Activist Shareholder Blasts Dye & Durham M&A Strategy

(Bloomberg) -- An activist shareholder is taking aim at Canadian software firm Dye & Durham Ltd.’s decision to pursue more mergers and acquisitions, demanding independent directors “stop the shenanigans” and call a special meeting as soon as possible.

Engine Capital Management LP managing partner Arnaud Ajdler said his firm was “blind-sided” by Dye & Durham’s plans for two acquisitions totaling C$69.3 million ($51 million), accounting for 7.5% of the company’s market capitalization. He said the transactions go against previous commitments to reduce debt, which shareholders had asked for.

“Dye & Durham under the leadership of the Board has become a laughingstock of the Canadian capital markets,” Ajdler wrote in a Wednesday letter. 

Dye & Durham pushed back on the letter, saying it’s confident in its ability to execute strategic mergers and acquisitions while achieving debt reduction targets.

“Engine’s letter simply indicates that it continues to have a very limited understanding of our business and its dynamics,” a company spokesperson said over email. “This is just the latest tactic in their campaign to seize control of Dye & Durham.”

Dye & Durham’s management during its fourth-quarter earnings call laid out plans to acquire Lexis Affinity, a practice management software for law firms, and “another small tuck-in acquisition” with an upfront payment of C$21 million. However, the total consideration is much larger, according to Ajdler, as it includes C$44 million in deferred considerations, which he described as another form of leverage.

The activist investor, which says it holds about 7.1% of Dye & Durham’s shares, said his team was surprised that the company’s directors were not showing concern about their personal reputation and liability as they set more funding aside for acquisitions and “frivolous litigation” against shareholders. 

Dye & Durham in July pushed back a special meeting due to ongoing litigation with its founding shareholder OneMove Capital Ltd., which accused the company of attempting to disenfranchise shareholders.  

The company’s total debt grew to C$1.55 billion during the fourth quarter, up about C$200 million from the same time last year. “The bottom line is that the Board is well aware of shareholders’ concerns but simply does not care,” Ajdler wrote. 

(Updates with Dye & Durham comments in fourth and fifth paragraphs.)

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