Dye & Durham Ltd.’s attempted takeover of Australia’s Link Administration Holdings Ltd. is dead after the latter walked away from a deal that had been put in doubt by a British regulator this month.
It ends a frustrating saga for D&D, a Toronto-based consolidator of software sold to law firms. The deal would have been its largest to date and one of the biggest foreign takeovers by a Canadian software company. D&D’s shares, which had fallen about 30 per cent in September, closed up 5 per cent Friday on the Toronto Stock Exchange on what was largely a down day for tech stocks.
D&D DND-T chief executive Matt Proud said in a statement: “While we are disappointed with this outcome given the significant time and resources invested in managing this process over the last 10 months,” D&D still has “a robust pipeline of M&A opportunities” and plans to keep pursuing deals that will increase shareholder value.
The deal, announced last December, originally had D&D buying publicly traded Link for $5.50 Australian a share, or C$3.2-billion in cash. After markets swooned, the parties agreed in July to a reduced price of $4.81 Australian.
But earlier this month, the U.K.’s Financial Conduct Authority warned it would not approve the purchase of Link’s fund solutions business, included in the deal, unless D&D covered a shortfall of as much as £306-million ($465-million) related to Link’s role in the 2019 meltdown of the LF Woodford Equity Fund.
Link administered the £3-billion fund, which collapsed after its British namesake, star stock picker Neil Woodford, was forced out and was unable to repay investors after enduring heavy redemptions. Lawyers representing thousands of investors have launched legal actions against Link; the company has said it did nothing illegal and will vigorously defend itself.
That prompted D&D to again cut its bid on Sept. 18 by 21 per cent, to $3.81 Australian per share, in a proposed deal structured to limit the impact of any Woodford-related penalties. D&D proposed to pay Link shareholders the difference between the eventual regulatory penalty and the £306-million maximum, up to $1 Australian a share.
Link rejected the bid. Then the regulator said Wednesday that it had issued a warning notice of a proposed penalty of £50-million, over and above the £306-million.
That triggered a clause in the deal allowing D&D to walk away without paying a break fee. Link then terminated the discussions, D&D said Friday.
It’s the second time a British regulator has hampered D&D’s expansion plans, after its Competition and Markets Authority in August ordered D&D to sell a British property-search software company it bought in 2021. The regulator said the deal would reduce competition and lead to higher prices.
D&D has faced a backlash here for its strategy of buying legal real estate software providers and then sharply hiking prices – often doubling or tripling them. The strategy has prompted dozens of complaints to the Competition Bureau and a class-action lawsuit. Law firms have had little choice but to pass the costs on to clients.
Even if D&D and Link had agreed to new terms, the buyer likely would have had to renegotiate with its financiers, including hedge fund Ares Capital Corp., which had agreed to buy $950-million of D&D equity at a premium, including $109-million of shares at $53 apiece, four times the current price.
The deal’s demise is a setback for a company built on deals and would have established a significant global foothold with Link. But it is not a big setback for investors, BMO Capital Markets analyst Thanos Moschopoulos said in an interview. “We would have liked to have seen the deal happen, but from a valuation perspective, it didn’t make a huge difference,” as shareholders had priced in the likelihood the deal could die, he said. “Having this uncertainty out of the way could be a good thing.”
He said D&D could still pursue Link or its prized 43-per-cent-owned PEXA Group Ltd., which operates a digital property exchange network in Australia, at some point. D&D “won’t run out of M&A opportunities” and could start buying legal practice management software operators or providers of digital registries, Mr. Moschopoulos said. “If you look at other consolidators like Open Text, Enghouse or Descartes, they keep expanding to adjacent areas over time. I expect it would be no different for D&D.”
Even without further deals, the stock, which has fallen in part due to a decline in property transactions this year, “is at a point where the valuation seems very attractive to us,” the analyst said. D&D is set to report fourth-quarter results Monday; the company has said it expects revenue for the quarter ended June 30 to be $129-million, up 53 per cent year over year, and adjusted operating earnings to increase by 53 per cent, to $75-million.