The Canadian government has lowered the 2021 thresholds for both pre-merger notification under the Competition Act and for pre-closing net benefit review of foreign investments under the Investment Canada Act.
The pre-closing thresholds under both the Competition Act and Investment Canada Act have been reduced for 2021, as a result of a decline in Canadian GDP in 2020.
The Competition Bureau has announced that the 2021 pre-merger notification transaction-size threshold will be decreased to $93M from the current $96M. The 2021 threshold came into effect immediately following publication in the Canada Gazette Part 1 on February 13, 2021.
As a result, the Bureau must generally be given advance notice of proposed transactions when:
- The target (on a consolidated basis) has a book value of assets in Canada or annual gross revenues generated from those assets exceeding C$93 million; and
- The purchaser and target – together with all entities under common ultimate control – have a combined book value of assets in Canada or annual gross revenues in, from or into Canada exceeding C$400 million.
The Minister of Innovation, Science, and Industry reviews the threshold annually and may modify the amount or leave it unchanged in accordance with the GDP indexing provisions set out in the Act.
The threshold is typically increased every year based on the change in Canadian GDP over the previous year. However, the Minister did not make adjustments in 2020 (despite GDP having increased in 2019). The last time a Minister refrained from adjusting the threshold occurred in 2010, when the application of the GDP indexing provision would have resulted in a decrease of the threshold after Canadian GDP fell in 2009 due to the global recession.
It is noteworthy that, while the Minister chose not to increase the 2020 threshold despite a 2019 GDP increase, he decided to decrease the threshold for 2021. In other contexts, the Bureau has adopted the general position that covid-19 is a short-term distortion that should not affect how the Bureau approaches merger transactions involving failing businesses.
Changing merger review thresholds are subject to the Minister's discretion, unlike the Investment Canada Act's thresholds which are statutorily tied to GDP.
Investment Canada Act
All acquisitions of control of Canadian businesses by non-Canadian investors are subject to the ICA. Transactions exceeding certain statutory thresholds are subject to mandatory net benefit review by the Minister of Innovation, Science and Industry. In such a review, the Minister considers various factors to determine whether the investment will be of net benefit to Canada.
The 2021 published financial thresholds for a net benefit review under the ICA have been decreased.
- For direct acquisitions of control of Canadian businesses by investors controlled in a WTO-member country, review is required if the enterprise value of the target Canadian businesses exceeds C$1.043 billion (down from C$1.075 billion last year).
- For direct acquisitions of control of Canadian businesses by investors controlled in certain countries that have a free trade agreement with Canada (including the US and EU member states, which no longer includes the UK), review is required if the enterprise value of the target Canadian business exceeds C$1.565 billion (down from $1.613 billion last year).
- For direct acquisitions of control of Canadian businesses by investors that are state-owned enterprises, review is required if the target business has total assets in Canada whose book value exceeds C$415 million (down from C$428 million last year).
- The thresholds for investments by non-Canadians controlled in non-WTO member countries, and investments in cultural businesses, have remained the same: which is $5 million in asset value for direct investments and $50 million in asset value for indirect transactions.
The lowered thresholds for both pre-merger notification and pre-closing net benefit review means that more transactions will be captured and subject to regulatory oversight. The decreases also reflect the state of the Canadian economy and the adverse impacts of the covid-19 pandemic.
Originally Published by Stikeman Elliott, March 2021
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