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. The 2016 thresholds came into effect on Feb. 6.
The Competition Bureau has announced that the 2016 transaction size threshold will be $87 million, up from $86 million in 2015.
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 $87 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).
Investment Canada Act
Industry Canada has announced that the 2016 review threshold applicable to the direct acquisition of control of a Canadian business, other than a defined "cultural business", by a buyer that it is ultimately controlled by an SOE WTO investor will be $375 million, up from $369 million in 2015. If the threshold is exceeded, a proposed transaction must be reviewed and approved by the Minister of Industry 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 continues to apply to this permutation of transaction.
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.