Written by Adam Kalbfleisch, Kyle Donnelly and Alysha Pannu
The Competition Bureau announced that the 2021 size of transaction pre-merger notification threshold under the Competition Act will decrease to C$93 million from the current threshold of C$96 million. Acquisitions may be subject to mandatory pre-notification where the aggregate value of the target firm's assets in Canada, or the gross revenues from sales in or from Canada generated from those assets, exceeds the size of transaction threshold. The size of parties threshold (C$400 million) must also be met for a mandatory notification to be acquired. Further, certain other non-financial thresholds may apply depending on the structure of the deal. The 2021 size of transaction threshold came into effect February 13, 2021, following publication in the Canada Gazette Part 1.
The size of transaction threshold under the Competition Act is adjusted each year by the federal government based on a formula that considers changes in Canada's nominal GDP. The pandemic triggered a decline in Canadian GDP this past year, reducing the size of transaction threshold for 2021.
Innovation, Science and Industry Canada also recently announced that certain review thresholds for investments by non-Canadians under the Investment Canada Act decreased, effective February 13, 2021. Like the Competition Act threshold, the federal government adjusts these thresholds annually based on changes in nominal GDP.
The 2021 threshold for World Trade Organization (WTO) investors that are not state-owned enterprises decreased to C$1.043 billion for direct investments involving Canadian non-cultural businesses, based on the enterprise value of the Canadian business’ assets (down from C$1.075 billion in 2020). Private sector investors from the United States, Australia, Chile, Colombia, the European Union, the United Kingdom, Honduras, Japan, Mexico, New Zealand, Panama, Peru, Singapore, South Korea and Vietnam benefit from a higher "trade-agreement" investor threshold, which decreased to C$1.565 billion, based on the same enterprise value calculation, down from C$1.613 billion in 2020. The 2021 threshold for WTO investors that are state-owned enterprises decreased to C$415 million based on the book value of the Canadian business' assets, down from C$428 million in 2020.
The thresholds for review for direct and indirect investments by non-WTO investors (C$5 million and C$50 million, respectively) and for direct and indirect investments in Canadian cultural businesses (C$5 million and C$50 million, respectively) remain the same.
While the reduction in the Competition Act and Investment Canada Act thresholds is unlikely to make a difference for most transactions, some unlucky deals may get caught by the lower review thresholds in 2021.