Selling a telecom or VoIP provider in Canada

A telecom or VoIP provider depends on outside parties: the upstream carriers, the platform vendors and, where a structure raises a question, the regulator, each of which may have its own timetable. That is why the order of preparation matters. The sequence below puts the slow items first: the contracts that need someone else’s agreement, the regulatory position, the subscriber data you will have to disclose carefully, and the operating knowledge that has to survive the handover. It assumes you have already decided to sell; it does not weigh whether you should.

Map everyone who has to say yes

Start with an inventory of every agreement the business cannot run without: upstream and wholesale carriers, interconnection arrangements, platform and software licences, colocation space, number supply, and the subscriber contracts themselves. Read each for language on assignment and change of control (see what an anti-assignment clause does and change-of-control clauses). Whether the buyer takes the assets or the shares changes which of those clauses bite, so settle the likely structure with your lawyer early; asset sale vs share sale sets out the trade-offs. Then rank the counterparties by how long each is likely to take, and plan to approach the slowest first, once a buyer is under confidentiality and agrees to the approach.

Settle the regulatory position before a buyer asks

Confirm that every registration, filing and approval the provider holds with the CRTC is current, and gather the correspondence and any open complaints in one place. If the business is a telecommunications common carrier, ownership matters as well. Section 16 of the Telecommunications Act makes Canadian ownership and control a condition of eligibility, subject to exceptions, and the CRTC’s policy notes that the Act and the Regulations also require a common carrier to be Canadian-controlled in fact. The CRTC says it has generally reviewed these questions on a confidential, bilateral basis with the carrier, but that in some instances it may use a public, multi-party process, or one that results in a public record, where an ownership or governance structure is complex or novel, particularly where complex or novel financing arrangements are involved, and that it gives public notice when it does. A seller who needs the sale kept quiet should find out early whether a buyer’s structure is plain enough for the confidential route. Whether your provider is a common carrier at all, or falls within an exception, is a question for telecommunications counsel.

Disclose subscriber data in stages

Subscriber and call records can be personal information, and a data room discloses it. Under section 7.2(1) of PIPEDA, organizations that are 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, to protect it with security safeguards appropriate to its sensitivity and, if the transaction does not proceed, to return or destroy it within a reasonable time, and if the information is necessary to determine whether to proceed and, if so, to complete the transaction. If the transaction is completed, section 7.2(2) lets them go on using and disclosing it without consent if they have an agreement requiring each of them to use it solely for the purposes for which it was collected, permitted to be used or disclosed before the transaction was completed, to protect it and to give effect to any withdrawal of consent, if it is necessary for carrying on the business or activity that was the object of the transaction, and if one of the parties notifies the individual within a reasonable time that the transaction has been completed and that their personal information has been disclosed. Under section 7.2(4), neither subsection applies to a transaction whose primary purpose or result is the purchase, sale or other acquisition or disposition, or lease, of personal information. Quebec’s privacy commission says that since September 2022 an enterprise may, on certain conditions, communicate personal information without consent where necessary to conclude a commercial transaction, so have counsel confirm which regime governs your subscribers. A sensible order is to release totals and cohort statistics early and named records last (the data room checklist helps).

Make the operation transferable

BDC advises sellers to document standard operating procedures so that a new owner can take over more easily, and to plan how to retain employees, customers and suppliers and how to tell them about the change. For a provider that could include runbooks for the platform, a record of who holds administrator credentials to the switch and the carrier portals, a current list of subscriber-specific call flows, and a view of which engineers a buyer may want to keep. BDC also says buyers may insist on a reduced price if a seller cuts all ties, because in a 100%-cash-out deal the buyer takes on more risk, and it lists vendor financing, an earn-out, a phased transfer of ownership and a role as executive, board member or advisor as ways for a seller to stay involved.

Run the tax and housekeeping items in parallel

The CRA lists items a seller has to deal with, including the business number, payroll, GST/HST, the change of ownership, the value of inventory and other assets, and the capital gains deduction. None of this is specific to telecom, but it runs on its own clock and is best started while the contracts are being mapped.

What can delay the close

• A carrier or platform vendor that answers consent requests slowly, or attaches conditions.
• A buyer’s ownership or financing structure that sends the regulator’s review down a public route.
• Emergency-calling arrangements that work in practice but are not documented or tested on paper.
• Telephone numbers held in a carrier’s name, or a former owner’s, rather than the provider’s.
• Subscriber contract paper that is missing, expired or inconsistent with what billing shows.