How to sell a business in Canada
The sale of a privately held company in Canada, from the decision to sell through closing and transition, with InvestDeal’s role and AI tools set out at each stage.
Reasons for a sale
The reason for a sale shapes its timing, the buyers approached and the structure a seller can accept. Most sales of owner-operated companies in Canada arise from one of the following.
- Retirement
The most common reason. CFIB reports that 80% of owners aged 65 or older plan to exit within ten years.
- Other opportunities
A new venture, a change of career or a relocation, where the owner requires liquidity on a defined timetable.
- Shareholder change
The departure of a partner, a shareholder dispute or a buyout under a shareholders’ agreement.
- Health
Illness or incapacity that limits the owner’s role, often calling for a shorter process and a longer handover.
- Financial pressure
Debt, a loss of financing or declining results, where an earlier sale preserves more value than a later one.
- Market conditions
Strong buyer demand in the sector, or regulatory and trade changes ahead.
Seller objectives
A seller’s objectives determine which buyer is preferred and how the price is paid. They are settled before the business goes to market, since each carries a trade-off.
- Value
The highest price, usually achieved through a competitive process among several qualified buyers, with more of it paid in cash at closing.
- Continuity
Preservation of the company’s name, employees and culture, often with the owner retained for a transition period or a minority stake.
- Clean break
A full exit at closing, which buyers may price lower where the business depends on the owner.
- Timing
A closing date set by retirement, tax planning or a personal event, which narrows the field of buyers able to meet it.
The advisory team
A sale draws on several professional advisors, each responsible for a defined part of the transaction. The M&A advisor manages the process and coordinates the others.
- M&A advisor
Valuation, buyer identification and outreach, process management and negotiation through to closing.
- Accountant
Financial statements, preparation for the buyer’s review of earnings and the tax structure of the sale.
- Lawyer
The letter of intent, disclosure in due diligence, the purchase agreement and the closing documents.
- Chartered business valuator
An independent valuation report, required in particular for sales to related parties and for estate freezes.
- Lender
Repayment of existing debt at closing, and financing for the buyer or for a vendor take-back.
- Real estate advisor
Valuation and the lease or sale of the premises, where property forms part of the transaction.
Sale readiness
Buyers price the last two or three years of financial statements, so preparation begins about a year before the business goes to market. The following areas receive the closest attention in due diligence.
AI Sale Readiness Review identifies the issues a buyer’s accountant would raise.
Get started- Financial statements
Three years of statements reconciled to the tax returns, with each adjustment to earnings documented.
- Owner dependence
Management, customer relationships and know-how that continue without the owner.
- Customer concentration
Revenue spread across customers, with the principal contracts documented.
- Contracts and leases
Assignment and change-of-control clauses in the lease, supplier agreements and customer contracts.
- Legal and regulatory
Licences, permits, environmental matters and employment obligations in good order.
- Tax structure
The share structure reviewed early, since the lifetime capital gains exemption tests look back 24 months.
Valuation
A valuation sets the asking range and the seller’s position in negotiation. For owner-operated companies, value is most often expressed as a multiple of adjusted earnings.
AI valuation from the financial statements, benchmarked against comparable businesses.
Get started- Earnings approach
A multiple applied to seller’s discretionary earnings (SDE) or adjusted EBITDA, according to the size of the company.
- Market approach
Comparison with transactions and businesses for sale in the same sector and size range.
- Asset approach
The value of the net assets, relevant where earnings are low or the business is asset intensive.
- Comprehensive
An extensive scope of work, with a high level of independent corroboration of the significant inputs and assumptions.
- Estimate
A substantial scope of work, with a moderate level of independent corroboration.
- Calculation
The least extensive scope, with limited corroboration and simplifying assumptions for some inputs.
Buyers and buyer outreach
The buyers for a Canadian private company fall into several categories, each with its own criteria, financing and timetable. A sale reaches them through direct outreach or through public channels.
- Strategic acquirers
Competitors, suppliers and customers, which may pay for synergies with their existing operations.
- Financial buyers
Private equity funds, family offices and search funds, which assess earnings, growth and management depth.
- Individual buyers
Owner-operators, often financed through bank lending, including the Canada Small Business Financing Program.
- Management and employees
Management buyouts and, since 2024, employee ownership trusts.
- Direct outreach
Identified buyers approached privately, with disclosure controlled at each step.
- Professional networks
Introductions through accountants, lawyers and lenders.
- Industry contacts
Competitors and companies in the same value chain.
- Public marketplaces
Business-for-sale listings, which reach a wide audience at the cost of a public profile.
The sale process
A sale typically takes six to ten months from going to market to closing, after about a year of preparation. Each stage releases more information to fewer buyers.
- PreparationAbout 12 months
- Buyer outreach2 to 4 months
- Letter of intent2 to 4 weeks
- Due diligence6 to 12 weeks
- Closing3 to 5 weeks
- Preparation
Financial statements, documents and the sale materials, including the anonymous profile and the information memorandum.
- Buyer outreach
Buyers identified, approached and qualified, with an NDA executed before the information memorandum is released.
- Letter of intent
Price, structure, conditions and exclusivity agreed in principle with the selected buyer.
- Due diligence
Financial, legal and operational review by the selected buyer in the data room.
- Closing
The purchase agreement, the closing documents and the flow of funds.
Transaction structure and tax
The structure of a sale determines the tax payable and the risk the seller retains after closing. It is settled at the letter of intent and planned before it.
- Share sale or asset sale
Sellers generally prefer a share sale for capital gains treatment. Buyers often prefer an asset sale for the tax cost of the assets.
- Lifetime capital gains exemption
Up to $1,275,000 of gain on qualifying small business corporation shares is exempt in 2026.
- Capital gains
One half of the remaining gain is taxable, and alternative minimum tax may apply in the year of sale.
- Deferred consideration
Vendor take-back financing, earn-outs and holdbacks defer part of the price, each on its own tax and credit terms.
Transaction costs
The advisory fee is usually the largest cost of a sale, followed by legal and accounting fees. Each is agreed before the business goes to market.
- Advisory fee
BizQuest reports broker commissions of 8% to 15% on transactions of $1 million and under, most often 10%. M&A advisors commonly charge a retainer and a success fee on the Lehman scale.
- Legal and accounting
The purchase agreement, due diligence and tax structuring, with fees that rise with complexity.
- Valuation
The cost of an independent report, where one is required.
- Closing adjustments
Repayment of debt and the working capital adjustment at closing.
Ownership transition
The transition protects the value the buyer has paid for. Its terms are set in the purchase agreement and planned before closing.
- Handover period
A period of several months in which the seller remains, usually paid, to introduce customers and staff.
- Employees
In a share sale the employer is unchanged. In an asset sale, employment standards law governs how service carries over to the buyer.
- Customers and suppliers
A communication plan agreed with the buyer and carried out at or after closing.
- Restrictive covenants
Non-competition and non-solicitation terms, limited in scope and duration.
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How buyers price it (three ways)
$1.45M adjusted earnings at 3.8 – 5.1×, the multiple this profile earns
Two things would move it before you sell: your largest customer is 38% of revenue, and most of the business still runs through you
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