How do I vet prospective buyers before I sell my business?

Before you share financial statements, customer lists or employee details, decide what you need to know about the buyer and what the law asks of both sides. This page covers the legal checks that depend on who the buyer is. Whether the buyer can fund the price is a separate question you can put to it directly, and your lawyer and any broker can help you frame it.

Put the confidentiality terms in writing first

Customer and employee records are personal information. Under s.7.2(1) of PIPEDA, organizations that are parties to a prospective business transaction may use and disclose personal information without the individual’s knowledge or consent if two conditions are met. First, the organizations have an agreement requiring the recipient to use the information solely for purposes related to the transaction, protect it with appropriate safeguards, and return or destroy it within a reasonable time if the deal does not proceed. Second, the information is necessary to decide whether to proceed and, if so, to complete the deal. That route is in addition to the circumstances in s.7(2) and (3), and under s.7.2(4) it does not apply where the primary purpose or result of the transaction is the purchase, sale or other acquisition or disposition, or lease, of personal information.

Find out whether the buyer is a non-Canadian

Subject to the exemptions in s.10 of the Investment Canada Act, an investment by a non-Canadian to acquire control of a Canadian business in a manner described in s.28(1) is subject to notification (s.11) unless it is reviewable under s.14, where the limits in that section apply. The non-Canadian gives notice at any time before implementation or within thirty days after (s.12). Subject to s.16(2), a reviewable investment cannot be implemented unless it has been reviewed and the Minister is satisfied, or deemed satisfied, that it is likely to be of net benefit to Canada (s.16(1)). Ask who ultimately owns and controls the buyer, then have your lawyer confirm which regime applies.

Ask whether the buyer competes with you

Section 91 of the Competition Act defines a merger to include acquiring control of, or a significant interest in, a business of a competitor, supplier, customer or other person. Separately, subject to that Part, including the exemptions in s.111, where the size tests in ss.109 and 110 are met, the parties to a proposed transaction must notify the Commissioner before it is completed (s.114(1)), and s.123(1) bars completion until a waiting period ends, unless the Commissioner gives notice under s.123(2) that it does not, at that time, intend to apply under s.92. Knowing early whether the buyer sits in your market, or supplies or buys from you, tells you whether to plan for that step.

Questions to put to every buyer

• Who owns and controls the buying entity, directly and indirectly?
• Will it sign confidentiality terms that track PIPEDA s.7.2, including return or destruction of information?
• Is the buyer, or anyone behind it, a non-Canadian?
• Does it compete with, supply or buy from my business?
• How will it fund the purchase, and what can it show to support that?