Buying a warehousing and distribution centre in Canada

Someone evaluating a warehousing and distribution centre is buying two things at once: a fee-earning operation and the right to use a building and its equipment. Both have to transfer to you for the business to be what it appears. That means you personally have to qualify with a landlord, possibly with a provincial safety regulator and with a lender, and the facility has to hold up on how its space earns, how dependent it is on a few clients and whether its permitted use matches your plans. This guide follows that order: what you must clear, what a good one looks like and what a seller may not mention.

What you must qualify for yourself

If the building is leased, ask early what the landlord will need from you as the new tenant, such as financial information, a guarantee, a deposit or changes to the lease, as a condition of consent. If the site holds fuel installations or other regulated equipment, find out whether you need your own licence. The Technical Standards and Safety Authority states that in Ontario licences are not transferable and the new owner must apply, and other provinces have their own bodies. If you are not a Canadian, the Investment Canada Act applies to non-Canadians who acquire control of a Canadian business.

Financing readiness comes before the offer

Before you apply for its acquisition financing, BDC asks you to make sure that the business is Canadian and generating revenue, there is an agreed purchase price, including how it was determined, and you know the required down payment. It adds that the down payment depends on the transaction, the business’s financial health and your situation. Speak to a lender before you commit, because a lender’s view of the lease and the building can change what you can offer. The sibling guide on financing a warehousing and distribution centre acquisition covers the collateral questions in more detail.

What a good facility looks like

Look for space that earns, not space that exists. A good facility has clients on written agreements, no single client whose departure would empty a large share of the building, racking and dock doors that match current volumes and a lease whose remaining term and renewal rights give you time to earn a return. Compare reported occupancy with what you see on a walk-through at different times. A building that looks full in the financials and half empty on site deserves questions. Ask for revenue by client and by service, so you can see which fees depend on storage, which on handling and which on a single relationship.

Zoning, occupancy and what you plan to do

The City of Mississauga describes its Zoning Certificate of Occupancy as a permit that approves a new use or a change of use of a building or unit under the Zoning By-law, and says it does not approve a change of use under the Ontario Building Code. If you plan to run the site differently from the seller, ask the municipality whether your use is permitted and what approvals it needs. Municipal rules differ across the country.

What a seller may not volunteer

Ask the seller directly, and in writing:

• Has any client given notice, reduced volume or asked to renegotiate in the past year?
• What repairs to the roof, floors, dock equipment or fire protection have been deferred, and what do they cost?
• Has the landlord raised or threatened any issue, and has it confirmed in writing that it will consent to an assignment?
• Which equipment is owned outright, and which is leased or carries a lender’s security?
• Has any inspector or insurer issued an order or condition that has not been closed out?

Equipment, systems and the people who run them

List what you are acquiring: racking, dock equipment, lift trucks, the warehouse management software and the data inside it. Ask which items are owned, leased or tied to a lender, and whether the software licence transfers to a new owner. Ask who runs the floor day to day, what the staff know that is not written down and whether key supervisors are staying. A facility that works only because the current owner is on site every day is a different purchase from one with a documented operation.

The building or the operation

If the sale includes the building, you are also a property owner, with a different set of costs and risks. If it does not, you are a tenant whose business depends on a landlord’s goodwill. See buying the business against buying the real estate. Decide which position suits you before you value the deal.