One buyer calling first is not a process, and it is not nothing either. Here is how to protect the fund’s position, and the sponsor’s own duty, before a single term gets discussed.
Key takeaways
STEP 01 OF 10
A single unsolicited approach is flattering, and it is also information: the buyer has told you, for free, that the portfolio company is interesting to at least one party. Reply in a way that keeps the option live without committing to anything — a short, non-committal acknowledgement that the approach will be considered, with no promise of exclusivity and no calendar hold on a data room, costs the fund nothing and forecloses nothing.
The mistake sponsors make here is procedural, not commercial: agreeing to “just have a call” before anyone has signed confidentiality, or letting a follow-up email use the word “process” when none has started. Treat the first reply as scoping only — what is the buyer’s mandate, what is the timeline, and is this a strategic acquirer or a financial sponsor running its own thesis that happens to overlap this one.
STEP 02 OF 10
Nothing about the portfolio company — not a revenue range, not a customer count — should move before a confidentiality agreement is signed, however casual the conversation has felt so far. A short-form NDA, exchanged and countersigned the same day, is normal practice, and no serious buyer objects to being asked for one before a number changes hands.
Canadian law, including PIPEDA Part 2 and the provincial electronic commerce acts, treats a typed-name or clickwrap signature on an NDA as a binding electronic signature — the standard used on Canadian business-for-sale platforms is one working example of that principle in practice confirmed on a marketplace’s own NDA terms. Scope the confidentiality obligation to cover the fact of the approach itself, not only the financials: a buyer who tells the portfolio company’s landlord or a key customer that a sale is being discussed has breached the agreement even if no number was ever disclosed.
STEP 03 OF 10
Whether a single approach deserves a fuller competitive canvass is a judgment call, and the honest answer is usually “it depends on the mandate, not the buyer.” Canadian private capital deployed roughly $12.7 billion across 252 disclosed private equity transactions in the first half of 2026 per CVCA’s H1 2026 market report — real but modest deal flow relative to the roughly 1.1 million employer businesses in the country ISED counts (December 2024), which is one reason a credible inbound buyer is worth taking seriously rather than dismissed on principle.
A single approach does not have to become a one-horse race. It is common, and defensible to the fund’s own LPs, to use the approach as the trigger for a light, confidential canvass of two or three other logical buyers before granting anyone exclusivity — the buyer who found the deal first rarely objects, because a credible alternative in the room usually improves the price they end up paying, not just the fund’s.
STEP 04 OF 10
Before a number gets negotiated, get an independent view of what the portfolio company is actually worth. A Chartered Business Valuator issuing a Fairness Opinion under CBV Institute’s Practice Standards 510/520/530 is retained specifically to give “a conclusion as to the fairness of a proposed transaction to security holders…from a financial point of view” CBV Institute — exactly the question a sponsor negotiating alone against one bidder needs answered.
This is a different exercise from the portfolio company’s own management producing projections to support the price the buyer has offered. An external opinion, commissioned before the negotiation gets serious, is the cheapest insurance available against anchoring on the first number a single interested buyer puts on the table.
STEP 05 OF 10
The moment a real offer is in front of the board, the ordinary fiduciary duty starts to matter in a concrete way. Directors must “act honestly and in good faith with a view to the best interests of the corporation” and exercise “the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances” CBCA s. 122(1) — which in practice means documenting that the approach was actually weighed, not simply accepted because it arrived first.
The same provision lets directors “consider, but are not limited to” a wider set of interests — employees, creditors, and the corporation’s long-term interests among them CBCA s. 122(1.1). For a sponsor holding a portfolio company through a fund, that duty sits alongside, not instead of, the fund’s own return mandate to its LPs; a single unsolicited bid rarely tests the two against each other, but the process that gets it there should be able to show both were considered.
STEP 06 OF 10
Deal structure is not a detail to leave until the letter of intent. If the exit is a share sale, the lifetime capital gains exemption in ITA s. 110.6(2.1) can shelter $625,000 of taxable capital gain — the taxable half of a $1,250,000 gain under the s. 38(a) inclusion rate ITA s. 110.6 and s. 38 — for a qualifying individual seller, which matters directly if an individual holds QSBC shares in the structure.
The buyer’s own financing plan can depend on the answer too. The federal Canada Small Business Financing Program cannot be used to finance a share purchase or an asset a holding company acquires per ISED’s own FAQ — so a buyer who mentions CSBFP financing on the first call has effectively told you they expect an asset deal, which changes the GST/HST and successor-employer analysis later in the process.
STEP 07 OF 10
If the approach is really interest in the portfolio company’s assets rather than its shares, and it covers “all or substantially all” of them outside the ordinary course of business, CBCA s. 189(3) requires shareholder approval by special resolution before the sale can close, and every share carries a vote on that resolution whether or not it otherwise would CBCA s. 189(3).
A shareholder who opposes the sale is not without options: s. 190 gives a dissent right, entitling the dissenting holder to the fair value of their shares determined as of the day before the resolution was adopted, with defined notice and payment deadlines running from the vote CBCA s. 190. Know before terms are negotiated whether every holder in the cap table is actually going to vote yes.
STEP 08 OF 10
A structured seller, even one running a single-buyer conversation rather than a broad process, still benefits from releasing information in stages rather than all at once. The discipline used on Canadian listing platforms — see the buyer’s budget, funding and experience before releasing financials and documents per how a marketplace structures seller releases — works just as well informally: confirm the buyer can actually fund the deal before the portfolio company’s customer list goes into a data room.
The first release should be enough to keep the buyer engaged, not enough to let them build a full model. Historical revenue and margin trends, an org chart, and a summary of customer concentration usually satisfy a serious buyer’s first round; full financial statements, contracts and the minute book belong after the NDA has held for a few weeks without incident.
STEP 09 OF 10
A buyer who has invested real diligence time will often ask for a short period of exclusivity before going further, and it is reasonable to grant one — briefly, tied to milestones, not an open-ended “while we think about it.” A restrictive covenant of that kind, given as part of a genuine sale process, can rely on the “ancillary restraints” defence in Competition Act s. 45(4), which protects a restraint that is “ancillary to a broader or separate agreement” and “directly related to and reasonably necessary” for it Competition Act s. 45(4).
That defence does the sponsor no good if the restraint outlives any plausible protective purpose or is not genuinely tied to a real transaction. Keep the no-shop dated, keep it scoped to this one buyer, and be prepared to let it lapse and restart the conversation elsewhere if the buyer stalls past the date.
STEP 10 OF 10
Recompute the arithmetic before a single number from the buyer’s opening offer becomes an anchor. Say the portfolio company sells for $4,000,000 against an adjusted cost base of $1,200,000 — a capital gain of $2,800,000. If the shares qualify and one individual seller is entitled to the full lifetime capital gains exemption, ITA s. 110.6(2.1) shelters up to $625,000 of taxable capital gain, and s. 38(a) sets the taxable portion of any capital gain at one-half ITA s. 110.6 and s. 38.
Run it through: the full $2,800,000 gain is $1,400,000 taxable before any exemption. The $625,000 LCGE claim reduces that to $775,000 taxable — equivalent to sheltering $1,250,000 of the underlying $2,800,000 gross gain. The $625,000 figure is itself indexed to the Consumer Price Index for taxation years beginning after 2025 under s. 117.1(2)(c) ITA s. 117.1, so confirm the current year’s indexed amount with the CRA before using it in a live negotiation rather than relying on the base statutory figure.
The test that actually matters is not how the interest arrived, it is whether a credible alternative buyer exists and can be canvassed quietly without spooking the one who called first. If yes, a light confidential canvass strengthens the sponsor’s negotiating position and rarely costs the original buyer anything but a few weeks. If no — the portfolio company genuinely fits one buyer only, in a narrow niche or a specific geography — treat the single approach as the process, and put the diligence into the fairness opinion and the deal terms instead of manufacturing competition that does not exist.
Either way, do not let the buyer set the pace. A buyer who insists on an answer within days, before an independent valuation view is even in hand, is telling you something about how confident they are that a second look would change your mind.
A single unsolicited approach often arrives as a personal call to whoever the buyer happens to know — a portfolio company’s chief executive, a fund’s managing partner, sometimes an intermediary working both sides. Decide immediately who is authorized to speak for the seller and route every subsequent conversation through that person; a fund with co-investors, or a family office with multiple principals, that lets the buyer triangulate between several informal contacts is negotiating against itself before the process has even started.
Once the conversation moves from “are you interested” to specific terms, move it onto paper — see negotiating the letter of intent as the seller for the terms worth holding firm on before signing anything, even informally.
No — there is no obligation to engage, and a polite decline closes the matter. If the fund’s mandate or an LP-facing valuation process makes a credible offer worth documenting even when declined, keep a short written record of what was offered and why it was not pursued.
Not on its own. Exclusivity is a contractual term, not an inference from politeness — nothing is owed to the buyer beyond what is put in writing and signed. The risk is not the meeting itself, it is a follow-up email that uses language like “while we work through this together” without meaning to promise anything.
Scope the NDA specifically around that risk before disclosing anything — restrict who at the buyer’s organization can see the information, and consider a clean-team arrangement for sensitive commercial data such as pricing and customer lists. A buyer who is also a competitor has more use for information that never turns into a deal than most other buyer types do.
Generally no, at least not alone. Management has an obvious interest in the outcome and often incomplete visibility into the fund’s own return mandate and timeline; the sponsor or a designated deal lead should control the process, bringing management in for diligence access once confidentiality is in place.
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