2023 thresholds for Canadian merger reviews

Thresholds for mergers and acquisitions under the Competition Act and Investment Canada Act have been announced for 2023.

For a second consecutive year, the two monetary thresholds under the Competition Act remain the same (including the size-of-transaction threshold, which has historically been adjusted annually), while certain review thresholds under the Investment Canada Act have increased by around 13% over 2022 thresholds. (Similar thresholds under the United States Hart-Scott-Rodino Antitrust Improvements Act of 1976 also increased by around 10% over 2022 thresholds.)

Important changes to both the Competition Act and the Investment Canada Act regimes are expected in the near future. Innovation, Science and Economic Development Canada (ISED) is conducting consultations in its ongoing review of the Competition Act, and the Minister of Innovation, Science and Industry (Minister) recently announced significant legislative reforms to the Investment Canada Act to bolster national security reviews.

What you need to know

• The size-of-transaction threshold for merger notification under the Competition Act remains the same for a second consecutive year at $93 million for 2023. The size-of-parties threshold, which is not adjusted annually, is $400 million.
• The 2023 thresholds for reviews of direct acquisitions of control of Canadian businesses that are not “cultural businesses” by foreign investors under the Investment Canada Act have increased from:
  • $1.711 billion to $1.931 billion in enterprise value of the Canadian business for trade agreement investors, which includes investors from the U.S., EU and Japan, among others;
  • $1.141 billion to $1.287 billion in enterprise value of the Canadian business for other investors from countries that are members of the World Trade Organization (WTO); and
  • $454 million to $512 million in asset value of the Canadian business for state-owned or influenced enterprises (SOEs).
• Merger reviews under both the Competition Act and the Investment Canada Act are expected to undergo important changes in the near future.

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.

Under the Competition Act, annual threshold adjustments are not mandatory, and the $93 million size-of-transaction threshold will again remain the same in 2023 when it could have increased per a statutory formula based on GDP. This follows decisions not to change the threshold in 2020 and 2022 (when it could have increased) and to decrease it in 2021 (when it could have remained the same).

The government’s recent approach to the annual adjustment suggests a belief that the notification thresholds should remain low to expand the scope of transactions that may be reviewed by the Competition Bureau (Bureau). This is particularly notable given the current inflationary environment of the Canadian economy. In his announcement, the Minister said he decided to leave the threshold unchanged for a second straight year to “make life more affordable, including by ensuring a more competitive marketplace”.

Ongoing ISED consultations and review of the Competition Act

ISED is conducting consultations in its ongoing review of the Competition Act, which was launched in November 2022 and which the Minister announced would be extended through March 31, 2023. These consultations are expected to inform a second phase of amendments to the Competition Act. (See our previous bulletin on the first phase of amendments.) The changes being considered to the Canadian merger review regime include:

• revising pre-merger notification rules by lowering thresholds or moving to a turnover criterion;
• extending the limitation period for non-notifiable mergers or tying it to voluntary notification;
• easing the conditions for interim relief when the Bureau is challenging a merger and seeking an injunction;
• amending the efficiencies defence by restricting its application or eliminating it altogether; and
• lowering the standard for a merger remedy or requiring it to account for effects on labour markets.

These considerations are consistent with a policy paper released by the Bureau last year. For more information, see our previous bulletin.

Investment Canada Act thresholds and national security reviews

The Investment Canada Act generally requires that a non-Canadian investor proposing to acquire direct control of a Canadian business receive approval that the investment is of “net benefit” to Canada if the enterprise value of the Canadian business exceeds at least $1.287 billion, or $1.931 billion in the case of “trade agreement investors”. A lower threshold of $512 million, based on the book value assets of the Canadian business, applies to acquisitions by SOEs.

Lower thresholds of $5 million (for direct acquisitions) and $50 million (for indirect acquisitions) also apply to investments by an investor who is not a "WTO investor" and acquisitions of Canadian “cultural businesses”, which includes businesses involved in the production or distribution of books, music, film and other media, such as video games.

An acquisition of control of a Canadian business, whether direct or indirect, that does not exceed these thresholds will still generally require notification post-closing.

Any investment (either in part or in whole) in, or the establishment of, a Canadian business by a non-Canadian investor may 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. Investments that are not required to be notified may now be voluntarily notified to achieve regulatory certainty around national security issues in advance of implementation.

Proposed legislative reforms to the Investment Canada Act

The Minister recently announced significant legislative reforms to the Investment Canada Act to bolster national security reviews. The proposed changes, some of which are expected to come into force by mid-2023, would:

• introduce a mandatory pre-closing notification filing requirement for investments in certain sensitive sectors and significant penalties for non-compliance;
• introduce new, and increase existing, penalties for non-compliance;
• give the Minister power to extend national security review timelines and impose interim and permanent investment conditions; and
• expand Ministerial power to share information with allies to assist and coordinate national security reviews and introduce new rules for the protection of information during the course of judicial review.

For more information, see our previous bulletin.