Selling a systems integrator in Canada

An owner who has decided to sell a systems integrator may find that some delays come from other people’s permissions, not from price. Client contracts, vendor partner agreements, software licences and the premises lease each have their own terms on what happens when ownership changes, and some of those terms may surface only when a buyer’s lawyer asks. This page is a sequence: the work to do before the business is listed, starting with the permissions. It covers the consent map, the owner’s undocumented judgment, a data room that does not expose client information, lender registrations and the approvals some buyers need. What a buyer then checks is covered in systems integrator due diligence.

Build the consent map first

List every material contract and agreement, and for each one record what it says about assignment and about change of control, and who must agree. The deal structure decides which wording is triggered. An assignment transfers the seller’s rights and benefits, often without the counterparty’s involvement unless the contract requires consent, which a Treadstone Law article on assigning contracts describes as extremely common for commercial contracts, leases and licences. An assignment does not by itself release the seller from its obligations, whereas a novation, which needs the counterparty’s agreement, does. In a share sale the contracts generally stay with the company, but a contract with its own change-of-control clause can still give the counterparty consent or notice rights. Are my customer contracts transferable? goes further.

Approach counterparties in an order you control

Once the map exists, decide who is told what, and when. Vendors, public-sector clients and private clients each answer on their own timetable, and a consent depends on the counterparty’s calendar, not yours. The same article notes that purchase agreements often address a refusal directly, sometimes by making certain consents a condition of closing or by allocating the financial consequences if one cannot be obtained, and responses should be in writing, since a verbal agreement is not a documented assignment or novation. BDC notes that a change in ownership can be disruptive for employees, customers and suppliers, and suggests working out a transition plan with the buyer to retain them and to communicate what the change means for them. Where an integrator’s value sits in a few client and vendor relationships, that plan is part of the preparation, not an afterthought.

Get the owner’s judgment onto paper

A founder-led integrator may run on judgment that exists in one head: which projects to bid and at what price, when a change request is worth contesting, which vendor contact to call when a deployment fails. One approach, set out in a Treadstone Associates guide on getting what is in the owner’s head onto paper, is to start with the decisions made most often, or the ones that cost most when someone else gets them wrong, to narrate them aloud rather than face a blank page, and to test the result by whether another person can follow it on a real case. Add the delivered work: as-built records, network diagrams and configuration notes for each completed project, kept in a form a buyer’s engineers can read. Check whether any of it still exists only in the owner’s memory.

Open the data room without opening your clients’ data

Network diagrams, configuration exports and user lists can contain information about a client’s people and systems, so sharing them with a prospective buyer is a disclosure. PIPEDA lets organizations that are parties to a prospective business transaction 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 appropriate safeguards, 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 the parties decide to proceed, to complete the deal. The provision 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. Client contracts may carry confidentiality clauses of their own, so redact early and release in stages. What is a data room? explains the mechanics.

Clear the registry before a buyer searches it

Search the personal property registry against your company before a buyer’s lawyer does. Subject to the exclusions in s.4(1), Ontario’s Personal Property Security Act applies to every transaction that in substance creates a security interest, including a lease or consignment that secures payment or performance of an obligation, so a registration can stand behind an arrangement you no longer think of as a loan. Under that Act a registration may be discharged by registering a financing change statement (s.55). Other provinces have registries of their own; British Columbia’s, for example, is reached through BC Registry Services. Discharging what is paid off, and knowing what is not, avoids a surprise in the week of closing. What is a PPSA search?

Allow time for approvals a buyer may need

If a likely buyer is not Canadian, the Investment Canada Act adds a step that can set the closing date. ISED states that a non-Canadian acquiring control of an existing Canadian business must submit a notification or an application for review unless an exemption applies, and that investments of any size can be reviewed on national security grounds. An integrator whose work touches sensitive technology, infrastructure or personal data may face that question from a non-Canadian buyer. What is the Investment Canada Act review threshold? covers the financial tests.

Have this ready before listing

• The consent map, with each counterparty’s wording on assignment and change of control and the status of any approach already made
• A schedule of open projects showing contract value, billings to date and the estimate to complete
• Written confirmation, from the vendor where possible, of each authorization and what re-validation involves
• An index of as-built documentation by project, noting the confidentiality status of each document
• Fresh registry search results for the company, with discharges lodged for anything that has been paid off