How do you avoid M&A pitfalls when selling in Canada?
What risks and delays arise after you sign an LOI?
For Canadian owners, signing a Letter of Intent (LOI) can make closing feel within reach — but the period between the LOI and the final wire transfer is full of challenges that can delay the process, trigger re-trading or cause the deal to collapse. The key dynamic is that leverage shifts from seller to buyer once you enter exclusivity, alongside risks like unprepared due diligence materials, buyer financing struggles and ambiguous terms.
The shift in leverage post-LOI
In a competitive auction the seller holds leverage up to signing, as multiple buyers compete on price and terms. Once you enter exclusivity with a single buyer, you cannot negotiate with others, so the buyer can push for concessions, delay progress or re-trade based on due diligence findings. Mitigate by keeping backup buyers engaged, negotiating a short exclusivity period (e.g., 60 days), insisting on clear LOI terms, and considering a break fee.
Factors that can delay funds or derail the deal
- Unprepared due diligence materials — a disorganized virtual data room stalls the process; conduct pre-sale due diligence and engage an accountant
- Third-party consent delays — landlords, regulators (Competition Bureau, Investment Canada Act) or customers; identify and engage them early
- Buyer equity financing struggles — investors may balk at risks; vet financial capacity and request proof of commitments pre-LOI
- Working capital peg disputes — define the peg, its calculation and benchmarks clearly in the LOI
- Vague LOI terms — precise drafting on structure, price and indemnities limits contentious purchase-agreement negotiations
- Due diligence discoveries — CRA tax arrears or litigation undermine value; resolve issues early
- Regulatory approvals — national security or industry reviews can take months; identify them early
- Material adverse changes — losing a major client can trigger a MAC clause; operate conservatively and negotiate a narrow definition
- Tax and structuring — sellers favour share sales for the Lifetime Capital Gains Exemption while buyers push asset sales; engage a tax advisor early
- Exclusivity extensions — tie any extension to milestones, cap its duration and consider break fees
Key facts: post-LOI risks and delays
Leverage shifts to the buyer once you enter post-LOI exclusivity
Maintain leverage with backup buyers, a short exclusivity period (~60 days) and precise LOI terms
Common derailers: disorganized due diligence, missing consents, buyer financing gaps, working-capital disputes, MACs, regulatory approvals
Best practice: a strong deal team, pre-sale due diligence, vetted buyer financing and early third-party consents
Disclaimer: This article is for general informational purposes only and does not constitute legal, tax or financial advice. Consult qualified advisors regarding your specific circumstances.
