Elevator service company due diligence

A buyer who has signed a letter of intent is now testing what the seller has said. In an elevator service company the claims worth testing are specific: that the maintenance agreements are valid and will carry over, that the staff hold what they are said to hold, that the company can service the devices in its book, and that no unresolved safety matter sits behind any of them. This guide lists the documents and searches and what a bad answer means. It is a general outline and not a substitute for your lawyer’s and accountant’s own review.

Read every maintenance agreement

Ask for the signed agreements, not a summary, and build a single schedule from them that you can check line by line against the seller’s revenue records. Check the parties, the term, the renewal and termination wording and the price. Look for any clause on assignment or change of control. One Treadstone Law article explains that a novation replaces the original contract and needs all three parties to agree, that some contracts prohibit assignment, require consent or say nothing, and that a change-of-control clause can give the other side rights even where nothing is assigned. A large agreement that needs consent and has no sign of it is a finding to price or to condition on. See also whether customer contracts are transferable.

Verify the people and their certifications

Ask for each mechanic’s certification or licence and check it with the issuing body, because a seller’s list is not proof. The Technical Standards and Safety Authority states that its licences are not transferable, and the Régie du bâtiment du Québec publishes a way to check a contractor’s licence. A company whose key qualifications sit with one or two people who have not agreed to stay has a key-person risk that the price or the terms should reflect. Ask also for employment agreements, any non-competition or non-solicitation terms, and the notice each person would have to give. Have your lawyer read them and say whether they can be enforced in the province.

Test manufacturer and software access

Ask for the written arrangements that let the company obtain parts or use diagnostic software for the devices it maintains, and for a list of which devices depend on them. Find out whether they can be assigned, whether the manufacturer must consent and whether the manufacturer has been asked. If a material part of the book cannot be serviced without access that will not pass to you, the revenue attached to those devices is not what it appears. Ask for the correspondence in which the manufacturer was approached, not only the seller’s account of it.

Run the registry and standing searches

Search the provincial personal property security registry for liens on the company’s equipment and vehicles. Ontario’s page explains that registering in its system helps to establish priorities between individuals with competing interests in the same personal property, and that a search may indicate that the seller or a previous owner has obtained a loan and that the lender may have rights in the goods. Search the corporate registry too: the Ontario Business Registry allows anyone to search free for basic information. Ask the seller for workers’ compensation standing. In Ontario, where assets are bought, the WSIB may hold a purchaser liable for all amounts owed by the vendor up to the date of sale without a valid purchase certificate; it says a certificate is not required when shares are sold. Running a PPSA registry search walks through the steps.

• Signed maintenance agreements, with any assignment, consent or change-of-control wording flagged
• Certification records for every mechanic, verified with the issuing body
• Written parts and software arrangements, and whether each can be assigned
• Lien search results and corporate registry search for the seller entity
• Workers’ compensation standing and, in Ontario, a purchase certificate request

Check the corporate and employment record

Confirm that the seller entity exists and is in good standing in the province where it is registered, that the directors and officers match what the seller has told you, and that any business names used on the agreements are registered. Provincial registries differ: Newfoundland and Labrador’s Registry of Companies, for example, publishes annual-return and search information of its own. Ask for the minute book, the list of employees and their terms, and any pending claim or complaint, and compare each against the agreements you have read.

Findings that can end a deal

Some results are not matters of price. A lockout from a manufacturer’s system across a material part of the fleet, certified staff concentrated in one or two people with no plan to keep them, an unresolved liability from an incident on a life-safety device, and agreements at risk of lapsing around the change of ownership could each be a reason to renegotiate, restructure or walk away. Decide before you start which of these you would not accept, so the findings are measured against a line you set in advance. Ask the seller for the inspection and deficiency history of the devices in the book and for any correspondence with the safety regulator, and ask your lawyer to check the seller’s insurance and any claims. If a finding cannot be resolved before closing, ask whether it can be handled by a price adjustment, a holdback or a specific indemnity in the purchase agreement.