Buying a developer tools or API business in Canada

Buying a developer tools or API business is closer to taking over a utility than to buying a shop. Customers call the service from their own production systems, so an outage or a surprise change can affect them directly, and part of the goodwill you are paying for rests on developers continuing to choose it. Whatever the legal steps, the practical test of whether you are a suitable owner is this: can you keep the service running, keep it secure and keep your word about how it changes? This guide covers how to judge a target, what a seller may not volunteer and what you take on at closing.

What a good one looks like

Signs of a healthier target include usage spread across many accounts rather than a few, and a meaningful part of revenue from customers who committed to spend instead of paying as they go. Old API versions are kept alive and retired with notice. Documentation is current, SDKs are maintained in the languages customers use, and support tickets are mostly integration questions rather than outage reports. Someone other than the founder can build, test and deploy the service from documented steps, and its infrastructure is described in code rather than in one person’s memory. Warning signs are the opposite: growth that came from one customer’s experiment, a changelog full of breaking changes, and an architecture only the founder understands.

What the seller may not volunteer

A seller may not think to raise some of these points, so ask directly about each of the following.

• Which customers sit on custom or legacy pricing, private service-level promises or bespoke endpoints, and where those promises are written down.
• How much of the hosting bill is covered by credits or discounts that will not continue under new ownership, and what free-tier use actually costs to serve.
• Any upstream platform or third-party API the product depends on, and whether its terms could change without notice.
• Planned deprecations, known reliability problems and security incidents, including ones that never reached customers.
• Who wrote the core code and the SDKs, and whether each contributor signed a written assignment, since the Copyright Act makes an assignment invalid unless it is in writing and signed by the owner or the owner’s duly authorized agent.
• Whether the usage figures in the sales material come from the same metering that produces the invoices.

What you take on with the data

Taking over an API can mean taking over personal information, and PIPEDA limits what you may do with it afterwards. Where the information was disclosed during the deal under section 7.2, the parties to a completed transaction may use and disclose it without the individual’s knowledge or consent if they have entered into an agreement requiring each of them, among other things, to use and disclose it solely for the purposes for which it was collected, permitted to be used or disclosed before the transaction was completed, to protect it with appropriate safeguards and to give effect to any withdrawal of consent. The route also requires that the information be necessary for carrying on the business or activity that was the object of the transaction, and that one of the parties notify the individuals, within a reasonable time after the transaction is completed, that it has been completed and that their information was disclosed under subsection 7.2(1). A plan to reuse developer or end-user data for marketing or model training should be tested against those conditions before it is priced into the deal.

If the buyer is not Canadian

A buyer from outside Canada has an extra step. ISED explains that all non-Canadians who acquire control of an existing Canadian business are subject to the Investment Canada Act and must submit either a notification or an application for review unless an exemption applies. It also says the government can review foreign investments of any size for harm to national security, and it names sensitive technology and personal data among its concerns. If the platform handles personal data, that concern may be relevant, and a foreign bidder’s timeline can differ from a Canadian bidder’s for that reason.

Buying the company or buying the assets

In a share purchase you buy the company that already holds the contracts, accounts and history. In an asset purchase you pick the code and agreements you want, and each contract and platform account has to be moved across. Our guide to asset sales and share sales sets out the trade-offs. If you buy shares through a holding company you may later combine the two. Corporations Canada describes a short-form amalgamation as one approved by a resolution of the directors without shareholder approval, notes that a vertical one involves a holding corporation and one or more wholly-owned subsidiaries, and says every amalgamating corporation must be incorporated under the Canada Business Corporations Act for an application to be processed. Our answer on amalgamating a holdco with the business it bought goes further.