There are two primary sale structures that are used in M&A transactions: stock sales and asset sales. In a stock sale, the shareholders of the seller’s company sell their stock to the buyer. In an asset sale, the seller sells company assets to the buyer. Which type of sale structure is agreed on by the seller and buyer depends on a variety of factors such a legal and tax implications. Stock sales are more advantageous in some M&A deals (typically to the buyer), while asset sales are better in others. In the acquisition of Corum client Better Impact by The Brydon Group, doing a stock sale was clearly advantageous to the seller, especially in light of specific Canadian labor regulations. The deal also highlighted some organizational, financial, and accounting issues that sellers and buyers should be aware of.

Better Impact: a company in the volunteer space

Better Impact is a Canadian company that develops volunteer management, scheduling, and engagement software for the nonprofit sector. The company was founded in 1997 by Tony Goodrow and Dan Plaskon, with Goodrow taking on roles over the years as President and CEO of the company, and Plaskon responsible for the company's technology. A relatively small company ‒ 37 employees in 2024 ‒ Better Impact had a steady revenue growth rate in the 8%-10% range (all Annual Recurring Revenue). Headquartered in Hamilton Ontario, the company has subsidiaries in the U.S., the U.K., and Australia, and a worldwide base of approximately 3000 customers.

Goodrow has a lifetime passion for volunteerism and views himself as a Volunteer Engagement Evangelist. And though Better Impact was an outlet for that passion, Goodrow realized in his early sixties that it was time to sell the business. Corum Regional Managing Director Martin Lowrie, who was the lead transaction advisor in the Better Impact deal, began talking to Goodrow in 2019, a number of years before Goodrow indicated that he was ready to sell. Lowrie recalled that when Goodrow was ready to sell, he wanted to do it while he still had a couple of years left to go through the transition.

Buyer interest

That relationship led to an M&A process in which Corum launched Better Impact to the M&A market in May 2024. The launch generated a sizable amount of interest from potential buyers: 24 NDAs were signed, and at least 12 potential buyers seriously considered further pursuing a transaction. The list was whittled down to three bidders, with investment firm The Brydon Group ultimately becoming the winning bidder. The sale of Better Impact to The Brydon Group closed on November 1, 2024.

Asset sale versus stock sale

Initially, The Brydon Group wanted the deal structured as an asset sale. The advantage to buyers in an asset sale is that they can step-up the value of the purchased assets and depreciate the costs. This is a potential benefit to buyers if they later sell those assets at a higher price.

However in this case, a major pitfall if the deal were done as an asset sale would be the Employment Standards Act, which requires Ontario Canada-based employers to provide up to twenty-six weeks of severance pay to fired employees. This would have been the case if the sale was structured as an asset sale. Under advice from counsel, Lowrie realized that if the sale of Better Impact was structured as an asset sale and all their employees were then fired, the company would be liable for paying severance to those employees ‒ whether or not they were subsequently hired by the buyer. This required either a switch to a stock purchase structure or the buyer having to compensate the seller with a compensatory increase in the deal value. The situation encouraged the buyer to move away from their original position of an asset purchase and to a stock purchase. Lowrie recalls, “Eventually they were persuaded into a stock purchase agreement and it all worked out fine."

Lowrie points out that even though Better Impact's employee severance issue was specific to Canada, there are more general things to consider when structuring a deal as an asset sale. First, there may be employee severance issues in other countries. For example, in the United States, there is no legal requirement for an employer to provide severance pay when selling a company and firing employees, unless it's specified in an employment contract or company policy. However, some U.S. states may have specific regulations regarding severance pay in the context of mass layoffs or plant closings. This is something that Lowrie says sellers and buyers need to understand.

Asset sales also have implications for customer and vendor contracts. When a deal is transacted as an asset sale, the buyer needs to reassign the customer contracts from one entity to another. And in doing so, Lowrie says, "You are essentially opening up the customer's contract for renegotiation. The customer knows at this point that pressure is on you to get the contract transferred from the one entity to the other. You're now opening up all of these contracts for potential renegotiation, which is not a great state of affairs. If you have to renegotiate all these contracts and they get renegotiated down 10 or 15 percent, you just took a haircut. Also bear in mind that you're doing the same for all your vendor contracts."

Organizational and financial issues

Better Impact has clients in many different countries. And because of that they needed local representation of their products in each country. To provide that local representation, Better Impact set up subsidiaries in the different countries. But in doing that, they created various issues because there were different ownership characteristics. Lowrie noted that in some countries the subsidiary CEO has a stake in Better Impact. In others, they had just a stake in the subsidiary. Some subsidiary CEOs had no ownership at all. It complicated overall ownership of the company. It also created tax and legal issues which required tax and legal advisors in Canada, where the deal was being transacted, but also tax advisors and legal advisors in each subsidiary country to work through the issues.

There were financial issues too resulting from the various currencies and exchange rates that applied to the different subsidiaries. Lowrie points out that getting consolidated financials and having them updatable quickly and easily, with all of the currency fluctuations, is key in due diligence. "The question is," he says, "what exchange rates do you use to finalize the transaction documents? Is it a six month average? Do you look at an exchange rate every single month as you go through the financials and convert each one? All of these questions need to be addressed." He adds, "If you are a seller and you have one or more subsidiaries, be prepared to produce consolidated financials quickly and easily every month during due diligence. But you also need to have your financials prepared in a way so that historically you can track how the company's been doing over the past three years with monthly consolidations. Normally, when you have subsidiaries you consolidate financials once a year. But in the M&A process the buyer is really looking for monthly financials. You could provide just the subsidiary financials and the parent financials and have the buyer do the consolidation. But that's a lot of work, and it's going to put off some buyers."

Accounting issues

Back in 2019,  Better Impact used a cash accounting system, which served them well over the years.  However, most buyers want sellers to use a GAAP-based accounting system. "The buyers are going to take your P&L and absorb it into their own," noted Lowrie. “You can go into a transaction with cash-based financials, but it makes it really difficult for the buyer. And many times they'll look at it and go 'Nah, I'm not sure I want to deal with it.'" Better Impact did convert to a GAAP-based accounting system ahead of the transaction, which served well during due diligence.

An extremely good outcome

Both the seller's and buyer's teams worked through the issues so that the resulting deal was a very good one for both parties. For The Bryden Group, the acquisition was a strategic move to capitalize on the growing market for volunteer management software with a well-established player like Better Impact. For Better Impact, the acquisition allows it to prioritize advancements in its software offerings, access wider markets, reach more organizations globally, and at the same time provide liquidity for the founders.

Goodrow was extremely happy with the deal. It provided him with significantly more cash up front than he had initially expected to get in the sale. The deal also included a seller's note at an attractive interest rate and very good earnout provisions.  

Although Goodrow is eventually headed to retirement, he plans to stay on as a consultant at Better Impact for a while because he says, "One, I want to ensure a smooth transition, and two, because I love working in the volunteer sector."