Dye and Durham will likely go private, this investor says

It’s been months now since management announced its intentions to take the company private but the trigger has yet to be pulled on Dye and Durham (Dye and Durham Stock Quote, Charts, News, Analysts, Financials TSX:DND). But portfolio manager Jason Mann has confidence that a deal will get done, which could be a bit of a windfall for shareholders.

Cloud-based software company for the legal and financial services fields, Dye and Durham announced in May that a shareholder group led by management would be seeking to acquire the business, aiming at taking it private at $50.50 per share. That price tag represented a 23 per cent premium to the market value at the time for the $3.1 billion market cap company which saw its share price balloon after going public in July of 2020.

DND’s share price was at $40.99 on the day prior to the announcement in May and the stock quickly shot up to about $48.00 but it has since fallen off. Currently at around $45.00, that leaves some attractive territory for traders looking to grab a piece of DND before the go-private transaction.

And while there’s been a hiccup due to a recent acquisition of UK-based TM Group, Mann believes the go-private offer could end up higher than first announced.

“There is a potential bid on the table at $50.50 and it comes from the management. It’s been dragging on a little bit but I think it has more to do with lining up a source of funding,” said Mann, chief investment officer at EHP Funds, who spoke on BNN Bloomberg on Friday. “It would be debt financed, potentially with a partner.”

“They ran into a bit of a stumble with their recent UK acquisition. It wasn’t necessarily in their numbers when they put that $50.50 bid on the table, but it could be used as a bit of an excuse to either delay [the transaction] or come with a slightly lower price,” he said.

“I think ultimately shareholders are going to look for at least $50.50, if not higher,” Mann said.

One of the real winners over the second half of 2020, DND’s share price went on opening day from an IPO price of $7.50 to $14.80 by the closing bell. From there the stock just kept climbing, reaching an incredible $50.00 by the end of the year. The company raised $150 million in the initial public offering.

The company’s momentum has also been impressive, as both organic and inorganic growth have been on the menu. Dye and Durham reported its fiscal fourth quarter 2021 financials in August, showing a 219 per cent year-over-year increase in revenue for the period ended June 30 to $208.9 million. The company said higher transaction volume, increased revenue from acquisitions and realized synergies factored into the growth. 

DND’s net income for the year was a loss of $40.8 million while adjusted EBITDA was $116.4 million compared to $36.7 million a year earlier. For the fiscal fourth, revenue was up a huge 494 per cent year-over-year to $84.4 million, the net loss was $6.3 million and adjusted EBITDA was up 459 per cent to $49.1 million.

“Over the last quarter, the Company has continued to demonstrate effective results in line with our expectations and the guidance provided to the market,” said Matt Proud, CEO, in a press release.

Since the end of the Q2, Dye and Durham closed on the acquisition of Australian B2B software company GlobalX for $159 million and announced the acquisition of TM Group, a real estate software business bought for $156 million. But late last month Dye and Durham said the United Kingdom’s Competition and Markets Authority (CMA) had issued an initial enforcement order against DND requiring that it take no actions with respect to TM Group (e.g. integrating the two businesses) until the CMA made an assessment of the proposed takeover. Dye and Durham said it would be cooperating with the CMA in its assessment.

On the second quarter conference call, however, as reported by BNN Bloomberg, Dye and Durham declined to take analysts’ questions and appealed to management’s review of strategic alternatives.

The holdup with TM Group adds more drama, but Mann says the privatization deal will in all likelihood transpire eventually.

“One of the challenges has been because it’s been taking some time to get that formalized bid on the table,” Mann said. “The stock has really lagged some of its peers, [but] we think it actually will get done.”

“So, we own [Dye and Durham] and we do think that ultimately a transaction will get done. And at that point once the bid is on the table that would be the point to decide whether you want to move on from it,” he said. “But we own it for now and we do expect a transaction to occur.”