Snow removal company due diligence

A buyer under a letter of intent is testing four things: that the contracts are what the seller says, that the work was done and can be proved, that the claims history is complete, and that the equipment is free to transfer. This guide lists the documents and registry searches that answer those questions, and says what each finding means. Your lawyer and accountant should run the work; the list helps you ask for the right files.

Contracts and billing

Request every client contract, with amendments, and build a schedule of client, term, renewal date, billing basis and assignment terms. Compare the schedule with the revenue by client in the financial statements. A contract that bars assignment without the client’s consent becomes a conversation with that client, so the schedule shows which conversations the deal depends on. A book that is mostly per-push work means revenue follows snowfall, so ask the lender what it needs to understand about that before the closing date.

Service logs and claims

Ask for logs for at least one full winter and test a sample against invoices and client complaints. Ask for the insurer’s claims summary and the file on every open claim. In Ontario, the Limitations Act, 2002 says that unless the Act provides otherwise, no proceeding may be commenced after the second anniversary of the day a claim was discovered, and, in s. 15(2), bars a proceeding after the 15th anniversary of the day the act or omission took place, both subject to the Act’s other provisions, so a claim can surface after the season it relates to. Other provinces have their own limitation statutes, so ask your lawyer which applies. Ask the seller to confirm in writing that all known claims are disclosed. Ask also whether any client has given notice of a problem that has not yet become a claim, such as a written complaint about a missed storm or an icy walkway, since a claim could follow.

Equipment and registry searches

Match the equipment list to what is in the yard, unit by unit, and run personal property searches on each. Ontario’s government advises searching Access Now before buying used goods. Under Ontario’s Personal Property Security Act, s. 28(1), a buyer of goods from a seller who sells in the ordinary course of business takes them free from a security interest the seller gave, unless the buyer knew the sale breached the security agreement. Section 28(5) sets a separate rule for a motor vehicle, as the regulations define one, that is the seller’s equipment and is sold outside the ordinary course of business: the buyer takes it free of the seller’s security interest unless its vehicle identification number is set out in the registration as the Act requires. Buying a company’s whole fleet is a different transaction, so ask your lawyer how that provision applies. See the answer on PPSA searches.

Workers’ compensation and payroll

If the company has a WSIB account, WSIB says it may hold a purchaser liable for amounts owed by the vendor up to the date of sale if there is no valid purchase certificate. Request the account status and plan the certificate application before closing. In Alberta, section 132 of the Workers’ Compensation Act is listed by the WCB as a sale situation needing a clearance. Check payroll remittances and crew records through your accountant. The CRA’s keeping-records page points to the information employers must keep in their records.

Insurance and contract requirements

Request the policies, the certificates of insurance given to clients and the insurer’s loss history. Read each client contract for the coverage it requires and check that the policy meets it. Ask your own broker whether you could be insured on comparable terms. If the carrier will not cover you on comparable terms, check whether each client contract’s insurance requirements can still be met. Put the insurer’s answer in writing and attach it to the diligence file, so that the decision to proceed rests on a document and not on a conversation.

Subcontractors and hired contractors

Ask for a list of every subcontractor, with the agreement and the proof of their insurance and workers’ compensation coverage. Alberta’s WCB says that if you hire a contractor or subcontractor who does not have WCB coverage, you could be responsible for payment of any outstanding WCB premiums, and that before hiring and before releasing payment you should get a clearance to make sure they have a WCB account in good standing. Other provinces have their own rules, so ask the board where the company works.

Findings to weigh carefully

Four findings deserve attention in this sub-sector. An open claim with significant exposure raises who bears it after closing, which depends on whether you buy the shares or the assets. Service records too thin to defend a claim mean the evidence does not exist. A contract book that is mostly per-push puts the earnings on the weather. An insurer unwilling to cover you on comparable terms may leave you unable to meet the contracts’ insurance requirements. Take each to your lawyer and accountant before deciding how to respond.

• Contract schedule with billing basis, renewal dates and assignment terms
• Service logs for a full winter, sampled against invoices
• Insurer’s claims summary and the file on every open claim
• Personal property searches on every unit and a match to the yard
• Workers’ compensation account status and clearance plan