Each year, Canada’s Competition Act transaction size threshold and the Investment Canada Act threshold applicable to the direct acquisition of a non-cultural Canadian business by a state-owned enterprise of a World Trade Organization member state (referred to as an SOE WTO investor) are increased in relation to the growth in Canada’s GDP in the previous year. The threshold analysis for the Competition Act and for SOE WTO investors under the Investment Canada Act is based on the value of the assets/revenues set out in the applicable entity’s financial statements, not on the transaction purchase price.
On March 3, 2017, the Competition Bureau announced that the 2017 transaction size threshold will be $88 million, up from $87 million in 2016.
The Competition Bureau must generally be given advance notice of a proposed transaction if both of the following thresholds are exceeded:
- Party Size: the parties, together with their affiliates, have assets in Canada or annual gross revenues from sales in, from (exports) or into (imports) Canada that exceed $400 million; and
- Transaction Size: the aggregate value of the assets in Canada to be acquired or the annual gross revenues from sales in or from Canada generated by such assets, exceed $88 million.
Additional thresholds may apply depending on the type of transaction (e.g. acquiring shares of a public company, acquiring shares of a private company, amalgamation, acquiring an interest in a non-corporate entity). For additional information about the Competition Act thresholds and notification process please click here.
Investment Canada Act
In February, Innovation, Science and Economic Development Canada announced that the 2017 review threshold applicable to the direct acquisition of control of a Canadian business, other than a defined “cultural business”, by a buyer that is ultimately controlled by an SOE WTO investor will be $379 million, up from $375 million in 2016. If the threshold is exceeded, a proposed transaction must be reviewed and approved by the Minister of Innovation, Science and Economic Development before it can be closed.
The direct acquisition of a non-cultural Canadian business by an SOE WTO investor is not the most common permutation of foreign investment in Canada, but does occur from time to time. By far the most common permutation of foreign investment is the direct acquisition of a non-cultural Canadian business by a WTO investor that is not an SOE, and the $600 million enterprise value threshold will continue to apply to this permutation of transaction until April 24, 2017, at which point it will increase to $1 billion. The enterprise value threshold had previously been scheduled to increase to $800 million on April 24, 2017 and then to $1 billion two years after that, but last Fall, the government decided to accelerate the increase to $1 billion as part of its effort to encourage increased foreign investment in Canada.
As a result of amendments to the Investment Canada Act regulations in March of 2015, many different thresholds now apply, depending on whether: (i) the acquisition of control of the target Canadian business is direct or indirect; (ii) the buyer is a WTO investor; (iii) the buyer is an SOE; and (iv) the target Canadian business is a cultural business. In addition, the government has broad discretionary powers to conduct a review on national security grounds, regardless of whether any thresholds are exceeded. For additional information about the Investment Canada Act thresholds and review process click here.