Selling a POS and payments provider in Canada

The sale of a POS and payments provider turns first on a contract. The business exists because an underlying processor lets it resell processing, and that processor is a third party to your deal whose agreement the sale may need. An owner who has decided to sell may find it useful to work in a particular order. Learn what the processor agreement allows, put the merchant records and compliance evidence into a form a buyer can test, decide how merchant personal information will be shared, and only then take the business to market. BDC names a business broker, for smaller businesses, or an investment banker, for larger ones, as one way to find buyers.

Read your own processor agreement before anyone else does

Pull out the term and renewal provisions, how and when either side can end the agreement, any restriction on transferring it, any clause triggered by a change of control, and any clause that lets the processor change the residual split. That tells you what you can actually sell. In an asset sale the agreement has to move to the buyer, which may need the processor’s agreement. In a share sale nothing is assigned, but a change-of-control clause can still give the processor consent or notice rights. Note also that an assignment does not automatically release the seller from its obligations, while a novation, which the other party must also agree to, replaces the original contract. The commentary behind that point is Ontario-focused, so have counsel confirm how a contract governed by another province’s law treats it. The comparison of an asset sale and a share sale sets out the wider trade-off.

Talking to the processor: timing and confidentiality

The processor is a counterparty whose agreement the sale may need. Whether to approach it before taking the business to market or only once a buyer is serious is a judgement to make with your lawyer against the agreement’s actual terms, and a confidentiality agreement should be in place either way. Asking early what the processor requires of an incoming owner lets you screen buyers against that standard instead of discovering a mismatch late. If the processor, or another large payments company, is itself a plausible acquirer, the same conversation tells you.

A merchant file a buyer can test

Prepare a merchant-level schedule showing each merchant’s sector, the date it boarded, its pricing, its contract term and whether it is still processing. Add the monthly processor statements and reconcile them to your own books before a buyer does, so that any unexplained gaps are found and explained first. Prepare attrition by year of boarding, a terminal inventory with any certification attached, and the compliance papers described below. BDC notes that buyers typically ask to see documents such as historic and interim financial statements, projections and tax returns, and that an accountant can help you prepare them.

Sharing merchant information without breaking privacy rules

A merchant list names real people, which makes much of it personal information. Section 7.2 of PIPEDA lets the parties to a prospective business transaction use and disclose personal information without the individual’s knowledge or consent if conditions are met. An agreement must require the receiving party to use and disclose the information solely for purposes related to the transaction, to protect it with security safeguards appropriate to its sensitivity, and to return or destroy it within a reasonable time if the deal does not proceed. The information must also be necessary to decide whether to proceed and, if so, to complete the deal. The section does not apply to a transaction whose primary purpose or result is the purchase, sale or other acquisition or disposition, or lease, of personal information. One way to apply that is to share merchant detail in stages, anonymized at first and named only once a buyer is committed and bound. Quebec has its own rules. Its privacy regulator says that since September 2022 a business may, under conditions, communicate personal information without consent where needed to conclude a commercial transaction, so a Quebec-based provider should read that guidance, published in French, with counsel.

What can delay a close

• The processor takes longer than the parties expected to reunderwrite the buyer, or asks for terms the buyer did not budget for.
• Processor statements and the provider’s own books do not reconcile, and neither side can explain the difference.
• Merchant agreements carry their own assignment or notice terms that nobody read until the closing checklist.
• Evidence of PCI-DSS compliance is held by individual merchants or the processor rather than in one place.
• Hardware leases or financing arrangements with third parties sit alongside the sale and may have their own consent requirements.

Regulatory status and review you may be asked about

A buyer may ask whether your business has to be registered with FINTRAC as a money services business. FINTRAC’s guidance says a money services business must register before it begins operating in Canada, and that an entity offering money services strictly as an agent of a money services business is not itself the one that registers. Have either the registration or your reasoned analysis of why none is needed ready for the buyer. If the buyer is a large payments company, the Competition Bureau says the Commissioner of Competition may review any merger regardless of size, and that whether notification is required depends on financial thresholds and other criteria, including certain exceptions, set out in the Competition Act, so ask the buyer’s counsel early rather than assuming either way.

Tax and paperwork on the sale

The CRA describes Form GST44 as the form used to elect not to have GST/HST apply to the sale of a business or part of a business. Whether the election is open on your deal, what it leaves taxable and who files it are questions for your accountant, who should be involved before the letter of intent rather than after it.