Selling a VAR or hardware reseller in Canada

An owner who has decided to sell a reseller is selling a set of permissions as much as a business, so the order of the work matters. The vendor relationship is an asset a buyer cannot obtain from you directly, so the work can be divided into what you can fix alone, what needs the manufacturers’ cooperation, and what should wait until a buyer is bound by confidentiality. Late surprises can come from something in the second group that was left until the purchase agreement was nearly signed. This page follows that sequence from the seller’s side.

Start with what you control

Before any manufacturer hears of a sale, tidy the parts that are yours. Reconcile the stock to the system and decide what to write down or clear, so that a buyer’s count turns up no slow-moving or superseded units you have not already accounted for. Close out open return authorizations and warranty claims so no unresolved credits sit on the balance sheet. Pull together the sales behind each rebate and incentive payment, noting what was earned, claimed and paid. BDC observes that buyers ask to look at historic and interim financial statements, projections and tax returns, and that a lot of people underestimate how long it takes to prepare a business for sale. Have your accountant bring the statements current before anyone asks.

Read every vendor agreement for what it says about a sale

Your reseller and distribution agreements can decide whether the deal can happen at all, so read each one for its assignment, change-of-control and termination wording before you approach a buyer. Ontario legal commentary on reviewing supplier contracts frames the first question: does the contract permit assignment without consent, require consent (which may or may not be capable of being unreasonably withheld, depending on the wording), or prohibit assignment outright? Deal structure changes the analysis. The same commentary says that in an asset sale the contracts are among the assets being transferred and most contracts require the other party’s consent before they can be assigned, while in a share sale the corporation that is party to the contracts does not change and contracts generally stay in place, unless a change-of-control clause gives the other party a right to terminate, renegotiate or object. These clauses repay a careful read. See what a change-of-control clause is.

Approach the manufacturer on your timetable

The timing of the conversation with each manufacturer is yours to choose. The same commentary notes that an approach from the existing owner is often better received than a cold approach from an unfamiliar buyer, and that consents can take longer than buyers expect, especially with larger counterparties. Where a contract cannot be assigned, the outcome depends on the counterparty’s willingness to consent or to enter a fresh agreement with the buyer, and the commentary says that risk should be addressed, through a price adjustment, a closing condition or otherwise, before a binding agreement is signed. Ask each manufacturer whether the buyer must apply to its partner program in its own right. The manufacturer’s pace is outside your control, so build it into the schedule. Whether and when to tell suppliers is covered in should I tell my suppliers I am selling.

Decide what a buyer may see, and when

A reseller’s files hold customer details, so settle what a prospective buyer sees before the data room opens. Under 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 security safeguards appropriate to its sensitivity, and return or destroy it within a reasonable time if the transaction does not proceed, and if the information is necessary to decide whether to proceed and, if so, to complete the transaction. That route 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. Part 1 of PIPEDA does not apply to business contact information used solely to communicate with someone about their employment, business or profession, so check how much of a business-to-business customer list is held only for that purpose. Quebec’s Commission d’accès à l’information describes separate rules, in force since September 2022, that allow personal information to be communicated without consent, on certain conditions, where it is necessary to conclude a commercial transaction.

Housekeeping that can delay a close

Several routine items can slow a reseller closing because they depend on third parties and may be discovered late.

• Liens: search the personal property registry in your province for security interests against your assets and arrange discharges. Ontario’s Access Now service and British Columbia’s Personal Property Registry both record liens and security interests.
• GST/HST: the Canada Revenue Agency says a seller may be able to elect jointly with the purchaser so that no GST/HST is payable on the supplies it covers (some supplies still carry it), but not where only one or more assets are sold, or where the seller is a registrant and the purchaser is not.
• Customer renewals: decide how customers whose renewals sit under your partner identity will be told, by whom and when.
• Staff: the certified engineers and the account manager the manufacturer knows can be part of what the buyer is paying for, so settle when they are told and what keeps them.
• Prepaid obligations: list the extended warranties and service plans you have been paid for but have not finished delivering, so they can be priced or assumed in the deal.