Canadian M&A Perspectives Private and Public Mergers & Acquisitions | Private Equity

New 2013 Investment Canada Act Review Threshold

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

Industry Canada has announced that the Investment Canada Act (Act) threshold for 2013 that applies to most direct acquisitions of Canadian businesses by non-Canadian investors from World Trade Organization (WTO) member countries is $344 million (an increase from last year’s $330 million threshold). The threshold applies to the gross book value of the target’s assets. Note that under the Act, a non-Canadian includes a Canadian-incorporated entity that is ultimately controlled outside of Canada.

The lower threshold of $5 million continues to apply to direct investments that relate to cultural businesses or where none of the non-Canadian parties comes from a WTO member country.

On a date still to be fixed, new regulations under the Act will come into force, dramatically increasing the $344 million threshold for investors (other than state owned enterprises) from WTO member states to $600 million, $800 million and $1 billion over the next six years, with further increases based on a prescribed formula. When the new regulations come into force, the threshold calculation will be based on ‘enterprise value’, a term still to be finalized.

Under recent amendments to the Act, the government is now permitted to review any investment by non-Canadians on the basis of national security concerns. No financial threshold applies and the government has up to 50 days, following either notification or the filing of an application for review, to issue notice of a potential national security review. Therefore, if a proposed transaction that is not otherwise subject to review potentially 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).