Buying a proptech software company in Canada

Someone evaluating a proptech software company may come from software or from real estate, and each background can leave a blind spot: the licensing and data ties for one, the engineering for the other. Both face the same central question, which is whether the revenue will still be there once the company is under new ownership, and a second that is easier to miss: whether the buyer is permitted to own and run it. This guide is about judging the opportunity. Companion guides cover the due diligence that follows and how a purchase gets financed.

Telling a sound company from a fragile one

Signs of a sound proptech business include revenue spread across many brokerages or property managers, data rights held under agreements that say plainly what happens on a sale, and evidence of how its trust-accounting function was tested and who checks it. A fragile one can look fine on revenue alone. Look at who the biggest accounts are, how long their contracts run, and whether one departure would change the picture. A product wholly dependent on one data source, or on one client’s workflow, may be closer to a contract than a company. The software business buyer checklist helps keep the comparison orderly.

What the seller may not volunteer

Some points sit in the founder’s head rather than in a document. These questions can draw them out.

• Is any data or integration agreement silent, ambiguous or unfavourable on a change of ownership, and has anyone ever tested it with the grantor?
• Has a client asked about leaving, or is one close to renewal, without that appearing in the figures yet?
• Which features were built to one client’s specification and are priced as though they were standard?
• Does the trust-accounting module rely on a manual step or monthly correction that the founder performs personally?
• Was any code written by contractors, or by the founder before the company existed, without a signed assignment to the company?

Does the product support the trade or perform it?

A buyer of the company’s shares steps into whatever regulatory position the company holds. British Columbia’s Real Estate Services Act defines real estate services as rental property management, strata management or trading services, and prohibits providing them to or on behalf of another, for or in expectation of remuneration, unless the person is licensed or exempt. Alberta’s Real Estate Council sets standards for licensees in areas that include property management, and Ontario’s Real Estate Council describes how brokerages report changes to their registration to the Registrar under the Trust in Real Estate Services Act, 2002. If the target only supports licensed customers, less of this may attach to the buyer personally. If it performs brokerage-like functions, ask which province’s regime applies, who holds the licence or registration, and whether the structure after closing still fits it. FINTRAC’s real estate guidance places compliance-program and identity-verification duties on brokers, sales representatives and developers, though it says brokers and sales representatives have no obligations for activities that relate to property management, so features serving those duties are tools whose accuracy the clients rely on.

What the buyer personally has to qualify for

Some approvals attach to the new owner rather than the company. A data or listing licence may require the grantor’s consent or a fresh application, and a buyer should ask early what the grantor would want to know about the people behind the purchaser. A brokerage network that buys the tool its competitors use should ask whether those competitors will stay on a platform owned by a rival, a commercial risk that the revenue figures will not show. A buyer from outside Canada falls under the Investment Canada Act, which applies to non-Canadians who acquire control of an existing Canadian business and allows national-security review of investments of any size.

Whose data is it, and what can you do with it?

The client records and personal information inside the platform come with the company, but not with a free hand. Once a sale is completed, the federal privacy statute lets the parties go on using and disclosing the personal information that was shared during the deal, without the individual’s knowledge or consent, if they have an agreement requiring each 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 suitable safeguards and to give effect to any withdrawal of consent. The information must also be necessary for carrying on the business that was the object of the transaction, and one of the parties notifies the individuals, within a reasonable time after the transaction is completed, that it has been completed and that their information was disclosed. A buyer therefore cannot assume client data can be repurposed for a new product line. Quebec adds a privacy impact assessment before personal information is communicated outside the province.

Where brokers and advisers fit

Business brokers who handle technology sales, and lawyers who know real estate regulation, are partners in a purchase like this. A buyer new to the sector can shorten the learning curve by asking them what they see go wrong, particularly around data licences and client consents, before committing time to a full review.