A Canadian business owner who sells to the first buyer with a reasonable offer can leave millions of dollars behind, because the price a buyer will pay depends heavily on whether that buyer has to compete. In an illustrative story from the introduction of my book, two owners in the same industry, with the same revenue and in the same city, sold their companies for $18 million and $21 million. The owner who took $18 million dealt with one buyer. The owner who received $21 million ran a competitive process with five bidders, and the eventual buyer opened at $16 million.
The gap had nothing to do with the quality of either company. It came down to process, preparation and the team each owner had in the room. That matters now because the Canadian Federation of Independent Business (CFIB) reports that 76 per cent of small business owners plan to exit within 10 years, and only 9 per cent have a formal succession plan in place. Most of those owners will sell once. The terms they accept are fixed at signing.
Robert’s morning
Robert MacDonald stood in his empty Toronto office on a grey March morning, looking at a framed photo of his team celebrating their first million dollars in revenue. Twelve years had passed since that photo was taken. The day before, he had signed the papers that transferred his manufacturing company to a private equity firm for $18 million.
He should have felt elated. He felt sick.
Around the time of closing, over drinks at his golf club, a friend named James mentioned that he had sold a similar company for $21 million. Same industry. Same revenue. Same city.
“How?” Robert asked.
“I ran a competitive process,” James said. “I had five buyers bidding against each other. The private equity firm that bought me came in at $16 million at first. By the time we were done, they were at $21 million and grateful to get it.”
Robert had worked with one buyer. There was no competition and there were no alternatives. He received what felt like a fair offer and accepted it because he was exhausted, because he trusted the buyer’s corporate development executive and because he did not know what he did not know.
A note on the story itself. Robert comes from the introduction of my book, Selling Your Canadian Business. In keeping with the book’s disclaimer, it is an illustrative example rather than a documented transaction, so the figures are a teaching tool and not statistics. The pattern it describes is one I have seen many times: smart, successful owners who treat the most important transaction of their lives as if it were routine.
Reading the $3 million gap
The arithmetic is worth a closer look, because it shows why the mistake is so easy to make.
- The $3 million gap is about 17 per cent of the $18 million Robert received.
- James’s buyer moved from $16 million to $21 million. That is a $5 million increase, or about 31 per cent, between the opening bid and the final price.
- Robert’s $18 million was actually $2 million higher than the price James’s buyer first offered.
That last point is the dangerous one. Robert’s offer was not insulting. It was reasonable, and it was higher than the opening bid in James’s process. An offer can look generous when it is compared with nothing. It only looks like a bargain for the buyer when it is compared with what other buyers would have paid.
In the book, I suggest that the same buyer might have gone higher if it had faced competition, and that another buyer, one Robert never found, might have paid more again because the business solved a specific strategic problem for that buyer. That is an argument, not a measurement. No one can promise a specific uplift, and I would be cautious of anyone who does. What the story does show is the structure of the risk: when a seller has one buyer, the buyer sets the price. When a seller has several, the buyers do.
The money is not the whole story either. In the book, the missing $3 million was the difference between a comfortable retirement and an extraordinary one. It was a daughter’s graduate school fully funded instead of partly funded. It was a community centre Robert had hoped to endow in his parents’ name. How much of the gap would have survived taxes depends on how the deal is structured, which is a question for a tax advisor and one I return to below.
Why smart owners accept the first reasonable offer
Owners rarely accept the first offer because they are careless. They accept it for reasons that feel sensible in the moment.
Fatigue and relief. Running a business is demanding, and so is preparing to sell one. A credible offer feels like the end of a long road.
Trust. Buyers are usually pleasant, well prepared and persuasive. A good relationship with one buyer can make a second conversation feel disloyal.
The bird in the hand. Owners worry that if they keep looking, the one buyer they have will walk away.
An experience gap. A buyer’s corporate development team or private equity investor may have closed dozens of acquisitions. Most owners are selling for the first time.
The CFIB survey points to a deeper problem underneath these habits. Its top obstacles to exiting include difficulty finding a suitable buyer or successor (54 per cent), being unable to measure the value of the business (43 per cent) and operations that depend too heavily on the owner (39 per cent). The same release reports that 43 per cent of owners consult accountants, 24 per cent work with lawyers and 39 per cent rely only on themselves. The release does not state the sample size, and CFIB members are small business owners, so these figures describe that group and not every Canadian seller.
Read together, those figures describe Robert. If an owner cannot measure the value of the business, there is no way to tell whether $18 million is a fair price. If the owner cannot find other buyers, there is no competition. And if the owner is handling the process alone, no one is positioned to notice what is missing. Each of these gaps is also fixable, but the fixes take time, which is why the owners who benefit most are the ones who start before a buyer calls.
What competition does for a seller
Competition changes the seller’s position in a simple way. A buyer who knows it is the only bidder is pricing against the seller’s willingness to keep the business. A buyer who knows several others are at the table is pricing against those bidders, and has to beat them.
Price is only one of the things that can move. In a 2021 article on managing multiple bidders, lawyers at the firm Mintz note that competition among buyers can result in a higher price for the company and strengthen the seller’s negotiating position on contract terms such as indemnification and timing. Terms like those can matter as much to a seller’s final outcome as the headline number.
The same article is candid about the costs. A seller running a competitive process may have to manage different purchase agreements and disclosure schedules, more due diligence requests and separate meetings with each bidder. More bidders also means more parties with access to the company’s information, and bidders may resist investing in a deal without some form of exclusivity. The authors conclude that advance planning and a thorough, organized process can reduce these complications.
There is also a caution about the academic evidence. In a widely cited paper in the Journal of Finance, Audra Boone and J. Harold Mulherin studied 1990s takeovers and found that roughly half of targets were sold through auctions and half through negotiations with a single bidder, with comparable wealth effects for target shareholders. That finding does not support the claim that every formal auction beats every negotiation. It also covers public-company takeovers in the United States, not Canadian private businesses like Robert’s, so it cannot be applied directly. My own reading is that the format matters less than whether the seller genuinely tested the market. I offer that as my interpretation, not as the authors’ conclusion.
So the honest version of the lesson is this. Competition helps, but it has to be real, and it has to be managed. That is not a job an owner can do alone while also running the company.
Why competition needs an expert team
In my experience, the tension that produces a better outcome for a seller does not come from one tactic. It comes from many factors working together, and the more of them a seller has in place, the more options the advisory team can create.
Preparation comes first. The book sets out a value framework built around eight dimensions that buyers weigh: financial performance, customer relationships, market position, management depth, growth opportunities, legal and regulatory compliance, industry dynamics and size. A company that has worked on those dimensions gives buyers fewer reasons to discount their offers and more reasons to compete.
Next comes the discipline of the process itself. Controlling who sees confidential information through non-disclosure agreements, presenting the company through a teaser and a confidential information memorandum, organizing a secure data room, asking buyers for written indications of interest on a common template, running management meetings and circulating a draft purchase agreement all shape how buyers behave. Done well, each step keeps bidders engaged and comparable. Done poorly, each one erodes the seller’s leverage.
I also think about the whole transaction from the end and work backwards, asking what could undermine the seller’s position and removing it before a buyer finds it. Weak legal records, loose accounting and poor tax planning hand buyers a reason to reduce their price after the letter of intent is signed.
Tax planning is the clearest example. Canada’s lifetime capital gains exemption (LCGE) can shelter a substantial gain on the sale of qualifying shares. The federal government’s Budget 2024 raised the limit to $1.25 million of eligible capital gains for dispositions on or after June 25, 2024 and stated that indexation would resume in 2026, so the current figure should be confirmed with your tax advisor. CFIB summarizes the core conditions: the company must be a small business corporation at the time of sale, more than 50 per cent of its assets must have been used in an active business in Canada for 24 months before the sale, and the shares must not have been owned by anyone other than you or a related person during that 24-month period. CFIB warns that owners who want the exemption must plan ahead and recommends confirming eligibility with an accountant or lawyer, because qualification can be complicated. The full rules include further conditions, so the details belong with a qualified Canadian tax advisor.
The point is not that every owner needs the same team. It is that each expert protects a different part of the outcome. An M&A intermediary builds and manages the competition among buyers. A lawyer experienced in mergers and acquisitions protects the seller in the agreements. A tax advisor or accountant protects what the seller keeps after the sale. A wealth manager helps plan for life after the sale. Owners who skip that team are not saving money. They are taking on the risks the team was built to manage.
Six questions to ask before you accept any offer
These questions come from the pattern in Robert’s story and from the CFIB findings above. Use them as a check before you agree to anything.
- Who else could buy this business, and have they been approached? If the answer is no one, you do not yet have a price. You have an offer.
- How was the value of my business measured, and by whom? If you cannot answer this, you cannot judge whether an offer is fair.
- How much of the business depends on me? Owner dependence tends to lower what buyers will pay, and it is better to address it before a buyer raises it.
- Has a tax advisor tested whether my shares qualify for the LCGE and how the deal structure affects it? The 24-month tests mean this cannot be left until the letter of intent.
- Who is on my team, and who negotiates for me? The buyer’s side will have professionals. Yours should too.
- What happens to confidentiality, timing and exclusivity if more than one buyer is involved? Mintz flags each of these as a point that needs managing.
What to do if a buyer approaches you first
Many owners meet their first serious buyer before they have planned a sale. If that happens, the goal is to avoid locking yourself in before you understand your options.
Take the conversation seriously, and take your time. Avoid agreeing to exclusivity until you have advice, since exclusivity removes the competition that protects your price. Share only what is necessary and only under a confidentiality agreement. Bring in the advisors described above early, including an M&A intermediary who can tell you what the business is likely worth and who else might be interested. An approach from a buyer is a signal that your business has value. It is not a reason to hurry.
Frequently asked questions
How much more can a competitive sale process add to the price of a business? No source cited here quantifies an average uplift for Canadian private companies, and the results depend on the quality of the business, how well it is prepared, market conditions and the buyers involved. The story of Robert and James illustrates the risk of selling without competition, but its figures are an example and not a forecast. Sources such as Mintz describe competition as capable of raising both price and terms.
Is a competitive process right for every business? Not necessarily in the same form. Running one takes time and organization, and it adds work in confidentiality, due diligence and negotiation. Owners of smaller or simpler businesses should ask their advisors how a process can be scaled to fit, rather than skipping the question of competition altogether.
When should an owner start preparing? Well before any buyer appears. The book recommends beginning preparation commonly 18 to 36 months before marketing starts. The LCGE tests that look back 24 months are one reason to start early.
What is the lifetime capital gains exemption? It is a federal tax provision that can shelter gains on the sale of qualifying small business corporation shares. The limit was raised to $1.25 million for dispositions on or after June 25, 2024, according to Budget 2024, and indexation was due to resume in 2026. Confirm eligibility and the current limit with a qualified tax advisor.
This article is general education. It is not legal, tax or financial advice, and it does not create an advisor and client relationship. Consult qualified professionals about your situation.
Sources
- Canadian Federation of Independent Business. “Over $2 trillion in business assets are at stake as majority of small business owners plan to exit their business over the next decade.” January 10, 2023. https://cfib-fcei.ca/en/media/over-2-trillion-in-business-assets-are-at-stake-as-majority-of-small-business-owners-plan-to-exit-their-business-over-the-next-decade
- Canadian Federation of Independent Business. “Lifetime Capital Gains Exemption: Is it for you?” https://www.cfib-fcei.ca/en/tools-resources/lifetime-capital-gains-exemption
- Department of Finance Canada. “Tax Measures,” Budget 2024 (archived). https://budget.canada.ca/2024/report-rapport/tm-mf-en.html
- Tuurenhout, Maarten J. and Jacob Z. Neumark, Mintz. “Managing multiple bidders in the sale of a company.” July 2021. https://mintz.com/insights-center/viewpoints/2021-07-26-managing-multiple-bidders-sale-company
- Boone, Audra L. and J. Harold Mulherin. “How Are Firms Sold?” Journal of Finance 62, no. 2 (2007): 847 to 875. https://ideas.repec.org/a/bla/jfinan/v62y2007i2p847-875.html
- Sigerist, Karl E., Jr. Selling Your Canadian Business: A Step-by-Step Guide to Maximizing Value and Securing Your Legacy. Introduction, “The $3 Million Mistake.” 2026. https://a.co/d/0ibu1Ar7
Take the next step
Canadian business owners considering a sale can start with the full step-by-step guide at www.sellingyourcanadianbusiness.ca.
