Moving company due diligence

Once you have a signed letter of intent for a moving company, due diligence is where you test the seller’s story against documents and registry records. The work falls into four groups: the regulatory record of the carrier, what is owed against the trucks, the history of claims and complaints, and the people and premises that make the business run. Each group has documents to request and records you can search yourself. This guide lists them and what a bad finding means. It is not legal advice, and your lawyer should run the searches and review the results.

The carrier’s safety and registration record

Ask for the carrier registration certificate the trucks operate under; Ontario’s CVOR page says the certificate, or a copy, must be carried in each commercial motor vehicle operated under it. In Ontario, the Ministry of Transportation offers a Level 2 abstract available to the carrier only, so the seller must order it and share it. The province also offers a free online safety rating enquiry. Ontario’s page says an Unsatisfactory rating causes operating privileges to be suspended or cancelled throughout Canada, and that audit violations may lead to charges against the operator or a driver. Transport Canada says provincial and territorial regulations govern the truck industry, outside the federal rules for extra-provincial carriers, and that the National Safety Code serves as a template for regulations at both levels, so ask the seller for the equivalent record in the province where the trucks are plated.

Liens and security against the trucks

Ask your lawyer to run a personal property security search against the selling company and against each truck’s vehicle identification number. Ontario’s Personal Property Security Act sets out how a security interest is perfected, including by registration, and says that, except as otherwise provided in the Act, perfection of a security interest in goods is governed by the law of the jurisdiction where the goods are situated when the security interest attaches, while for goods of a type normally used in more than one jurisdiction that are equipment or inventory leased or held for lease by the debtor to others, the law of the jurisdiction where the debtor is located governs. Ask your lawyer which jurisdictions to search. A registration may mean a lender claims a security interest in the truck, and your closing documents should deal with its release. Ask the seller for loan and lease agreements on every truck and list what is financed, owned outright and leased.

Claims and complaints

Request the full claims register, insurer correspondence and any complaints received, including those made to an association or a consumer agency. The Canadian Association of Movers site has complaints and moving scams pages, so a buyer can read what it tells consumers. Compare the seller’s claims list with online reviews and your own reference calls to former customers and referral partners. If you find a pattern of unresolved complaints, or claims the seller has not disclosed, ask your advisors whether it should change the price, and ask your lawyer how it should be reflected in the purchase agreement.

People, hours and premises

Request crew lists, pay records and any written employment terms. If the company crosses provincial or international boundaries, Transport Canada says federal regulations set hours of work and rest rules for federal motor carriers and their drivers, so ask to see how the company records them. British Columbia’s Employment Standards Branch explains that if all or part of a business is disposed of, the employment of an employee of the business is deemed continuous and uninterrupted for the purposes of that province’s Act, and other provinces have their own rules. Review the storage or yard lease, including who must consent to an assignment, and read whether contracts and leases transfer in an asset purchase.

Checking the revenue itself

Ask your accountant to reconcile the revenue in the statements against bank deposits, invoices and the dispatch or booking system. Compare payroll records with the crew lists and with job volumes, and compare fuel and maintenance records with the fleet list. If a figure appears in only one place, ask why. Request the customer list with job counts, so you can see how much of the revenue comes from repeat sources and whether any single account is large. Ask for the sales pipeline for the coming season, and what share of it is already booked.

Findings that end deals

Some findings may call for a price change and others for walking away. Decide with your advisors, before you open the data room, which of these you would treat as deal-ending: an Unsatisfactory carrier rating, which Ontario says causes operating privileges to be suspended or cancelled throughout Canada; a carrier registration you cannot obtain; an undisclosed lien the seller cannot clear; lead movers or referral contacts who will not commit; or a storage lease that will not be assigned.

• Carrier registration certificates and the current safety abstract or equivalent.
• Property security searches against the company name and each truck’s vehicle identification number.
• Claims register, insurer letters and complaint files.
• Crew list, pay records and driver hours records where federal rules apply.
• Storage or yard lease with assignment terms.