Anonymised, illustrative composite. The financials looked clean. The account that produced them belonged, on paper, to a person who was about to stop showing up for work.
At a glance
A buyer was evaluating a Canadian e-commerce brand selling home goods through its own Shopify storefront, trailing revenue $2,400,000 and owner-discretionary earnings of $410,000. The letter of intent priced the deal at 3.4× SDE — $1,394,000 — inside deavo’s stated Canadian e-commerce range: a “typical SDE multiple” of 2.0–4.0×, published as “illustrative ranges based on comparable Canadian transactions, not a valuation, deal or investment opinion.”
Diligence found that 82% of paid traffic, and an estimated 68% of total revenue, ran through a single advertising account — and that account lived inside the founder’s personal Meta Business Manager login, not a company-owned asset. Deavo names this precisely as the sector’s defining risk: “account transferability” is its stated top diligence issue, and its own guidance elsewhere is blunt about why — “Repeat-customer rate and traffic concentration tell a buyer more than gross merchandise volume does.” and “platform and payment-account transfers” are a critical part of any handover.
The buyer did not walk from the multiple. It carved out a specific risk instead of trying to price it into the general indemnity. The share purchase agreement kept a standard $50,000 basket and $500,000 cap for ordinary representations, but added a stand-alone indemnity of up to $150,000, uncapped by the basket, for any loss arising if the advertising account was suspended, banned or failed to transfer within 60 days of closing — roughly 37% of trailing SDE ($150,000 / $410,000), sized to cover a full replacement ad-spend ramp-up period if the account had to be rebuilt from zero.
Ontario indemnity practice separates ordinary, hard-to-quantify representation risk from a known, identified one, and treats them differently. Treadstonelaw’s own explanation of the mechanism: “The basket is a floor: a minimum amount of loss that has to accumulate before a claim counts at all. The cap is a ceiling: the maximum total amount recoverable” — but that structure exists for the general run of representations, and a loss “beyond the cap…generally end[s], unless the loss falls into a fraud or other specifically negotiated carve-out.” A platform-dependence risk the parties had already identified and quantified before signing is exactly the kind of thing a specifically negotiated carve-out is for — it does not need to compete with unrelated claims for the same capped pool.
The deal closed at $1,394,000 with the specific indemnity in place. The founder personally re-registered the advertising account under the target’s own business entity 45 days before closing, at the buyer’s insistence, so the transfer itself — rather than the account’s creation history — was the only remaining risk carried into the carve-out.
Had the buyer instead relied on the ordinary $500,000 cap to cover this risk alongside every other representation, an advertising-account failure serious enough to interrupt 68% of revenue for even a few weeks would very plausibly have exhausted the cap entirely on its own — leaving nothing left for any other claim on the deal, on a business bought for $1,394,000. Because the carve-out was written as a stand-alone indemnity outside the basket and the cap rather than a slice of them, the entire $500,000 cap stayed available for everything else — which is the point of a carve-out, and the reason the size of the carve-out and the size of the cap are separate negotiations.
The tell was in the ad account’s own settings screen, not the financial statements: an “Account Owner” field showing a personal name rather than a business entity is a five-minute check that flags exactly this risk before a single dollar of diligence is spent on financials.
The same check would have caught the payment processor, the domain registrar and the email marketing account too — all three, in this deal, were also registered to the founder personally, and all three were folded into the same 45-day re-registration window rather than becoming three separate carve-out negotiations. Deavo’s own framing treats platform and payment-account transfer as one bundled risk, not four, and pricing it that way — one indemnity, one deadline, one verification step at closing — kept the carve-out negotiation to a single clause instead of a schedule of them.
A 30-minute call can tell you whether a platform-dependence risk on your next deal needs its own carve-out.
