Selling a hosting and colocation provider in Canada

Selling a hosting or colocation provider can be approached as a sequence. Three questions are worth settling before price: whether the facility stays available, whether customers will stay, and whether the records back up what the seller says. It helps to settle those questions on your own timetable. This guide follows the order of the work: the books and incident record, the facility and carrier paperwork, what customer information may be shown, how and when customers hear about the sale, and points that can delay a close. BDC says business brokers can discreetly approach buyers on the owner’s behalf and that a lawyer familiar with business transitions supplies information to buyers during due diligence, so a broker or sale advisor who knows technology infrastructure and a lawyer are the advisers to line up.

Start with the books and the incident record

Treadstone Associates’ guide on getting the books clean says a buyer, lender or successor wants to see a consistent pattern over several years, not one clean year, and lists blended personal and business expenses among the most common issues buyers flag. In a hosting company that blending can hide in equipment bought through the company for the owner’s other ventures, facility costs shared with an affiliate, or relatives on payroll. Separate those lines now and keep the explanation in writing. Then do the same for operations: collect the incident log, the service credits issued and the uptime reports, and check that they agree with the ledger. Credits in the incident log that never reached the accounts are a discrepancy to resolve before a buyer finds it.

Settle the facility and carrier paperwork first

The facility agreement can decide whether a sale can close. Read it for the term, any right to renew, and what it says about assignment and a change in who controls the company. In Ontario, the Commercial Tenancies Act deems a covenant against assignment without consent to carry a proviso that consent is not to be unreasonably withheld, unless the lease expressly provides otherwise, and a tenant whose landlord refuses or neglects to consent can apply to court. Quebec’s Civil Code requires a tenant who assigns a lease to give the lessor notice of the intention, with the intended assignee’s name and address, and obtain the lessor’s consent, bars a refusal without a serious reason, and treats a lessor who refuses but does not give the reasons within 15 days after receiving the notice as having consented. For another province, check that province’s law; the lease wording decides how any of them applies. Carrier, interconnection and power agreements need the same read. See our guides to commercial leases in an Ontario business sale and in a Quebec business sale.

Decide what customer information a buyer may see

A buyer may want to see the customers to assess a hosting business, but personal information in those records is regulated. Under subsection 7.2(1) of PIPEDA, parties to a prospective business transaction may use and disclose personal information without the individual’s knowledge or consent if they have an agreement requiring the recipient to use and disclose it solely for purposes related to the transaction, protect it with safeguards appropriate to its sensitivity and return or destroy it within a reasonable time if the deal does not proceed, and the information is necessary to decide whether to proceed and, if so, to complete the deal; subsection 7.2(4) excludes transactions whose primary purpose or result is the purchase, sale or lease of personal information. Quebec’s Commission d’accès à l’information says businesses there may communicate personal information without consent where that is necessary to conclude a commercial transaction, subject to conditions. One approach is to show contract terms and totals first, hold named contacts back until a serious buyer has signed confidentiality terms, and keep what customers store on your servers out of the process altogether, because it is your customers’ data rather than the business’s. Our answer on sharing customer data with a buyer covers the basics.

Telling customers and moving contracts

Whether the deal is a sale of shares or of assets can affect which customer consents are needed. Read your standard terms and the largest customers’ negotiated terms for any clause on assignment or change of control, then agree with your lawyer when each customer will hear about the sale. Telling the biggest ones too early risks a leak and a renegotiation; telling them too late risks a closing condition you cannot meet. Our answers on whether customer contracts are transferable and whether contracts and leases transfer in an asset purchase explain the mechanics.

Points that can delay a close

• A landlord or facility owner who is slow to answer an assignment request, or who uses it to reopen the rent.
• Equipment still subject to a lender’s registered security. British Columbia’s Personal Property Registry, for example, records security interests and liens against personal property belonging to businesses, and its guidance says to make sure personal property has no liens registered against it before buying it privately or lending against it, so arrange discharges for repaid loans early.
• A carrier or power agreement in the founder’s own name or a related company’s, which then has to be transferred or replaced.
• Service credits or uptime disputes that surface in diligence and must be settled or priced.
• Customer statements about where data is stored that do not match where the equipment actually sits.