Buying a B2B SaaS platform in Canada

Buying a subscription software company is a bet on one thing: that customers who paid the previous owner will keep paying the next one. The code, the team and the brand matter because they support that bet. That makes judging an opportunity different from judging a shop or a clinic, where there are premises, stock or a licence to inspect. Here the evidence is behavioural, in how customers have renewed, expanded and complained, and the buyer has to be able to read it. This guide is for someone weighing a platform that sells to other businesses in Canada: what separates a sound one from a fragile one, what a seller may not mention, and what the buyer personally has to be ready to carry. It does not tell anyone whether to buy.

What a sound platform looks like next to a fragile one

A buyer looking for a sound platform may want to see customers who signed up in the same period renewing in steady numbers year after year, with revenue from the survivors growing as they add seats or usage. Support effort per customer would be stable, releases would ship on a routine, and the product would sit inside the customer’s daily work, so that leaving would mean retraining people and rewiring integrations. A fragile platform may instead grow mainly by replacing leavers with new signups, may hold some accounts with discounts, and may keep a few large customers by building features only they use. A buyer can read the difference from cohort tables and contract data rather than from the seller’s description, and the software business buyer checklist lists what to request.

Different kinds of buyer can read the same company differently

A strategic acquirer that plans to cross-sell the product has reason to check how it fits its existing customers, and one that plans to rebuild the code has less reason to worry about a rough codebase than about a customer base it cannot reach. A private equity group that intends to combine several products in one category has reason to check for standard contracts, clean reporting and an engineering process it can fold into its own. An individual searcher, or a small fund buying one cash-flowing product, has to be able to run it: someone must own engineering, support and renewals on the first day, whether that is the buyer or a team that stays. Retention arrangements such as a key employee retention agreement can bear on whether that third kind of deal is workable.

What a seller may not mention

Some of the most useful facts about a platform are the ones that do not appear in the sales summary.

• Customers who have given notice but are still inside their term, which keeps recurring revenue looking healthy until the term ends.
• Side letters, special pricing or custom work promised to one account that is not in the standard contract.
• Roadmap commitments made to close large deals, which a new owner may find it is expected to honour.
• A dependence on one outside platform, interface or marketplace listing whose terms the seller does not control.
• Items inside reported profit that may not repeat, such as SR&ED incentives, which the CRA describes as a deduction against income and an investment tax credit claimed with the tax return, and whose guidance covers what to do if a claim needs a review.

Duties the buyer inherits

A software acquisition brings duties along with the customer data. The Office of the Privacy Commissioner says organizations subject to the federal privacy law must report to it breaches of security safeguards that pose a real risk of significant harm, notify affected individuals, and keep records of all breaches, so a buyer can ask for the breach record on the first day. A buyer taking over Quebec users also steps into the provincial regime that Law 25 amended, and into the Charter of the French Language: the Office québécois de la langue française publishes a model policy on the use of French in information and communications technology among its documents for businesses, and describes the francization process for businesses that employ, in Quebec, at least the number of people the Charter sets. What applies to a given product is a question for Quebec counsel.

When the buyer is not Canadian

The Investment Canada Act applies to all non-Canadians who acquire control of an existing Canadian business, and they must file either a notification or an application for review unless an exemption applies. ISED also states that the Act allows the government to review foreign investments of any size on national security grounds, and describes its concern as reaching sensitive technology and personal data, both of which a SaaS platform may hold. A buyer with non-Canadian investors in the structure can ask counsel early whether the Act is engaged, because a notification or an application for review may be required.

Reading the seller’s plans for after closing

The seller’s intentions are part of the asset. BDC observes that if a seller cuts all ties, buyers may insist on a reduced price, so a founder may stay for a transition or take part of the price later. A buyer evaluating a platform can ask how long the founder will remain, what knowledge sits only with them, and whether a documented handover exists. If the answers are thin, the price, the structure and the buyer’s own ability to operate the product can all come under pressure at once.