What affects the asking price of a manufacturing business

Beyond revenue, equipment and customers, a manufacturing plant carries legal facts that a particular buyer may weigh. Each of them is a question to answer before a number goes on a listing. This guide sets out four, all rooted in statutes, as factors to document rather than a method. It gives no values or ranges, and it is not a valuation. For setting a price in general, see how do I set an asking price, and listings sit under manufacturing businesses for sale.

Whether the permits can follow the plant

If a plant needs a permit or approval to operate, whether that permit can pass to a buyer is a question to answer early. British Columbia’s Environmental Management Act says a transfer of a permit or approval is without effect unless a director has consented in writing (the Act also lets a director consent by electronic means), and that a hazardous-waste transportation licence is not transferable. In Quebec, under section 31.0.2 of the Environment Quality Act, a person who wishes to continue an authorized activity must obtain a transfer of the authorization from its holder, and within 30 days of receiving the documents the Minister may notify an intention to oppose the transfer for a reason set out in sections 32 to 35 of the Act respecting certain measures enabling the enforcement of environmental and dam safety legislation, a time the Minister may extend by up to 30 days for a partial transfer. Despite that section, an authorization for research and experimental purposes issued under section 29 is not transferable. In Alberta, the Environmental Protection and Enhancement Act says no person may transfer, sell, lease, assign or otherwise dispose of an approval or registration except in accordance with the regulations, and the Director may impose terms and conditions on a transfer. A seller who can show where each permit stands gives a buyer fewer unanswered questions.

Environmental liability that follows owners

Under section 45 of British Columbia’s Act, and subject to section 46 (persons not responsible for remediation), the persons responsible for remediation of a contaminated site include a current owner or operator of the site and a previous owner or operator. In Ontario, sections 7 and 8 of the Environmental Protection Act allow the Director, in the circumstances those sections set out, to direct a control order or a stop order to an owner or previous owner of a source of contaminant, among others. Those provisions mean the plant’s history can matter to both sides of a sale, and a clean, documented history is a fact a buyer can check. A gap in that history is a fact too. Environmental professionals, not a price guide, answer what it means.

Product-safety exposure

The Canada Consumer Product Safety Act applies to consumer products other than those listed in its Schedule 1, and section 4 excludes some others. Under section 13, a person who manufactures a consumer product for commercial purposes must prepare and maintain documents showing from whom it obtained the product or to whom it sold it, or both, as applicable, plus any prescribed documents, and keep them until six years after the end of the year to which they relate, or any other prescribed period. Under section 14, a manufacturer must give the Minister, and if applicable the person from whom it received the product, all the information in its control about an incident, as the Act defines it, within two days after becoming aware of it, and must also file a written report within the period section 14(3) sets. A buyer can ask what incident history exists and whether those records are complete. Pull together the document file and any incident reports so those facts are ready.

Permits are not the same everywhere

The four provinces covered here do not work alike. In Ontario, the Ministry says that for an ownership change of an Environmental Compliance Approval you provide, among other documents, a signed letter from the previous owner authorizing the transfer. In Quebec, the holder first sends the Minister a notice of transfer, and the transfer is deemed completed if the Minister sends no notice of intention within the time the Act sets. Check the rules in any other province where a permit is held. Say which province governs each permit, since a buyer reading a listing cannot assume your province’s steps match theirs.

An inherited collective agreement

If, in Ontario, the seller is bound by or a party to a collective agreement with a trade union, section 69(2) of the Labour Relations Act, 1995 says the person to whom the business is sold is, until the Board otherwise declares, bound by the collective agreement as if it had been a party. A buyer may therefore be bound by the agreement’s terms, so its contents are part of the picture.

Why the order matters

Permits and environmental history bear on whether the plant can keep operating and on what a buyer might inherit, while product-safety records and a union agreement bear on the business around it. Present them separately, with the source document for each. A permit schedule and a records file are factual, and they let a buyer’s advisers see that the questions have been asked. Leave the number to a qualified valuation professional, who can weigh these facts with the financial statements. Nothing here says that any of them raises or lowers a price.

Factors to document before you price

• A permit schedule showing the province, the issuing body, the holder and the written transfer step for each permit or approval.
• Any hazardous-waste transportation licence and, for a British Columbia licence, which is not transferable, the buyer’s plan for its own.
• The site’s environmental history, with reports and orders in one file.
• The consumer-product supply documents and incident reports, with their dates.
• Any collective agreement, with its term and its parties.