The threshold for certain pre-closing net benefit reviews under the Investment Canada Act (ICA) and the threshold for a pre-closing merger notification under the Competition Act have now both been updated for 2022. The Minister of Innovation, Science and Economic Development (the Minister), has announced that the threshold for pre-closing merger notifications under the Competition Act will not change this year; the transaction-size threshold will remain C$93 million. Meanwhile, the thresholds for certain pre-closing net benefit reviews under the ICA, which were announced last month, were increased.
The decision not to increase the Competition Act merger notification threshold is a clear policy choice and deviates from the historical formulaic approach of adjusting this threshold based on GDP. On this point, the Minister stated that the Competition Act threshold would not be increased to provide the “Competition Bureau a greater field of view in its efforts to detect potentially harmful transactions to ensure they are properly reviewed before taking hold in the marketplace, and help protect Canadian consumers and businesses.”
Competition Act
Under the Competition Act, the requirement to file a pre-merger notification is based on both the size of the parties to the transaction and the size of the transaction itself. Where the thresholds of both steps are met, parties are required to, before the transaction closes: (a) file notification and observe the statutory waiting period of 30 days; (b) file and have approved an advance ruling certificate request; or (c) obtain a waiver from notification and have the commissioner of competition issue a no-action letter.
Under this two-part test, the first step assesses the size of the parties to determine whether the parties, including their affiliates, have aggregate assets in Canada or annual gross revenues from sales in, from or into Canada, in excess of C$400 million. To satisfy the second step of the test, the value of the assets in Canada or the annual gross revenue from sales (generated from those assets) in or from Canada of the target operating business (and, if applicable, its subsidiaries) must be greater than C$93 million.
Unlike the transaction-size threshold, however, the Minister has no discretion in adjusting the filing fee merging parties are required to pay for notifiable transactions. The filing fee, which is currently $74,906, is expected to be adjusted for inflation in April.
Investment Canada Act
Net Benefit Review Thresholds
Under the ICA, any acquisition by a “non-Canadian” of control of a “Canadian business” is generally either notifiable or reviewable by the federal government. Whether an acquisition is notifiable or reviewable depends on whether the Canadian business is acquired directly or indirectly, as well as the value and nature of the Canadian business being acquired.
Before the federal government allows a reviewable transaction to close, it must be satisfied that the transaction “is likely to be of net benefit to Canada.” Notifiable transactions, however, require only that the investor submit a filing, which can be made up to 30 days post-closing. Independent of the net benefit review thresholds, the ICA also has a national security review regime, which permits the government to review any investment in a Canadian business by a non-Canadian (including minority investments, as well as the formation of a new business).
Direct acquisitions of a Canadian business by investors controlled in countries with which Canada has a private free trade agreement (trade agreement investors) that are not state-owned enterprises (SOEs) will generally be subject to pre-closing review where the enterprise value1 of the Canadian business exceeds C$1.711 billion (the 2021 threshold was C$1.565 billion). This threshold also applies where the Canadian business being acquired was, immediately prior to the investment, controlled by a trade agreement investor.
Acquisitions by investors controlled in WTO member countries (WTO investors) that are not SOEs and not trade agreement investors to directly acquire control of a Canadian business will generally be subject to pre-closing review where the enterprise value of the Canadian business exceeds, C$1.141 billion (the 2021 threshold was C$1.043 billion). This threshold also applies where the Canadian business being acquired was, immediately prior to the investment, controlled by a WTO investor.
Direct acquisitions of a Canadian business by an SOE controlled in a WTO member country will generally be subject to pre-closing review where the Canadian business has an asset book value of C$454 million (the 2021 threshold was C$415 million).
The net benefit review threshold for investments by non-WTO investors, or for the direct acquisition of control of a cultural business (regardless of the buyer’s nationality) is C$5 million in book value. The threshold for an indirect acquisition of control is C$50 million in asset value. These thresholds have not changed.
National Security Review Regime
The ICA contains a national security review regime that can apply to any investment by a non-Canadian (including acquiring minority interests or creating a new Canadian business) that the federal government believes “may be injurious to national security.” In light of the global COVID-19 pandemic’s economic consequences on Canada, the national security review regime has been expanded to potentially apply to a broader range of sectors and activities, such as the impact of the investment on the supply of critical goods and services, Canada’s critical infrastructure or critical minerals and critical mineral supply chains.
Investors may wish to consider making their notification filing prior to closing where the transaction could raise potential national security concerns. For more information please see our updates regarding the impact of COVID-19 and updated government guidance on the application of the national security review regime.2
