Fire protection and sprinkler company due diligence

A buyer under a letter of intent in this trade is trying to answer one question: if I take over, what am I now responsible for? Ask your lawyer whether reports signed in the seller’s time could become your responsibility if a system later fails, and how the structure of the deal affects that. This page therefore centres on the paper trail that shows what was done, by whom, and whether it was true. The steps below follow the documents a buyer should ask for.

Test the records against the field

Request the inspection and testing reports for a sample of customers, including the largest ones, and compare them with the schedule the company says it keeps. Then ask to visit several sites with a technician you trust. You are looking for a mismatch between what a report says and what the system actually looks like: a valve recorded as tested that shows no sign of service, a deficiency list that never changes, a report signed by someone who did not attend. Write down every mismatch and take the list to your lawyer.

Credentials and manufacturer approvals

Ask for every certification, licence and registration the company and its staff hold, and verify them with the body that issued them. In Ontario, Skilled Trades Ontario keeps a public register. In Quebec, the Régie du bâtiment du Québec publishes a repertory of licence holders. Treadstone Law, an Ontario firm, notes that manufacturer certifications are generally tied to specific individuals and often to the certified entity, that requalifying after a sale varies by manufacturer, and that a share sale has a better chance of preserving certification without a fresh application. Confirm directly with each manufacturer.

Contracts, security interests and workers’ compensation

Read each service contract for assignment, termination and notice clauses. Search the personal property registry for registrations against the company; Ontario’s Personal Property Security Act provides for registration of financing statements, and other provinces run their own registries. Ask for the company’s workers’ compensation clearance. WSIB says a purchase certificate verifies the seller has coverage and no outstanding debts on the account, and that a closure request is still needed once the sale is completed. WSIB also says it may hold the purchaser liable for all amounts the vendor owes up to the date of sale if the purchaser does not get a valid purchase certificate, that the request must be made before the date of sale, and that a certificate is valid for 30 days from the date of issue printed on it. Other provinces use different boards and forms.

People, insurance and open matters

Ask for the company’s liability insurance policies and claims history, and read what each policy actually covers. Ask whether any customer, insurer or authority has questioned a report, and request the correspondence. Ask for employment agreements for certified staff, including any restrictions on leaving and any bonuses promised on a sale. Ask whether any technician is working on a provisional or temporary credential, and when it ends. These items may not appear in a financial summary, but each can change how much of the business you are buying in practice.

Findings that matter most

• Missing, backdated or unsigned inspection reports, which raise the question of whether the work happened
• Reports that do not match the physical condition of the systems on site
• A single technician holding the credential the company depends on, with no cover
• Service contracts that restrict assignment or give the customer a right to end on a change of control
• Registered security interests, or workers’ compensation arrears, that the seller has not mentioned

What a finding means for the deal

Each finding has a cost, a fix or a reason to walk. Ask your lawyer whether an unresolved reporting gap calls for a price adjustment, a holdback or a seller indemnity, which would belong in the purchase agreement. Our guide to the buyer due diligence checklist covers the general document list, and the representations and indemnities that follow from a finding are matters for your lawyer. Do not let a deadline persuade you to close with an open question about the records. If the seller cannot or will not produce a record you asked for, write down the request and the answer. That note will help you and your lawyer decide whether the gap is a price issue, a closing condition or a reason to stop. Also ask the seller to confirm in writing which reports, contracts and licences you have been shown, so that the list of what was disclosed is clear later. Ask your lawyer how that list should be tied to the representations in the agreement, and keep your own copy of everything the seller provides, with the date it arrived.