Selling A Sudbury Business Across The Border, In Two Currencies

The situation

Luc had trained as a millwright and spent his first ten years turning wrenches on conveyor systems and crushers for mining operations around Sudbury. Abena joined a few years later to run the office — scheduling, payroll, the books — and within a decade the two of them owned the company outright. By the time they decided to sell, it employed several dozen people servicing industrial and mining equipment across the region, and it had caught the attention of a private equity-backed buyer expanding a platform of similar businesses across Canada and the northern United States.

Chidi, the buyer's deal lead, made an offer that Luc and Abena found hard to turn down: a purchase price in the high twenties of millions, structured as a share purchase, with roughly $20 million U.S. dollars payable at closing and the balance tied to the company's performance over the following two years through an earn-out. Chidi's team came to Treadstone after signing the letter of intent, wanting buy-side counsel to take the transaction from there through to a clean closing — one that would leave the working relationship with Luc and Abena intact, since the buyer's own return on the deal depended on the earn-out years going well.

The currency wrinkle nobody had priced in

The purchase price was fixed in U.S. dollars — standard for a buyer whose fund reported and drew capital in U.S. dollars. But Luc and Abena lived in Canada, banked in Canadian dollars, and had already mapped out what the sale would fund: paying off the company's mortgage on its shop, splitting proceeds between them, and setting aside money for retirement. Every one of those plans was built around a Canadian-dollar number.

At the time the letter of intent was signed, the exchange rate sat at roughly 1.35 Canadian dollars per U.S. dollar. On paper, that put their expected proceeds at about $27 million Canadian. Nobody had put anything in writing that locked that rate in. A share purchase agreement fixes the price in the currency it names — it does not fix what that price is worth once converted. Between signing and the day funds actually changed hands, the exchange rate is free to move, and neither side is obligated to make up the difference unless the agreement says so.

Closing was set for roughly ten weeks out, in part because the transaction required a filing under the Investment Canada Act — the buyer was a foreign, private equity-backed entity acquiring control of a Canadian business, and that triggers at least a notification obligation regardless of deal size. A transaction this size, well under the multi-billion-dollar threshold that pulls a deal into full net-benefit review, did not need government approval before closing; the notification itself is routine and does not hold up the transaction. But confirming that no closer look was warranted, and coordinating the filing with the rest of the closing steps, still took real time. Ten weeks is not a long window in currency terms, but it was long enough for the Canadian dollar to move meaningfully against the U.S. dollar, and for that movement to matter a great deal to two people who had priced their retirement in Canadian numbers.

What we did

1. Flagged the currency exposure to Chidi's team before it became a problem. Reviewing the letter of intent, our team pointed out that a U.S.-dollar price with no currency mechanism left Luc and Abena carrying all of the exchange-rate risk between signing and closing, while the buyer's own obligation was already denominated in the currency it used and carried no such exposure. We raised this as a deal-management issue, not just a courtesy: a seller who watches a large chunk of their expected payout evaporate to a currency swing arrives at the two-year earn-out relationship already feeling shortchanged, and that risk was worth managing rather than ignoring.
2. Explained the mechanics of hedging in general terms, while keeping the decision with the sellers. A forward contract lets a business or individual lock in a forward rate — today's rate adjusted for the interest-rate difference between the two currencies, not today's rate itself — for a future settlement through their own bank. It binds both ways: if the currency later moves in the holder's favour, they are still committed to the agreed rate, the bank will usually want credit approval or a deposit before issuing one, and unwinding the contract early if a deal falls through can cost real money. Because our duty ran to Chidi's team, not to Luc and Abena, we could explain that much and encourage the buyer's team to raise it with the sellers, but we made clear the hedge decision itself needed to be made by Luc and Abena with their own bank or advisor, not directed by the buyer's counsel.
3. Documented the compromise the sellers reached with their own advisor. Luc and Abena, advised separately, were uneasy about locking in the full $20 million at a rate that felt worse than the number they had been mentally spending, and wanted some flexibility if the rate moved in their favour. They settled on hedging half the expected proceeds — about $10 million U.S. — through a forward contract with their bank at a locked rate of 1.33, leaving the other half to convert at the market rate on closing day. That choice was theirs to make, but we made sure the closing documents reflected it precisely so there would be no dispute later about what had actually been agreed.
4. Negotiated the closing mechanics around two currencies. The share purchase agreement and closing statements were drafted to show the purchase price in U.S. dollars with a separate schedule tracking the Canadian-dollar amounts actually received, so there would be no confusion later about what had been paid and what had been converted. We also arranged for a portion of the proceeds to be held back in escrow for a period after closing, standard practice in a deal this size, to cover any claims the buyer might later raise about the business.
5. Coordinated the cross-border wire between the parties' banks. Large cross-border wire transfers move through correspondent banks and typically take longer to clear and attract more scrutiny than a domestic transfer. We built extra time into the closing schedule on Chidi's behalf so a delayed wire would not put the closing itself at risk, and confirmed with the sellers' bank that the forward contract would settle on the same day the balance of funds converted, so nothing about the payout would be a surprise to either side.

The outcome

By the time the Investment Canada Act notification was filed and the deal was ready to close, the Canadian dollar had strengthened against the U.S. dollar, with the spot rate down to roughly 1.28. Had Luc and Abena left the full $20 million unhedged, they would have converted it to about $25.6 million Canadian — roughly $1.4 million short of the $27 million they had planned around.

Because they had hedged half the proceeds at the locked rate of 1.33, that portion converted to about $13.3 million Canadian regardless of where the market rate landed. The other, unhedged half converted at the weaker closing-day rate of 1.28, bringing in about $12.8 million. Their total came to roughly $26.1 million Canadian — about $900,000 below their original budget, but about $500,000 better than if they had left the whole amount exposed.

It was a real loss, and an honest one. Luc and Abena adjusted their post-sale plans to absorb it — a smaller cushion set aside than they had first pictured, rather than the number they had been quietly counting on for two years. The deal itself closed cleanly, the escrow was released in full at the end of its holdback period with no claims made against it, and the earn-out payments tied to the company's performance over the following two years remained on track. The hard lesson was specific to the currency decision, not the transaction as a whole — and it was a lesson they walked into with their eyes open, having chosen the partial hedge for reasons that made sense to them at the time.

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