Canadian M&A Perspectives

Private and Public Mergers & Acquisitions | Private Equity

New 2018 Investment Canada Act Threshold for State-Owned Enterprise WTO Investments

Posted in Contractual Matters, Private Equity, Private Transactions, Public M&A, Shareholders, Strategy
Oliver J. BorgersMichele F. Siu

The pre-closing review threshold for direct acquisitions of Canadian businesses by non-Canadian, WTO investors that are state-owned for 2018 has increased to C$398 million in asset value of the Canadian business from the 2017 threshold of C$379 million.

The two thresholds that apply to most direct acquisitions of Canadian businesses by non-Canadian,1 non-state owned investors from WTO member states continue to apply: (a) C$1.5 billion in enterprise value2 of the target where the acquirer or the target is a non-SOE “trade agreement investor” (investors controlled in the U.S., EU Member States, Mexico, South Korea, Chile, Peru, Columbia, Honduras, and Panama) or (b) C$1 billion in enterprise value of the target where the non-state-owned acquirer or target are controlled in other WTO member states (such as investors controlled in China).

Also continuing to apply is the C$5 million pre-closing threshold for direct transactions that relate to cultural businesses or where the buyer is from a non-WTO member state and the seller is either from a non-WTO member state or from Canada.

It is worthwhile to remember that the Canadian government can review any investment (including minority investments) by non-Canadians on the basis of “national security” concerns.  No financial threshold applies. The government has 45 day after the certified date of a notification or application for review to provide notice of a potential national security review.  Therefore, if a proposed transaction that is not otherwise subject to approval raises national security concerns, parties should consider filing a notification as early as possible in order to obtain pre-merger clearance (or at least trigger the review period prior to closing) in respect of any acquisition of control of a Canadian business by a non-Canadian (that is not otherwise subject to review and approval).

1      A non-Canadian includes a Canadian-incorporated entity that is ultimately controlled outside of Canada.

2     The enterprise value calculation varies depending on whether the proposed acquisition involves the acquisition of (i) public entities, (ii) non-public entities or (iii) Canadian businesses acquired by way of an acquisition of assets.

Competition Act Update

Posted in Private Equity, Private Transactions, Public M&A
Oliver J. BorgersMichele F. Siu

New 2018 Competition Act Merger Notification Threshold

The pre-merger notification transaction-size threshold for 2018 has increased to C$92 million from the 2017 threshold of C$88 million.1  The transaction-size threshold is based on the book value of assets in Canada of the target (or in the case of an asset purchase, of the assets in Canada being acquired), or the gross revenues from sales “in or from” Canada generated by those assets.2

The Competition Bureau must generally be given advance notice of proposed transactions when the acquired assets in Canada or revenues generated in or from Canada from such assets exceed C$92 million (transaction-size threshold), and when the combined Canadian assets or revenues in, from or into Canada of the parties together with their respective affiliates exceed C$400 million (size of parties threshold).   The size of parties threshold has not been reviewed and remains the same.

Filing Fee for Merger Review Expected to Increase in 2018

Citing reasons such as rising operating and salary costs, an increase in the number of merger transactions requiring more complex work, and increasing volumes of documents requiring sophisticated analysis, the Competition Bureau has proposed an increase to the merger filing fee from C$50,000 to C$72,000.

The current fee of C$50,000 has been in effect since 2003.

If the Bureau’s proposal is approved by the Minister of Innovation, Science and Economic Development, it is expected that the new C$72,000 filing fee will come into effect in April 2018.

1      As per the indexing mechanism set out in the Competition Act, the pre-merger notification threshold is reviewed annually.

2     Assets and revenues are calculated in accordance with the Notifiable Transactions Regulations under the Competition Act.

“Should I Stay or Should I Go?”: Whether to Form a Limited Partnership in Manitoba rather than Ontario

Posted in Private Equity, Private Transactions, Strategy
Matthew CummingNicole RumblePaulina Bogdanova

Limited partnerships are widely used in Ontario (and other Canadian jurisdictions) and have many benefits, including limited liability for limited partners.

However, this benefit is conditional: the Ontario Limited Partnerships Act (the Ontario Act) provides that a limited partner will lose its limited liability status if “the limited partner takes part in the control of the business”. Most other Canadian jurisdictions have legislation governing limited partnerships that contains an analogous provision. Notably, jurisprudence in Ontario and elsewhere in Canada has not yet provided clarity as to what constitutes active control by a limited partner.

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On Target: 2018 Private Equity Outlook

Posted in Private Equity, Public M&A

The PE market sustained high levels of activity in 2017 and 2018 is expected to be another busy year in Canada, the US and globally. McCarthy Tétrault’s Private Equity Group explores what’s next in our latest edition of: On Target: 2018 Private Equity Outlook.

Our PE practice combines the strengths of several practice areas across the firm’s offices in Canada, New York City and London, UK. They offer deep insight derived from experience across the facets of PE, which include buy-out investments, venture capital investments, fund formation and management, fund investments, mezzanine and other leveraged debt financing, infrastructure, distressed debt and other specialty investments, as well as exit transactions providing investors with liquidity.

Valuation in mining cases: Lessons from the Re Nord Gold SE dissent proceeding

Posted in Private Transactions, Public M&A, Shareholders, Strategy, Uncategorized
Shea SmallFraser BourneShane C. D'SouzaEmily MacKinnon

In most Canadian M&A transactions, shareholders are entitled (either by statute or court order) to dissent from a transaction and be paid the fair value of their shares. Most dissent and appraisal cases settle, with the result that there are relatively few court decisions of note.  Absent settlement, a court must determine the fair value (FMV) of the shares. In the mining context, this task may be complicated by the prospect of valuing exploration lands unsupported by a “NI 43-101” (Standards of Disclosure for Mineral Projects) report or data demonstrating economic mineralization.

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New China Guidelines on Overseas Investments Encouraging for the Natural Resources Sector

Posted in Public M&A
Shea SmallBobby WangJoyce LeeCraig Spurn

On August 17, 2017, China’s NDRC, Ministry of Commerce, the People’s Bank of China and the Ministry of Foreign Affairs jointly released their Opinions on Further Guiding and Regulating the Directions of Overseas Investments (the “Guidelines”).  The stated objectives of the Guidelines are to improve the macro guidance on overseas investments, further guide and regulate the directions of overseas investments, promote the sustainable, rational, orderly and healthy development of overseas investments, effectively prevent all types of risks and properly meet the needs of national economic and social development.

The Guidelines are encouraging for China’s continued overseas investment in the natural resources sector.  The Guidelines indicate the China will support domestic enterprises with adequate capabilities and qualifications to actively and prudently invest overseas in an effort to, among other things, make up for China’s shortcomings in energy and resources.  In particular, Chinese domestic enterprises have been encouraged to participate in the exploration and extraction of offshore oil and gas, mining and other energy resources based on prudent assessment of cost benefits.

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Looking Out for Minority Security Holders – Securities Commission staff publish guidance on conflict of interest transactions

Posted in Public M&A
David E. WoollcombeRobert HansenHeidi Gordon

On July 27, 2017, staff of the securities regulatory authorities in each of Ontario, Québec, Alberta, Manitoba and New Brunswick (CSA Staff) published Multilateral CSA Staff Notice 61-302 Staff Review and Commentary on Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions (Notice) setting out CSA Staff’s views on material conflict of interest transactions regulated by Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions (MI 61-101). The Notice provides a helpful consolidation of the current thinking of CSA Staff on a number of issues that arise frequently in these transactions, including the effective use of a special committee of independent directors, compliance with the enhanced disclosure requirements of MI 61-101 and matters concerning fairness opinions. The Notice also formally alerts capital markets participants to the fact that CSA Staff is conducting real-time reviews of continuous disclosure documents filed in connection with material conflict of interest transactions to assess compliance with MI 61-101 and identify potential public interest concerns.

The Notice, which is the first time the CSA has released a detailed publication on conflict of interest transactions since MI 61-101 and its companion policy were adopted in 2008, will be of interest to public company boards and their advisors given the frequency with which MI 61-101 issues arise in Canada and the complexity of those issues.

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New Investment Canada Act Review Threshold – C$1 Billion

Posted in Contractual Matters, Private Equity, Private Transactions, Public M&A, Shareholders, Strategy
Oliver J. BorgersMichele F. Siu

On June 22, 2017, the pre-closing review threshold that applies to most direct acquisitions of Canadian businesses by non-Canadian1, non-state owned investors from WTO member states increased to C$1 billion from $C800 million2.  In an effort to encourage foreign investment that is beneficial to Canada, the Canadian Government increased this threshold to C$1 billion two years ahead of schedule3.

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Investment Canada Act Review Threshold Increases to C$800 Million

Posted in Contractual Matters, Private Equity, Private Transactions, Public M&A, Shareholders, Strategy
Oliver J. BorgersMichele F. Siu

Today the pre-closing review threshold that applies to most direct acquisitions of Canadian businesses by non-Canadian[1], non-state owned investors from WTO member states has risen from C$600 million to C$800 million[2].   A further increase is set to occur later this year.   The Canadian government has announced that in 2017 (two years ahead of schedule) the Investment Canada Act will be amended to increase this threshold to C$1 billion.

The C$379 million (2017) pre-closing review threshold for direct acquisitions of Canadian businesses by non-Canadian, state-owned investors continues to apply[3]. Also continuing to apply is the C$5 million pre-closing threshold for direct transactions that relate to cultural businesses or where the buyer is from a non-WTO member state and the seller is either from a non-WTO member state or from Canada.

It is worthwhile to remember that the Canadian government can review any investment  (including minority investments) by non-Canadians on the basis of “national security” concerns.  No financial threshold applies. The government has 45 day after the certified date of a notification or application for review to provide notice of a potential national security review.  Therefore, if a proposed transaction that is not otherwise subject to approval raises national security concerns, parties should consider filing a notification as early as possible in order to obtain pre-merger clearance (or at least trigger the review period prior to closing) in respect of any acquisition of control of a Canadian business by a non-Canadian (that is not otherwise subject to review and approval).

[1] A non-Canadian includes a Canadian-incorporated entity that is ultimately controlled outside of Canada.

[2] This threshold applies to the enterprise value of the target.

[3] This threshold applies to the asset book value of the target.

Ontario’s Bulk Sales Act has been repealed

Posted in Contractual Matters, Private Equity, Private Transactions, Strategy
Ian MakJake IrwinHeidi GordonVanessa Chung

On March 22, 2017, Ontario’s Bulk Sales Act (BSA) was repealed, bringing to an end bulk sales legislation in Canada.1 The BSA was enacted in 1917, and was intended to protect unpaid trade creditors (i.e. the people a seller is indebted to for goods, money or services furnished for the purpose of enabling the seller to carry on his or her business) from “bulk sales” by a seller of all or substantially all of its assets over a short period of time.

The BSA was an important consideration for both the buyer and the seller in an Ontario M&A transaction that was structured as an asset deal as the consequences of not complying with the BSA could be significant, including that a non-compliant transaction could be set aside by a court upon the application of a trade creditor of the seller. Prior to its repeal, the parties to an asset transaction would deal with the BSA by following the procedure for compliance with the BSA, getting a court order or, most commonly, waiving compliance with the BSA. Continue Reading