Engine Capital Fails Dye & Durham Shareholders and Proposes a Value Destructive Path for the Company
Engine Capital Fails Dye & Durham Shareholders and Proposes a Value Destructive Path for the Company |
| [04-December-2024] |
Toronto, Dec. 4, 2024 /CNW/ - Dye & Durham Limited ("Dye & Durham" or the "Company") (TSX: DND) today refuted the deliberate falsehoods, blatant mischaracterizations, and bizarre contradictions contained in Engine Capital LP's (together with affiliates, "Engine") presentation and updated proxy materials, filed on December 3, 2024. Engine's materials were filed in furtherance of its attempt to elect its six nominees to the board of directors of Dye & Durham (the "Board") at the upcoming annual and special meeting of shareholders (the "Annual Meeting") scheduled for December 17, 2024. Dye & Durham wishes to highlight the following critical considerations for shareholders which decisively refute Engine's 'fact-pattern' in its error-riddled presentation. The Company intends to release a more fulsome response but wanted to ensure shareholders had the facts before casting their votes: 'Multiple Expansion' is Not a Plan and Aspirations Are Not Execution Engine, having over a year to develop its own value creation plan for shareholders, and seeking a control slate of directors, fails to deliver. Shareholders are forced to wade through 95 pages of smears and personal attacks, before Engine finally reveals a thin and aspirational "plan" that borrows from Dye & Durham's Value Creation Plan and lacks specificity. Engine's claim that it will drive a 3x return for shareholders is predicated on "multiple expansion", a factor that is entirely arbitrary. Engine Attacks Dye & Durham for Utilizing its Access to Capital to Grow the Company into a Canadian Success Story Engine repeatedly and confusingly attacks Dye & Durham for setting ambitious targets and driving towards them. If the Company had followed Engine's prescriptions during its early scale-up period, it would still be a $20 million revenue company. Dye & Durham grew rapidly and opportunistically, marrying access to capital with a deliberate M&A strategy. As market conditions changed, the Company adapted its capital allocation approach, and is transitioning its business model, reducing leverage and driving organic growth. With the Company repositioned, it is leading an orderly CEO succession process. Engine Plans to Interrupt a Record Quarter and Tremendous Momentum with a 100-Day Listening Tour and then take up to a Year to Implement its Still to be Formulated Plan Shareholders (and Engine's own investors) will be shocked to learn that Engine openly admitted that it still doesn't have an understanding of the Company's "business fundamentals" or "current issues" nor does it have a "strategy and plan". Running Dye & Durham is not something you learn on the job – nor should the Company stand still while Engine figures out its plan. The election of Engine's nominees will be value destructive for the Company and shareholders. Engine Finally Turns its Attention to Integration and Cross-Selling Opportunities After its First Year of Figuring Things Out – Something the Company is Already Executing on and Driving Tangible Results Engine's understanding of the business is not just weak but dated. As detailed in the Company's Value Creation Plan, and demonstrated by the Company's record ARR and Q2 FY2025 Guidance, the management team is delivering on the organic growth opportunities driven by Dye & Durham's integrated product suite. That Engine plans to wait a year before turning its attention to the key organic growth drivers for the Company, exemplifies its lack of urgency and poor understanding of the business. Engine wants Dye & Durham to Go Down Market and Lower its Pricing to Try to Drive Customer Volumes Engine's simplistic and pessimistic view of the business has led it to draw erroneous conclusions. Dye & Durham has competed by driving customer experience and product improvements – not by reverting to cheap, disjointed and cumbersome products which had previously plagued the industry. Engine appears to be suggesting that Dye & Durham offer budget pricing and then to try and make up the difference in volume. This is a ridiculous and failing strategy in the market for professional legal tools. In fact, Dye & Durham's market share in real estate transactions in Canada, by way of example, has been growing, and the Company supports 82% of Canadian real estate transactions up from 73% in FY20231. Engine Had to Backtrack on its Earlier Irresponsible Representations that it Would Replace the Management Team and then Again Reaffirmed its Intention to Do Just That Just one month ago, Engine's Arnaud Adjler represented that he intended to "recruit a world class management team". Engine now claims on slide 28 of its presentation, that it has no intention of doing so. As recently as two weeks ago he was boasting about walking multiple executives out of the building the day after he won. Yet later, on slide 105, Engine again says it intends to hire an executive team and "hold the new leadership team accountable". The loss of the senior leadership team who is successfully executing on the Value Creation Plan would be value destructive. Engine would put Dye & Durham's business continuity at risk. Mr. Adjler is not even capable of managing the portfolio of falsehoods he is spinning to shareholders – let alone managing a real business. Engine's Proposed Chair and Interim CEO Hans Gieskes Brings Pre-Internet Era Experience, a Checkered Work History, and Lacks the Professionalism to be the Company's CEO Mr. Gieskes' social media posts, including professional sites like LinkedIn, demonstrate a lack of prudence, professionalism, and are disqualifying for a public company CEO. Mr. Gieskes has made inflammatory and unprintable comments about a public company executive, political candidates and even the President of the United States2. In addition, Mr. Gieskes' experience at Elsevier and Lexis-Nexis was at a time when the Company still printed physical books to distribute its data. Media reports at the time suggested he had been pushed out of the Company in 2000. He then had series of short tenured positions, none of which appear to be relevant to Dye & Durham's sophisticated legal technology business. Engine's selection of Mr. Gieskes as its candidate for Chair and Interim CEO is demonstrative of its lack of due diligence and good business judgement. Engine's Other Nominees Bring Big Logos but Mid-Level Experience Engine constructed a "slate" (to use its words) of individuals who lack the senior level experience and backgrounds required to act as independent fiduciaries in the boardroom. Engine's nominees appear to have been recruited for the big names on their resumes, rather than actual executive or business building experience. This slate is intended to allow Engine and Mr. Adjler, a free hand to run the Company as it sees fit. Engine's Anonymous CEO Candidates are Illusory, and the Search Should be Led by the New Board, Not Engine Engine purports to have identified three CEO candidates through a search firm retained by Engine and provides nameless profiles for shareholders. While the provision of these "straw men" is a clever fiction, it lays bare Engine's plan to drive the CEO search. Engine is attempting to influence the CEO search by setting its own criteria and generating a list of candidates to present to the new Board, without allowing the new Board the chance to set its own criteria and conduct an independent search. Dye & Durham's Board has committed to allowing the independent members of the new Board to lead the search and recruitment for the successor CEO. Engine has Advanced Several Falsehoods, Mischaracterizations, and Contradictions in its Presentation and Proxy Materials and Dye & Durham Would Like to Set the Record Straight Shareholder Returns: Dye & Durham has outperformed the vast majority of its peer set and all relevant benchmarks with a 173% share price performance since IPO[3]. This is based on a more appropriate measure of share price performance based on the IPO offer price. See December 2, 2024 presentation, "Simple Choice for Shareholders". Engine's Operating Plan: It isn't a plan at all. Engine has not advanced any new meaningful suggestions that Dye & Durham has not already achieved or is focused on achieving in the near term, per the Value Creation Plan. People & Culture: The Company's 2024 employee survey, with a response rate of 70%, had a trust index score in line with the 2024 Average Workplace scores as defined by Great Places to Work. See slide 37 of the Value Creation Plan. Engine likes to cite Glassdoor, which is not a reflective indicator of broader employee satisfaction rates and largely represents terminated or former employees. Furthermore, there have only been four CFOs in Dye & Durham's existence, contrary to Engine's claims. Dennis Barnhart is currently the Managing Director of our APAC business and has not left the Company as Engine claims. In addition, Wojtek Dabrowski, another executive, remains a consultant to the Company, and multiple other individuals have retired from the workforce. M&A: Only 12% of capital deployed on acquisitions was outlaid during the past nine quarters. In addition, the past two years have featured much smaller acquisitions at a significantly slower pace. See slide 13 of the Value Creation Plan. Free Cash Flow Conversion: The Company's recent refinancing is expected to save the Company approximately $20 million annualized in net interest costs4, the Company's stated guidance of $90-110 million of Leveraged Free Cash Flow4,[5] per annum in the near term. Engine's AUM and Returns: Only Engine can set the record straight here. Engine inconsistently claims to manage approximately $1 billion and in other instances $1.5 billion. While Engine quotes IRR figures, the Company's own analysis suggests Engine is poor deployer of capital. Details matter. The Board and management team are executing against the Value Creation Plan, and delivering results now – not a year from now. Additional information is available in the Company's recently filed Letter to Shareholders, Management Information Circular, presentation, and press releases, can be found on SEDAR+ under the Company's profile at www.sedarplus.ca and on the Dye & Durham's website.
Advisors Dye & Durham has retained Goldman Sachs, as its strategic advisor, Goodmans LLP and Groia & Company as its legal advisors, Gagnier Communications LLC and Sovereign Advisory Inc. as its strategic communications advisors, and Carson Proxy as its proxy solicitor. About Dye & Durham Limited Dye & Durham Limited provides premier practice management solutions empowering legal professionals every day, delivers vital data insights to support critical corporate transactions and enables the essential payments infrastructure trusted by government and financial institutions. The company has operations in Canada, the United Kingdom, Ireland, Australia, and South Africa. Additional information can be found at www.dyedurham.com. Non-IFRS Measures This press release makes reference to Leveraged Free Cash Flow, which is a non-IFRS measure. This is not a recognized measure under IFRS, does not have a standardized meaning prescribed by IFRS and is therefore unlikely to be comparable to similar measures presented by other companies. Rather, this measure is provided as additional information to complement those IFRS measures by providing further understanding of the Company's results of operations from management's perspective and to discuss Dye & Durham's financial outlook. The Company's definitions of non-IFRS measures may not be the same as the definitions for such measures used by other companies in their reporting. Non-IFRS measures have limitations as analytical tools. Accordingly, these measures should not be considered in isolation nor as a substitute for analysis of Dye & Durham's financial information reported under IFRS. The Company uses non-IFRS measures, including "Leveraged Free Cash Flow" (as defined below), to provide investors with supplemental measures of its operating performance and to eliminate items that have less bearing on operating performance or operating conditions and thus highlight trends in its core business that may not otherwise be apparent when relying solely on IFRS financial measures. The Company's management also uses non-IFRS financial measures in order to facilitate operating performance comparisons from period to period. The Company believes that securities analysts, investors, and other interested parties frequently use non-IFRS financial measures in the evaluation of issues. Please see "Cautionary Note Regarding Non-IFRS Measures" and "Select Information and Reconciliation of Non-IFRS Measures" in the Company's most recent Management's Discussion and Analysis, which is available on the Company's profile on SEDAR+ at www.sedarplus.ca, for further details on certain non-IFRS measures, including relevant reconciliations of each non-IFRS measure to its most directly comparable IFRS measure, which information is incorporated by reference herein. Leveraged Free Cash Flow "Leveraged Free Cash Flow" means net cash provided by operating activities less additions to intangible assets and property (including capitalized software) less net interest paid and payments under lease arrangements.
Forward-Looking Statements This press release may contain forward-looking information and forward-looking statements within the meaning of applicable securities laws, which reflects the Company's current expectations regarding future events, including with respect to the Company's financial outlook and expected Q2 FY2025 results. In some cases, but not necessarily in all cases, forward-looking statements can be identified by the use of forward looking terminology such as "plans", "targets", "expects" or "does not expect", "is expected", "an opportunity exists", "is positioned", "estimates", "intends", "assumes", "anticipates" or "does not anticipate" or "believes", or variations of such words and phrases or state that certain actions, events or results "may", "could", "would", "might", "will" or "will be taken", "occur" or "be achieved". In addition, any statements that refer to guidance, expectations, projections or other characterizations of future events or circumstances contain forward-looking statements. Forward-looking statements are not historical facts, nor guarantees or assurances of future performance but instead represent management's current beliefs, expectations, estimates and projections regarding future events and operating performance. Specifically, statements regarding Dye & Durham's expectations of future results, performance, prospects, the markets in which we operate, or about any future intention with regard to its business, acquisition strategies and debt reduction strategy are forward-looking information. The foregoing demonstrates Dye & Durham's objectives, which are not forecasts or estimates of its financial position, but are based on the implementation of its strategic goals, growth prospectus, and growth initiatives. The forward-looking information is based on management's opinions, estimates and assumptions, including, but not limited to: (i) the Company's results of operations will continue as expected, (ii) the Company will continue to effectively execute against its key strategic growth priorities, (iii) the Company will continue to retain and grow its existing customer base and market share, (iv) the Company will be able to take advantage of future prospects and opportunities, and realize on synergies, including with respect of acquisitions, (v) there will be no changes in legislative or regulatory matters that negatively impact the Company's business, (vi) current tax laws will remain in effect and will not be materially changed, (vii) economic conditions will remain relatively stable throughout the period, (viii) the industries the Company operates in will continue to grow consistent with past experience, (ix) exchange rates being approximately consistent with current levels, * the seasonal trends in real estate transaction volume will continue as expected, (xi) the Company's expectations for increases to the average rate per user on its platforms, contractual revenues, and incremental earnings from its latest asset-based acquisition will be met, (xii) the Company being able to effectively upsell and cross-sell between practice management and data insights & due diligence customers, (xiii) the Company's expectations regarding its debt reduction strategy will be met, (xiv) to calculate annualized net interest savings, which includes estimated returns from the restricted cash held for retirement of the Company's outstanding convertible senior unsecured debentures due March 1, 2026 (the "2026 Debentures"), the interest costs on the Company's debt were estimated based on swapped interest rates entered into, which included assuming a variable interest rate of 5.32% over its senior secured term loan B facility and this estimate was added to the stated fixed interest costs of the its aggregate principal amount of 8.625% senior secured notes due 2029 and the 2026 Debentures, and the total net interest cost, calculated based on the foregoing, was then compared to the annualized cost of interest actuals from the first half of fiscal 2024, and (xv) those assumptions described under the heading "Caution Regarding Forward-Looking Information" in the Company's most recent Management's Discussion and Analysis. While these opinions, estimates and assumptions are considered by Dye & Durham to be appropriate and reasonable in the circumstances as of the date of this press release, they are subject to known and unknown risks, uncertainties, assumptions and other factors that may cause the actual results, levels of activity, performance, or achievements to be materially different from those expressed or implied by such forward-looking information. Such risks and uncertainties include, but are not limited to: the Company will be unable to effectively execute against its key strategic growth priorities, including in respect of acquisitions; the Company will be unable to continue to retain and grow its existing customer base and market share; risks related to the Company's business and financial position; the Company may not be able to accurately predict its rate of growth and profitability; risks related to economic and political uncertainty; income tax related risks; and the factors discussed under "Risk Factors" in the Company's most recent Annual Information Form and under the heading "Risks and Uncertainties" in the Company's most recent Management's Discussion and Analysis, which are available on the Company's profile on SEDAR+ at www.sedarplus.ca. If any of these risks or uncertainties materialize, or if the opinions, estimates or assumptions underlying the forward-looking information prove incorrect, actual results or future events might vary materially from those anticipated in the forward-looking information. Although the Company has attempted to identify important risk factors that could cause actual results to differ materially from those contained in forward-looking information, there may be other risk factors not presently known to the Company or that the Company presently believes are not material that could also cause actual results or future events to differ materially from those expressed in such forward-looking information. Although the Company bases these forward-looking statements on assumptions that it believes are reasonable when made, the Company cautions investors that forward-looking statements are not guarantees of future performance and that its actual results of operations, financial condition and liquidity and the development of the industry in which it operates may differ materially from those made in or suggested by the forward-looking statements contained in this press release. In addition, even if the Company's results of operations, financial condition and liquidity and the development of the industry in which it operates are consistent with the forward-looking statements contained in this press release, those results of developments may not be indicative of results or developments in subsequent periods. There can be no assurance that such information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information. No forward-looking statement is a guarantee of future results. Accordingly, you should not place undue reliance on forward-looking information, which speaks only as of the date made. The forward-looking information contained in this press release represents Dye & Durham's expectations as of the date specified herein, and are subject to change after such date. However, the Company disclaims any intention or obligation or undertaking to update or revise any forward-looking information or to publicly announce the results of any revisions to any of those statements, whether as a result of new information, future events or otherwise, except as required under applicable securities laws. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless specifically expressed as such, and should only be viewed as historical data. All of the forward-looking information contained in this press release is expressly qualified by the foregoing cautionary statements.
SOURCE Dye & Durham Limited | ||||||||||||||||||||||||||||
Company Codes: Toronto:DND |
