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

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.