Buying a logistics software company in Canada

Someone weighing the purchase of a logistics software company is buying a working system that other businesses rely on to move freight. Unlike a shop or a restaurant it may offer no obvious asset to inspect. The value can sit in connections, contracts and a few people’s knowledge, and the first conversations with a seller are where a buyer learns whether those pieces are sound. This guide covers how to tell a good opportunity from a weak one, what a seller may not mention unprompted, and the conflicts and responsibilities that fall on you as the buyer rather than on the business. Verification after a letter of intent is a separate stage, set out in the diligence guide.

What a good one looks like

A strong company can show that most customer traffic runs over a modest set of carrier connections that are tested regularly and documented well enough for someone new to maintain. Its customers are spread across shippers, carriers and freight brokers rather than clustered in one segment, and the larger ones are on multi-year agreements. Its outages are few, were handled in writing and led to visible fixes. Its founder can describe how a carrier’s change reaches the code, and a second person has done it. None of that guarantees a good outcome, but a company that can produce those answers quickly may have done work that helps keep revenue in place through a change of owner.

What a weak one looks like

A weak one advertises breadth: a long list of carriers, few of which carry much traffic. Maintenance has been deferred for so long that nobody is certain which connections still work. One shipper or one logistics provider accounts for a large part of revenue under a contract that cannot be assigned. A single engineer holds the credentials and the knowledge. Outages in live shipment windows have already cost customers, and the explanations are verbal. Any one of these can be addressed in the price or the deal terms. Several together may mean that current revenue is a poor guide to what you will own.

Questions a seller may not volunteer

• Which connections have carried no live traffic for a long stretch, and why were they kept?
• Which carriers have announced changes to formats or interfaces that the company has not yet built?
• Has any customer been credited, threatened to leave or left after an outage?
• Do any customers compete with a likely owner of the platform, including you?
• Who wrote the connector code, and does the company hold signed written assignments from non-employees? The Copyright Act makes an assignment invalid unless it is in writing and signed by the owner or the owner’s duly authorized agent.
• Who holds the credentials, and will the people who understand the connections stay?

Conflicts and rules that fall on you

If you are a freight broker or third-party logistics provider buying your own technology stack, consider how the platform’s other customers will see you as owner. Any that compete with you may decide they no longer want their dispatch data on a rival’s system. The Competition Bureau says the Commissioner of Competition may review any merger or acquisition regardless of size, and that in certain cases the parties must notify the Bureau before closing, depending on financial thresholds related to the size of the parties and the transaction, so a buyer can ask its lawyer whether the deal is notifiable. A non-Canadian buyer should look at the Investment Canada Act, which says non-Canadians who acquire control of an existing Canadian business must submit either a notification or an application for review unless an exemption applies. Beyond those rules, the questions that decide the outcome are commercial: which connections, customers and people come with the company.

Talk to the people who run it

Ask to meet the engineer who maintains the carrier connections and the person who answers support during an outage, not only the owner. Their answers can show whether the seller’s description matches how the company really works. Ask them to walk through the last carrier change from announcement to release, and the last outage from first alert to customer message. Hesitation is informative, and so is a team that tells the same story independently. If the owner offers to stay on for a transition, ask what that role covers and what happens to customer relationships if the owner steps back earlier than planned.

What you are actually taking over

Freight can move outside business hours, so ask who answers when a connection fails. Ask who covers support outside the working day, what happens when that person is away, and how the team would absorb a carrier’s sudden interface change. Plan for the data too. A buyer who receives personal information during evaluation may be asked to agree to use it solely for purposes related to the transaction, to protect it and, if the transaction does not proceed, to return or destroy it within a reasonable time, which are conditions in section 7.2 of PIPEDA, and shipment records can name individuals. A BDC article on selling a business quotes an adviser saying that in a 100%-cash-out deal the buyer takes on more risk because the seller isn’t involved any more, so ask what transitional role the owner would accept. Read more in our guide to buying a software business and the answer on who owns the code.