As Bay Street applauded legal software provider Dye & Durham Ltd.’s strong quarterly results this week, many of its clients in British Columbia were in an uproar over a big reason for that financial success: massive price increases.
Last Thursday, the Toronto company told roughly 1,000 B.C. firms that it was sharply increasing the price of the software they use to handle real estate transactions such as home purchases, refinancings and intergenerational transfers. As of this Friday, they will be charged $199 per file, up from the $30 to $75 they’ve been paying since the last increase in 2017. That translates to hikes of 165 per cent to 563 per cent.
The ultimate cost, as per industry practice, will be passed on to their customers, homebuyers. Furthermore, several professionals who tried to complete files under the old pricing system were told by D&D that they had hit their limit and could not do more until the prices changed.
It was a familiar move for D&D, which has made a string of acquisitions in the legal software space and, now facing little competition, has subsequently raised prices drastically. But the reaction was still swift and sharp in B.C.
Outraged conveyancers – legal professionals who specialize in transferring property ownership – notaries and lawyers inundated D&D with calls. Moderators of two Facebook groups for B.C. real estate professionals told The Globe and Mail that 50 of their members had complained to the Competition Bureau of Canada. Bureau spokeswoman Amy Butcher confirmed it had received an undisclosed number of complaints and said the bureau would undertake “a thorough examination of the facts to determine if an investigation is warranted.”
Eight B.C. real estate legal professionals who spoke to The Globe said many of their colleagues shared their negative views of D&D’s price hikes. They freely offered vitriolic comments about a company whose stock has soared since its initial public offering on the Toronto Stock Exchange in July, 2020, giving it a market capitalization of $2.7-billion.
“Everybody is really angry, really disappointed,” said Aurelia MacInnis, a conveyancer in Duncan on Vancouver Island. She said creating transaction documents for clear-title sales – involving properties with no mortgages – manually, for example, would typically take an hour per file. That is too long for most overwhelmed practitioners, versus the 10 minutes it takes using D&D software.
“They’re all about the money and not about the customer,” said Tiah Workman, a notary in Nanaimo. “To take the price up by that amount in one shot is unreal. Nobody can wrap their head around it. People thought it was a typo at first. It’s disgusting.”
“I certainly haven’t seen anything that suggests this product is three times better than it was last year or the year before,” said Spencer Keys, a lawyer in Sechelt who had been paying $75 a file to use D&D’s Econveyance product. “This strikes me as only being possible because of having a monopoly on this kind of service. It comes across as a straight cash grab.”
Tony Spagnuolo, whose Coquitlam-based Spagnuolo & Co. is one of the busiest residential real estate practices in B.C., said his firm was paying $30 a file to use D&D’s BriefConvey software for 5,500 to 6,000 transactions a year. With the price hike, his business will be paying almost $1-million more annually to D&D. “It pisses me off big time,” he said. “There’s not one lawyer I know of in the real estate business who’s not opposed to this.”
Even Jaimie Cooke-Dallin, a former vice-president of client software support with D&D, said in an interview that she had complained to the competition bureau. “There’s no rationale to increase the prices” so much, she said. “It seems to be they have control of the market and nobody is looking into this.”
D&D’s chief operating officer, John Robinson, said in an interview: “We felt that our product and our place in the value chain” of real estate transactions “warranted the price that we’ve published.” He said the previous prices “grossly undervalued” D&D’s services and that the company had made significant investments and committed to more upgrades, integrations and enhancements. “We did an assessment and made the decision that that was the price point we thought was warranted and that the market could bear.”
Mr. Robinson said the company had received “balanced” feedback, as some clients “recognize the value we provide and are prepared to pay the fee.” When The Globe asked to speak to those clients, D&D provided contact information for one lawyer in B.C. and one in Ontario. The B.C. lawyer agreed to speak – but only if The Globe withheld his name.
Price hikes are a core part of D&D’s strategy, which involves buying companies that provide critical software-based services to law firms – and have little competition and high switching costs. That “reduces the likelihood that customers seek out new vendors once the solutions have been implemented, regardless of cost,” D&D stated in its prospectus last year. It then cuts costs at those companies and raises prices, which clients pass on to their customers.
A Globe story in January found price increases followed D&D’s acquisition of companies such as B.C.’s ESI Software – which sells practice-management and accounting software for lawyers – KVP Registration Services of Alberta and corporate search and registration provider Cyberbahn.
D&D gained significant pricing power after buying DoProcess LP in January for $530-million, giving it a market stranglehold in several provinces for conveyancing software. It immediately told real estate professionals across Ontario that it would raise prices on its Conveyancer platform by more than 400 per cent, to $129 a file from $25, provoking a similarly hostile reaction to what is happening in B.C. Price increases followed in Manitoba, Saskatchewan and Alberta.
Still, D&D generated 59 per cent more revenue from existing clients in the first quarter ended Sept. 30 than a year earlier, and only a single-digit share of its Ontario customers left after the price hikes, Mr. Robinson said.
Joseph Berljawsky, head of the real estate practice group of Diamond & Diamond in Toronto, said the Ontario price hike “has not impacted my business in any way. I don’t think many people price shop over a difference of $50 or $100.”
There used to be three software competitors in B.C. for conveyancing: Econveyance, Prosuite and BriefConvey. Econveyance was owned by OneMove Technologies Inc., a TSX Venture-listed company that was taken over by brothers Matthew and Tyler Proud in 2013 and later became D&D (Matthew Proud is CEO). DoProcess bought BriefConvey, then ProSuite, between 2008 and 2013. Now all three are D&D-owned. With an estimated 100,000-plus home sales and refinancings in B.C. annually, the price hikes could amount to millions if not tens of millions of dollars of extra annual revenue.
Vass Bednar, executive director of the Master of Public Policy in Digital Society program at McMaster University, said D&D presents a unique case study from a competition law perspective because it does not directly interact with those paying the higher costs – in this case, homebuyers.
“The person bearing the burden of their price increase isn’t necessarily the person that entered into the agreement,” she said in an interview. “If I were to close on a house and have to pay that increased fee, I didn’t have the choice. I didn’t select that vendor, I selected a lawyer.”
Is D&D’s strategy textbook rent-seeking, where one seeks additional income without creating added value? Maybe, she said. The question is “whether what they’re doing is an abuse of dominance or their hard-earned right in that acquisition storm.”
Ms. Bednar said the price increases may go unnoticed by much of the public because they end up being a fraction of the total cost of a home purchase.
“Monopolizing an industry often gives you pricing power, and when you’re a small part of a large transaction and the customer can pass on the fee to someone else, people barely notice,” she wrote about D&D in a co-bylined piece in September with Robin Shaban in their Regs to Riches newsletter.
D&D’s buying spree has been good for Toronto conveyancing software provider LawyerDoneDeal Corp., which has doubled the size of its business this year as its bigger rival shed price-sensitive customers, said CEO Maurizio Romanin. He said his 40-person company’s modest business in B.C. has doubled to 100 customers in the past week and has demos for its Realtiweb product booked through January. He expects his B.C. clientele to further double or triple by early 2022. LawyerDoneDeal charges just $23 per conveyancing file. “We’re happy” at that level, Mr. Romanin said. “Our price increases are generally the result of inflationary pressures. We’re not trying to finance world domination.”
D&D’s consolidation play is part of an industry trend, observers say. “We’ve seen an enormous amount of M&A in legal tech over the last five years, and unfortunately a very common playbook is to cut product investment and customer support while ratcheting up prices on a captive customer audience,” said Jack Newton, CEO of Burnaby, B.C.-based Clio, which sells practice management software to legal firms. Mr. Romanin added: “If you look at the field generally, there seems to be an impression by a lot of people that there’s untapped gold reserves in this business that have to be extracted.”
D&D’s strategy has certainly been lucrative. On Monday it reported first quarter revenue of $112.6-million, up 414 per cent year-over-year. Adjusted operating earnings increased 398 per cent, to $62.4-million.
That beat Bay Street expectations and led to a round of upgrades from analysts, who looked past a recent, short-lived attempt by management to lead a privatization of the company and the awarding of a large options grant to Mr. Proud. Its stock has risen 3 per cent this week. “Our view is that the firm’s financial results will continue to be fuelled by its organic growth and integration of acquisitions completed during the past year,” Scotia Capital analyst Paul Steep said in a note.
Meanwhile, Mr. Proud defended his consolidation strategy, which has expanded to Britain and Australia, though competition regulators in Britain are investigating its purchase of TM Group (UK) Limited. Regarding the price increases in B.C., he said on a conference call Monday, “you will see that happen across all geographies across all quarters. … We use levers like [the B.C. price hike] to ensure that we keep consecutively growing the business.”
For his part, Mr. Spagnuolo said, “We’re all up in arms here. We want to get the pitchforks and do something about” the B.C. price hikes. “But starting next week, we’ll be increasing our costs to our clients, simply because we can’t absorb it. Then the clients will have no real place to complain to because if they went down the street to someone else, they will be paying it too. We’ll find the world just goes on, [D&D] will get away with it, and they’ll be laughing all the way to a higher share price. And Matt Proud will make an awful lot of money on his stock.”
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