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1. Osler, Hoskin & Harcourt LLP
Chad Bayne
Selling Your Business 101
September 17, 2018

2. 2
SELLING YOUR BUSINESS 101
Introduction
• Areas to Be Covered:
◦ Why Sell?
◦ Initial Preparation
◦ Answering the Fundamental Questions
◦ Assessing and Managing Risks
◦ Accounting
◦ Tax Planning
◦ Process and Getting to a Letter of Intent
◦ Getting to a Deal and Closing

3. 3
SELLING YOUR BUSINESS 101
Why Sell?
• Why Do You Want to Sell?
◦ This will generally be the first question a buyer will ask.
• There are various reasons:
◦ Retirement
◦ Shareholder disputes
◦ Illness
◦ Death
◦ Overworked
◦ Boredom
◦ Weighing additional dilution vs potential return on exit
◦ Maximized growth potential
◦ Investors need liquidity
◦ Market consolidation
◦ Financial imperatives
◦ Bull market
◦ Suitor makes an offer you cannot refuse

4. 4
SELLING YOUR BUSINESS 101
Initial Preparation
• Start as early as possible
◦ Often 1 to 2 years in advance
• Start assembling a multi-disciplinary team
◦ M&A counsel
◦ Accountant
◦ Tax advisor
◦ Banker
◦ Other Advisors
• Planning options vary
◦ Owner/operator
◦ VC backed
• Who is the core team at the company that will be “in the know”?
• After the exit – then what?

5. 5
SELLING YOUR BUSINESS 101
Answering the Fundamental Questions
• Is now the right time to sell?
◦ Is there a consolidation happening in the market?
◦ Is the company in high demand?
• Who will the likely buyers be?
◦ Existing partner
◦ Strategic buyer
◦ Private Equity
◦ Consolidator
• What is your floor price?
• Are you willing to take shares back of the buyer (or do a management roll)?
• Are you willing to work for the buyer for a number of years in a retention
arrangement?
• Are you willing to agree to an earn-out?

6. 6
SELLING YOUR BUSINESS 101
Assessing and Managing Risk
• Start preparing well in advance
◦ Buyer will do extensive diligence
◦ Buyer’s advisors are tasked with uncovering issues
◦ Buyer will use issues uncovered to re-cut deal
• Allocate risk to the sellers
• Implement or increase holdback/escrow
• Reduce purchase price
◦ Buyer may walk if they uncover too many issues or any major issues

7. 7
SELLING YOUR BUSINESS 101
Assessing and Managing Risks (Continued)
• Assess Risks
◦ Understand potential legal risks
◦ Prepare appropriate explanations or take steps to mitigate
• It is always better to be proactive rather than reactive
◦ Correcting issues while a transaction is pending can be time
consuming and get expensive
• Some issues may require “payola” to resolve
• Delays in resolving could jeopardize the transaction
◦ Understand the representations and warranties that the target/sellers
will need to make

8. 8
SELLING YOUR BUSINESS 101
Assessing and Managing Risks (Continued)
• Be Ready
◦ Ensure all arrangements are properly documented and signed
• Make sure you own your IP assets and have sufficient rights to use IP
assets of others
◦ Ensure minute book is up to date
◦ Resolve outstanding litigation (if possible)
◦ Build a data room
• You will have to do it and it is a lot of work, so it is best to be ready before
the process even starts
• Even though the buyer will have its own due diligence checklist, you will
be able to cross-reference
◦ Buyer and its advisors draw conclusions from poor record keeping

9. 9
SELLING YOUR BUSINESS 101
Accounting
• Statutory remittances
• Tax returns (income, HST)
• Audited financial statements
• Quality of earnings report
• Maximizing EBIDTA
• Do not co-mingle personal/non-business assets with corporate
assets.

10. 10
SELLING YOUR BUSINESS 101
Tax Planning
• Share vs Asset Sale
◦ Buyers will generally prefer an asset sale
◦ Sellers will generally prefer a share sale
◦ Hybrid possible to create win-win?
• Qualified Small Business Corporation / Lifetime Capital Gains
Exemption
• Family Trusts
• Use of Losses
◦ IP Drop-Down and Use of Capital Dividend Account
• Other Tax Planning

11. 11
SELLING YOUR BUSINESS 101
Process and Getting to a Letter of Intent
• Prepare a form of NDA
• Hire a banker?
◦ Process will vary depending on whether you hire a banker?
◦ Who to hire?
◦ Negotiate engagement letter
• Fees
• Expenses
• Ability to Terminate
• Tail
• Indemnity
• Consider market comparables / potential price range

12. 12
SELLING YOUR BUSINESS 101
Process and Getting to a Letter of Intent (Continued)
• Process
◦ Prepare a CIM (confidential information memorandum) or a teaser?
◦ Single stage auction or multi-stage process?
◦ Prepare list of buyers
• First stage outreach
• Second stage outreach
◦ Sign NDA with potential buyers
◦ First-stage diligence
◦ Management presentations
◦ Initial indications of interest
◦ Second-stage diligence
◦ In-depth management presentations
◦ Form of purchase agreement / indicative summary of terms
◦ Bids
◦ Negotiate letter of intent
◦ Enter exclusivity

13. 13
SELLING YOUR BUSINESS 101
Letter of Intent
• Generally non-binding other than exclusivity and confidentiality
• Understanding what is, and is not, ‘market’ is crucial
• Purchase Price
◦ Form of consideration
◦ Timing
◦ Cash free?
◦ Debt free?
◦ Working capital adjustment?
◦ Earn-out?

14. 14
SELLING YOUR BUSINESS 101
Letter of Intent (Continued)
• Transaction Structure
◦ Share vs asset sale
◦ Treatment of options and other equity-based compensation
• Allocation of liability
◦ Indemnification regime
◦ Caps
◦ Escrow vs Rep & Warranty Insurance
• Key employees / retention arrangements
• Exclusivity

15. 15
SELLING YOUR BUSINESS 101
Getting to a Deal and Closing
• Comprehensive Due Diligence
◦ Legal
◦ Financial
◦ Tax
◦ IP (code review)
◦ Business (although usually mostly done at this point)
◦ Customer calls
◦ Other?
• Transaction Documents
◦ Purchase Agreement
◦ Ancillary Agreements

16. 16
Getting to a Deal and Closing (Continued)
• Retention arrangements
• Integration planning
• Communications strategy / press release
• Implementing pre-closing tax planning
• Signing
• Closing Conditions
◦ Third party approvals
◦ Regulatory approvals
◦ Discharging debt
◦ Other
• Closing

17. Thank you!
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