (usually financing forms). A client signing meeting will take place the vendor and buyer and their representatives to sign off on the finalised documents a few days before completion. Documents are then exchanged between the buyer’s and seller’s representatives before closing and registration takes place. Phew.

That’s a seven step process in a transaction that may include up to 6-10 different people. Title to property is of course a crucial service offered by any government and the inclusion of lawyers and other professionals is essential in keeping disputes down and making sure considerations are actually exchanged. Said another way:

A real property interest is arguably the most sacred form of ownership, and is "the largest and most important transaction in most people's lives. . . ."

Even so, in the days before digitisation the capacity for human error was significant. In some cases that same capacity remains to this day. I have a good friend whose father is a prominent commercial lawyer in my home town. He once accidentally stapled a physical land deed while doing holiday work. Serious complications followed.

As a friend of the blog likes to say, econveyancing software can effectively automate a number of process steps along this route. On the front end there are efficiencies to be had. Standardising processes reduces the capacity for errors and makes it possible for steps to be completely asynchronously. For example, it becomes possible for buyers and sellers to complete steps without needing to be physically present (for a long time one needed to be physically present in certain provinces where transactions were occurring). There’s also multi-party co-ordination. Certainly the nexus of the applicable network are the commercial and property lawyers who transact this business on a regular basis. It’s more efficient for these professionals to use less pieces of software/interfaces rather than more.

This need is a little less pressing for financial institutions, and an order of magnitude less pressing for buyers and sellers. The government also has a significant interest in keeping this process controlled. In Australia, for example, the spectre of such a natural monopoly, coupled with its need to be explicitly endorsed by state (provincial) and federal governments, meant that this central piece of infrastructure was a government sponsored creation. In Canada the digitisation of certain process steps occurred a little more organically.

As is not too different from other federated former British colonies, Canadian property transactions are the purview of provincial governments. This has meant that digitisation efforts generally, or at least parts of individuals steps, has been a bottoms up phenomena at the provincial level. This began in the late 1980’s when the Ontario Ministry of Consumer and Commercial Relations (MCCR) initiated POLARIS, with the aim of automating the land registration process. In late 1990’s Teranet Inc., in conjunction with the provincial Ontario government, developed the Teraview system (a former Teranet product, DoProcess is now part of D&D):

Teraview is [a] secure one-stop solution to accessing data in the Government of Ontario’s land records database, and is used by lawyers, paralegals, title searchers, search houses, title insurers, financial institutions and government. You can perform searches, create and submit title documents for registration, view and print instruments, plans, official parcel registers and search for writs of execution quickly and easily, without having to visit a ServiceOntario Office.

These early systems began the process of digitising the various databases of information necessary to complete the search and due diligence aspects of a property transaction. Naturally the time, and hence skill labour, savings were enormous and were consequently a driver of additional government revenue. What these systems typically did not allow for was multi-party co-ordination that would be useful to legal professionals, bankers, and insurance underwriters who frequently trafficked in the conveyancing process. This would be a problem solved by private enterprise, but again on a province-by-province basis. Enter OneMove Technologies and its core econveyancing(TM) product.

OM was founded in 2005 and was one of the pioneers in building web-based software products in specific market verticals at the very beginning of the SaaS/transition-to-the-cloud revolution. A few years later it would list on the TSX Venture Exchange. Proud became involved not long after, and then became Chairman of the TSXV listed OM entity in the early 2010’s. His holding company Plantaro regularly accumulated shares over this period until it eventually took OM private in 2013. Later in 2016, and after a series of complicated back and forth offers and transactions with Information Services Corporation (ISV - well know for operating the Saskatchewan land registry), OM acquired D&D.

The 2010’s era for the privately held econyenacing software (and later what would be called practice management) firms was a period of consolidation. While OM, now D&D, achieved market leadership in Canada’s Western provinces, firms like Clio, Orbital, and Assembly also filled an important market position. D&D grew like a weed in those years largely on the back of organic volumes, pricing, and smaller scale M&A. As I illustrated in my last piece, the post-Covid period was characterised by a decidedly different course of action:

Proud’s initial instincts in the early 2010’s were that the legal software industry was ripe for consolidation. D&D’s position in Canada could bridge this gap; its aspirations elsewhere were confounding. Bringing uniformity (indeed D&D’s platform offering is now called Unity) across legal processes (conveyancing being a particularly example) was both efficient and convenient for clients but would also allow for a monopoly position on the back-end. Those same elements that made econveyancing such an interesting business could also be applied, in a weaker sense, to what would be called practice management. The market leader in this segment for North America is likely Clio. Practice management can bring the same automation, digital file storage, and cross party communication to other legal workflows. There was capacity for OM/D&D to get outflanked in its leading conveyancing position by another company that could bundle multiple offerings at once - by obviation not necessarily intermediation. With that competitive thought in mind D&D pursued a great deal of M&A opportunities domestically to shore up its competitive position, but also tried to run the same playbook overseas. That’s where the trouble began.