Anonymised, illustrative composite. A staffing firm being sold held a current, valid licence — for the wrong half of its business. Ontario treats temporary placement and permanent recruiting as two distinct licensed activities, and the target had quietly grown into the one it never applied for.
At a glance
The target placed clinical and administrative staff into GTA healthcare employers, generating $6,300,000 of trailing revenue on a temporary-help-agency licence it had held and renewed without incident for nine years. The buyer, a private staffing consolidator, agreed to acquire 100% of the shares for $4,100,000.
Fourteen months before the letter of intent, the target’s largest client asked whether it could also handle permanent hires rather than just shift coverage. The target said yes, built a small search practice around the request, and by the time of the LOI that practice had grown to $1,134,000 of annual placement-fee revenue — 18% of the business, and the fastest-growing part of it.
Nobody on either side treated this as a licensing question, because the target genuinely did hold a current licence. What it did not have was the right one. ESA s.74.1 establishes that “The following are the types of licences that may be issued under this Part: 1. A licence to operate as a temporary help agency. 2. A licence to act as a recruiter.” They are not tiers of one licence; they are two licences for two different activities, and a business can hold either, both, or neither.
$5,166,000 of the target’s revenue — the temporary-placement side — was properly licensed throughout. $1,134,000 was earned by an unlicensed recruiter over roughly fourteen months, meaning every placement fee invoiced on that side of the business was billed in contravention of the Act for the whole period it had been operating.
Section 74.1.2(1) mirrors the temporary-agency prohibition for the second licence type: “No person shall act as a recruiter unless the person holds a licence for that purpose.” It carries its own client-side offence too, at s.74.1.2(2): “No recruiter, employer or prospective employer shall knowingly engage or use the services of a recruiter unless the recruiter holds a licence for that purpose as required under subsection (1).” Every client that paid the target’s placement fees during that fourteen-month stretch was, in principle, also exposed — though as the recruiter itself, the target’s own s.74.1.2(1) contravention was the operative risk here.
Read the unit. This is not the same defect as an agency whose licence has lapsed. The target’s temporary-help-agency licence under s.74.1.1 was valid and current throughout; s.74.1.2 is a wholly separate authorization tied to a different activity. A diligence question of is your licence current gets a true, reassuring answer here, because it is the wrong question — the right one is which activities does that licence actually authorize.
The target filed a recruiter-licence application under s.74.1.3 before closing. Because s.74.1.4 issuance is not instantaneous, the parties structured a $340,000 escrow — roughly 30% of the search practice’s trailing annual revenue — released on confirmation the licence had issued, with a full carve-out indemnity for any compliance order or penalty the Director assessed for the unlicensed period. The purchase price itself was reduced by $95,000 to reflect the cost of building the compliance program the target had never had for this line.
Continuing to bill placement fees post-closing without the licence would not have been a historical problem the buyer inherited once — it would have been an ongoing contravention accruing with every new placement, and a live compliance defect the Director could act on at any time, including refusal or revocation proceedings under s.74.1.5 and s.74.1.6 that could, in principle, reach the whole licence portfolio rather than just the unlicensed activity.
The seller’s licence certificate was genuine, current, and entirely beside the point. It answered a question nobody needed answered — is the agency licensed — and said nothing about whether every revenue line the business actually billed was covered by it. The fix in diligence is to map revenue lines to licence types before relying on a certificate at all.
A 30-minute call is enough to tell you whether AI pays for itself here.
Canadian small-business transaction data is not published anywhere, so most valuations in this country quote an American benchmark. The Deavo–Treadstone Acquisition Index is a daily record of Canadian listings built to replace that: asking-price distributions by province and city are published now, and days on market, departure rates and asking-to-sale spreads follow as the series lengthens. Leave an email and we will tell you as each measure lands.
No pitch, no listings. One email when the first report lands.
