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.