Buying a third-party logistics (3PL) provider in Canada

A 3PL is more than a warehouse: look at the client relationships and whether they run on written terms, whether the operator can keep the facility, and whether the crew depends on one supervisor. As a buyer you also have a second job: working out what you personally need to be allowed to do. The goods in the building, any trucks on the lot and your own residency can each bring in a regime that the previous owner had to satisfy. Check these before you commit.

What a good one looks like

Look for clients that sit under agreements with real terms rather than handshakes, spread across different sectors, whose volumes you can trace in the warehouse system. Look for a system the clients are integrated with, and a record of accurate inventory by client. Ask for service-level reports and the claims history, and ask to see the warehouse system produce an inventory report for one client while you watch. Speak with the operations manager as well as the owner. Ask whether the operation runs on process or on the owner’s phone calls.

What the seller may not volunteer

Ask whether any client has given notice, reduced volume or asked to renegotiate. Ask which agreements contain a change-of-control clause and whether any client has said how it would respond. Ask about shortages, damaged goods and insurance claims, and who bears them under each agreement. Ask what the owner personally does each week, such as quoting new work or calming a difficult client, since that work moves to you at closing. Ask for a recent tour of the building at peak and at quiet times, so you see the space and the pace in both. These are questions to put to every seller.

Regulated goods and your own qualifications

The goods determine which regimes apply. Under subsection 7(1) of the Safe Food for Canadians Regulations, storing is among the activities that, for food exported or sent from one province to another, may be conducted only in accordance with the Regulations; subsection 7(2), which lists the activities that need a licence, names storing only for edible meat products in their imported condition. If food moves through the facility, confirm with the Canadian Food Inspection Agency what its activities require. Under section 5 of the Transportation of Dangerous Goods Act, 1992, no person shall import, offer for transport, handle or transport dangerous goods unless, among other conditions, the person complies with all safety requirements and security requirements that apply under the regulations, and section 14 requires financial responsibility in accordance with the regulations. If the business runs its own trucks, Transport Canada notes that rules for commercial vehicles, drivers and motor carriers are based on the National Safety Code standards. Find out whether any permit is tied to the person or to the premises, and whether you qualify in your own right.

The landlord, and a foreign buyer’s filing

The lease may decide whether the deal can happen. In Ontario, section 23 of the Commercial Tenancies Act deems a covenant against assigning without consent to carry a proviso that consent is not to be unreasonably withheld, unless the lease has an express provision to the contrary. Check the lease wording and its province’s law. If you are a non-Canadian, check the Investment Canada Act. Section 11 makes an investment to acquire control of a Canadian business subject to notification unless it is reviewable under section 14, and section 12 requires notice before implementation or within thirty days after. A reviewable investment cannot be implemented unless the Minister is satisfied, or deemed to be satisfied, that it is likely to be of net benefit to Canada (section 16, subject to the exceptions in subsection 16(2)), and Part IV.1 separately lets the Minister act where an investment could be injurious to national security. Ask counsel which route applies to you.

What you take over on the first day

Ask for a written transition period in which the owner introduces you to each major client and stays reachable for questions. Confirm that you will have administrator access to the warehouse system, client integrations, carrier accounts and any shared logins, and that the people who know how each client’s orders are handled are staying. Plan how you will tell clients about the change, and what you will say if one asks whether its terms will stay the same. Agree these points before closing.

• Which goods the facility stores today, and which licences or registrations each of them needs
• Whether any trucks, drivers or carrier registrations are part of the sale
• The landlord’s position on assignment and on your covenant strength
• Whether you, or your investors, are non-Canadians for the purposes of the Investment Canada Act
• What the owner does personally that you will have to take over