2021 thresholds in effect for Canadian merger reviews

New thresholds for mergers and acquisitions under the Competition Act and Investment Canada Act are now in effect. These thresholds are adjusted annually based on GDP formulas and, for the first time, they have decreased. This was a result of Canada’s economic contraction due in large part to the COVID-19 pandemic.

Under the Competition Act, the threshold change is not mandatory and the government’s recent approach to the annual adjustment suggests a belief that the notification threshold should remain low: it was unchanged in 2020 (when it could have increased per the GDP formula) and decreased this year (when it could have remained the same). A belief that more and not fewer transactions ought to be reviewed is consistent with the Bureau’s recent increase in the review of non-notifiable transactions.

What you need to know

• The size-of-transaction threshold for merger notification under the Competition Act has decreased from $96 million to $93 million for 2021.
• The 2021 thresholds for reviews of direct investments in Canadian businesses by foreign investors under the Investment Canada Act have decreased from:
  • $1.613 billion to $1.565 billion in enterprise value of the Canadian business for trade agreement investors, which includes investors from the U.S., EU and Japan, among others;
  • $1.075 billion to $1.043 billion in enterprise value of the Canadian business for other investors from countries that are members of the World Trade Organization (WTO); and
  • $428 million to $415 million in asset value of the Canadian business for state-owned or influenced enterprises.

The details

Competition Act thresholds

Pre-merger notification under Canada’s Competition Act is generally required for transactions where the target has assets in Canada or revenues in or from Canada generated from those assets of $93 million or more and where the parties to the transaction have assets in Canada or revenues from sales in, from or into Canada of $400 million or more. In some cases, additional share or partnership interest ownership levels must also be satisfied.

Investment Canada Act thresholds

The Investment Canada Act generally requires a non-Canadian investor proposing to acquire direct control of a Canadian business receive approval that the investment is of “net benefit” if enterprise value of the Canadian business exceeds at least $1.043 billion or $1.565 billion in the case of “trade agreement investors”. A lower threshold of $415 million, based on the book value assets of the Canadian business, applies to acquisitions by state-owned or influenced enterprises. Lower thresholds of $5 million (for direct acquisitions) and $50 million (for indirect acquisitions) apply in connection with the acquisition of Canadian “cultural businesses”, which includes businesses involved in the production or distribution of books, music, film and other media such as video games. Any investment in part or in whole in, or the establishment of, a Canadian business by a non-Canadian investor could be reviewed if there are reasonable grounds to believe that the investment could be injurious to national security, regardless of whether the relevant financial thresholds are met.