Dye & Durham CEO Matt Proud steps down, ending chaotic reign at Toronto legal software company

Dye & Durham Ltd. DND-T chief executive officer Matt Proud, the driving force behind the company’s rapid acquisition-fueled growth – and a lightning rod for discontented investors who have mounted a series of governance challenges – is stepping down.

The Toronto legal software company said Tuesday Mr. Proud would stay for three months as it searched for a replacement. The news sparked a rally in the stock, which hit its highest level in 16 months before closing at $20.60, up 11.4 per cent.

“While DND has experienced tremendous growth under Mr. Proud’s leadership, it’s evident that several large shareholders believe the business would benefit from a management change,” BMO Capital Markets analyst Thanos Moschopoulos said in a note, noting the change could shrink its “significant valuation discount.”

The shakeup followed a chaotic few days in which the 43-year-old entrepreneur, who built the company, initially with younger brother Tyler before a falling out this decade, considered a few final desperate moves to hold his ground. On Monday the Globe reported he and other executives were considering legal action against four big shareholders they felt acted in tandem to take over the company.

Mr. Proud was also weighing whether to sue the company and board, a source familiar with the matter said. At the same time was negotiating a potential exit. The board ultimately agreed D&D would pay him about $10-million in severance, the source said. That is despite the fact Mr. Proud, who has not been paid a salary since D&D went public in 2020 and is not supposed to receive any contractual cash payment upon termination or resignation, according to his employment agreement (he has been awarded two rich option grants). The Globe is withholding the identity of the source as they are not authorized to discuss the matter.

The change follows a turbulent 12 months for D&D. It has faced four governance challenges from investors dissatisfied over its leverage, pace of acquisitions and board oversight over management. It has refinanced its debt, slashed staff and faces a Competition Bureau investigation into alleged trade-restricting practices. The company has angered many of its legal customers after several price hikes in recent years, and was forced by UK’s competition regulator to divest an acquisition there.

Last week D&D called off a sale process despite receiving four conditional bids after two big shareholders expressed coolness to the prospect of selling. The stock has traded at depressed levels compared to heights reached in 2021.

Mr. Proud said in an interview “this whole fight with activists has been a real distraction to the business. It’s starting to impact employees, executives, customers and all stakeholders. I don’t want to become that distraction. I think the best thing for the business is an orderly transition to a new executive who can help grow this business into the future.”

Mr. Proud declined to comment on events of recent days or his severance. Board chair Colleen Moorehead also declined to comment on the severance. In a press release she thanked Mr. Proud “for his invaluable contributions,” highlighting the growth of D&D’s enterprise value – much of that in debt – under his leadership to $2.6-billion-plus from $4-million.

Whether Mr. Proud – whose personal holding company is D&D’s largest shareholder with 10.9-million shares, or 16.2 per cent of the stock – stays for the full three months is no sure bet. The company heads to a contested annual meeting on Dec. 17 at which activist investor Engine Capital LP, has proposed a six-person slate to run against D&D’s nominees for seven positions. If the New York hedge fund prevails, the new board is expected to overhaul management.

Engine managing partner Arnaud Ajdler said in a statement D&D directors “have allowed Matt Proud to run circles around them for years. Finally, after months of investor pressure and weeks before the AGM, these directors have acknowledged shareholder concerns. It is shocking to hear that the Board did not have a legal obligation to pay any severance to Mr. Proud but decided to pay him a $10 million ‘ransom’ because he was threatening to sue the directors personally.”

Mr. Ajdler said letting Mr. Proud stay as “a caretaker” CEO would taint the search for a replacement. “This board cannot be trusted to act in the best interests of shareholders – let alone make the most critical decision facing the company today,” he said, adding shareholders could “to end the drama” by electing Engine’s slate.

D&D’s circular, sent to shareholders Tuesday (which still lists Mr. Proud as CEO) makes the case for sticking with its strategy, though it also proposes four new directors. It would continue to suspend “significant” mergers and acquisitions activity to focus on reducing debt, now at 5.2 times adjusted operating earnings, except for small deals.

Engine, which own 7.1 per cent of D&D stock, stands to gain either way. It has paid $14.25 a share or less for its stake, picking up its biggest chunk at $12.10 in a January private placement.

Mr. Proud, the grandson of prominent 20th-century businessman Joseph Tomlinson – once the largest shareholder of Metro-Goldwyn-Mayer Studios owner Loew’s Inc. – grew up in relative privilege in Toronto. Mr. Proud attended school in the UK and taught tort law at University of Westminster in his 20s. He and his brother built what is now D&D starting with a relatively small sum they invested in its predecessor, OneMove Technologies Inc. in 2012 after a friend introduced them to the opportunity.

The TSX-Venture-listed company was a penny stock under constant financial strain. But they saw an opportunity in its software which automated the cumbersome task of closing real estate deals. After taking OneMove private in 2013, Mr. Proud became CEO (his brother was chairman until 2020 and later became a dissident shareholder) and led the company on an acquisition spree (taking on the name of one of its purchases), picking up a dominant positions in real estate and other business transaction processing software across Canada.