Dye & Durham Ltd. DND-T stock tumbled 12.5 per cent Thursday after Canada’s Competition Bureau revealed it was investigating alleged anti-competitive conduct by the Toronto real estate software company.
The news adds to a tumultuous year for D&D, which has faced governance challenges, refinanced its high debt and launched a strategic review that could lead to the company’s sale.
At next month’s annual meeting, shareholders will be asked to choose between two competing slates of directors, one advanced by activist hedge fund Engine Capital LP. Other investors including ex-chairman Tyler Proud, brother of chief executive officer Matt Proud, have expressed discontent over its mounting debt, pace of acquisitions, board oversight over management and rich compensation to the CEO.
The bureau obtained an order from the Federal Court this week compelling D&D, which provides software used by real estate legal professionals to process transactions, to turn over information to advance its investigation into alleged anti-competitive conduct that might restrict trade practices.
Spokeswoman Marianne Blondin said the bureau began an inquiry in July after a preliminary investigation as it believes D&D “holds a dominant position in one or more markets. We also believe that the company is engaging in conduct that impedes the ability of competing conveyancing software firms to supply software or technology products or services to legal practitioners.” She added “there is no conclusion of wrongdoing at this time.”
D&D said it was co-operating but added in a statement that the company “is concerned that the bureau may be acting on allegations originated in whole or in part by industry competitors” who haven’t innovated to make their products more attractive to customers, and that the regulator’s allegations “improperly contextualize” standard commercial relationships and business practices.
D&D has sparked outcry over its practice of buying dominant players in the legal services software market and dramatically hiking prices. Dozens of outraged clients complained to the bureau in 2021 after D&D increased prices by up to 563 per cent, while two customers tried to launch a class-action lawsuit, which was tossed out by an Ontario Superior Court judge. But there was little they could do other than pass on the higher fees to their clients.
One complainant, Tony Spagnuolo, of Spagnuolo & Co., a Coquitlam, B.C.-based residential real estate practice, said, “I’m surprised by how long it took” for the bureau to act. He said, “not much has changed” since his complaint, although he added his firm was still a client “because their product is good.”
Spencer Keys, a lawyer in Sechelt, B.C., said D&D’s “most egregious act in B.C. has been doubling the price of access to property tax certificates, where they are the exclusive provider, for no discernible reason. It is great that the bureau is looking at the hidden figures in the real estate industry that drive up costs for everyone.”
D&D has said the price increases were justified by investments it had made on product innovation and based on the fact it hadn’t raised prices in years.
In fact, the bureau’s application to the court focuses on concerns that D&D has refused to permit rival vendors to establish interoperability with its software, locks customers into product bundles and might limit their ability to export data when they want to switch to a competitor. The application says rivals have experienced hindered growth as a result. D&D’s software is also the sole way to convey electronic mortgage instructions to four of Canada’s top banks and the only records software that provides tax certifications to 115 B.C. and Ontario municipalities.
Investors have previously sloughed off customer criticisms as they had no discernable impact on financial performance, even as the higher prices prompted competitors to enter the space or raise prices. It was a different story in Britain, where concerns over market concentration prompted Britain’s Competition and Markets Authority in 2022 to force D&D to divest recently purchased legal software provider TM Group (UK) Ltd.
But the Canadian regulator’s action “looks to be a clear negative and we expect this announcement to be an overhang on the stock” as it could impact the strategic review and fuel activist concerns, CIBC Capital Markets analyst Scott Fletcher said in a note.
CEO Matt Proud said on a conference call with analysts late Thursday, “We’re somewhat perplexed” by the market’s response. “We want to help the bureau learn more about our business. At the end of the day, we don’t believe we’ve done anything wrong. We have a great business.” Even so, he speculated if there was a fine, it would be limited to $15-million or less.
The bureau has flexed its new powers since the government made sweeping changes in 2023 to the Competition Act after years of advocacy by Competition Commissioner Matthew Boswell. The changes give his office teeth to go after sectors rife with market concentration, including stronger tools to take enforcement action and protect competition with an eye toward reducing prices and improving service and choice.
Vass Bednar, co-author of The Big Fix: How Companies Capture Markets and Harm Canadians, called the investigation significant as the bureau now has market study powers, “so they can compel the information they need to conduct their investigation – instead of the old way, which was basically asking very nicely. This is an important case for Canada, because it is decidedly digital and is looking deeply at the practices of a software firm that is increasingly providing the digital infrastructure to real estate transactions across the country.”