Buying a web development agency in Canada

What a buyer must bring to a web agency can be underestimated. The qualification is capability: someone has to keep the client sites updated, answer the phone when one goes down and hold the team together after the founder steps back. This guide is for someone evaluating an agency. It covers what a good one looks like, what a seller may not mention and what the purchase will ask of you personally. It is not a recommendation about any particular business, and the verification work that follows a signed letter of intent is covered in web development agency due diligence.

What a good agency looks like from outside the books

A sound agency may have a long tail of small-business clients, many of whom pay a monthly fee for hosting, maintenance or support and have done so for years. Things to look for are sites mostly on current platform versions, a team that can describe the portfolio without the founder in the room, and pricing that has moved with costs. Another is clients who renewed without being asked. Ask for client tenure, not just client count, because a long list of one-time projects can look the same as a thriving agency until someone asks how many of those clients paid anything last year.

What a weak one looks like

• Revenue that spikes with a few large builds and falls away between them
• A “retainer” base with no signed agreement, defined scope or notice period, so the recurring figure in the offer is really a habit
• A founder who sells every project, scopes every quote and takes every escalation call
• Most of the portfolio on one ageing platform, or on a version the platform no longer supports
• Delivery by a rotating cast of freelancers who each know only a slice of the client sites

What the seller may not volunteer

Some omissions may be habit rather than deceit. Informal arrangements can include free changes for long-standing friends, support hours that were never billed, a discount promised verbally. Ask also about security incidents on client sites. The Office of the Privacy Commissioner says PIPEDA requires an organization to keep records of all breaches of security safeguards involving personal information under its control, whether or not they must be reported, and treats the organization that handed information to a third-party processor as responsible for reporting a breach that occurs with the processor, though a processor that uses or discloses the information for other purposes is acting as an organization in control of it. That may be the agency, when a hosting vendor was involved, or its client, when the agency was. A seller who cannot produce records, or who says there has never been an incident without having looked, is worth a follow-up question about how incidents are tracked. Ask about contractors as well. If people paid as contractors work like staff, the Canada Revenue Agency says all of the facts, including the actual terms and conditions of the work, decide whether someone is an employee, not just the intention.

What you must be able to bring to the deal

The questions here are practical. Can you, or someone you hire, lead delivery on the platforms the agency actually uses? Can you keep the staff who may hold the client relationships the founder appears to hold? Will a lender accept a business whose assets are mostly intangible and whose price is mostly goodwill? That last point is taken up in financing a web development agency acquisition. If the client book includes Quebec businesses, you also take on Quebec’s French-language and privacy rules. The Office québécois de la langue française says businesses employing 25 or more people in Quebec for a period of six months must register with it to begin a francisation process, and the Commission d’accès à l’information says the title and contact details of the person responsible for protecting personal information must be published on the business’s website or, without one, made accessible by another appropriate means.

Who is buying, and what each should look for

A larger digital agency buying the client book may be interested in retainers, platform overlap and the chance to cross-sell, and may worry less about the founder if it can supply its own delivery leadership. An individual buyer or small holding company that steps into the founder’s role directly may find that succession inside the team and how long the seller will stay weigh more heavily. Neither profile is better. They may price the same risks differently, and knowing which one you are tells you which questions below matter most to you. If the client book is mostly in Quebec, buying a business in Quebec explains how the civil law setting changes the deal.

Questions to put to the seller before a letter of intent

• How many clients paid in each of the last several years, and under what written terms?
• Who holds each major client relationship day to day, and who answers when a site is down?
• Which accounts, domains and platform partnerships are registered in whose name?
• What has changed in the portfolio’s platform versions and security over the past year?
• Have any clients raised a privacy or French-language question, and how was it handled?