In brief

Modernization of Canadian competition law and foreign investment review is well underway. Recent and further proposed legislative amendments will impact how dealmakers assess substantial and procedural regulatory risk for mergers. This update summarizes the recent legislative amendments to the Competition Act (“Act“) that came into effect on 15 December 2023 and proposed legislative amendments to the Act and Investment Canada Act (“ICA“). Dealmakers should be aware of these amendments as they plan mergers involving Canadian businesses in 2024.

In more detail

Merger review in Canada is changing through targeted amendments to the Act^1,2 and ICA³.  The pre-merger notification and substantive assessment provisions under the Act are in the process of being reformed and the ICA is being strengthened to allow for more substantive reviews of investments on the grounds of national security. 

These amendments represent the Government of Canada’s sustained efforts to modernize federal competition and foreign investment laws, which will impact the regulatory review of mergers in the following ways: 

• More Mergers Subject to Pre-Closing Notification. Foreign businesses that sell into Canada without significant Canadian assets typically do not meet the current financial thresholds for mandatory pre-merger notification. Adjustments to the financial test will require businesses to account for their sales into Canada, including those generated from assets located outside of Canada, thereby capturing a larger group of buyers and sellers within Canada’s mandatory pre-merger notification regime. 
• Increasing Importance of Market Shares in Competition Analysis. Canadian law currently prohibits the Competition Tribunal from finding that a merger is anti-competitive based solely on the market share of the merging parties. Proposed amendments will repeal this prohibition, which may result in greater emphasis on market shares and concentrations in contested mergers. In turn, merging parties will need to take care in defining the proper geographic and product markets, as this will impact the calculation of shares and concentration for the merger. This change may also pave the way for the imposition of structural presumptions against mergers that exceed a certain share threshold. 
• Inclusion of New Factors in Assessing Competitive Effects. The government has proposed additional factors that will be relevant to the competitive effects analysis, including the effect of the merger on labour markets, changes in market share and concentration, and the potential for express or tacit coordination among competitors. While the Competition Bureau already considered these factors in its competitive effects analyses, their explicit inclusion signals the government’s desire to align Canada’s competition law policy more closely with its global counterparts. In particular, the inclusion of labour markets aligns the Competition Bureau with regulators in the United States, United Kingdom, and Europe, which are increasingly scrutinizing labour markets.
• Efficiencies Defense Repealed. The efficiencies defense was unique to Canada and allowed the Competition Tribunal to permit anti-competitive mergers to proceed on the basis that the merger would result in efficiency gains that were greater than and offset the anti-competitive effects. While few anti-competitive mergers prevailed by deploying the efficiencies defense, it was a lightning rod in Canadian competition policy and was repealed as of 15 December 2023. 
• Potential Closing Delays in Complex Mergers. Proposed amendments will allow the Competition Bureau to temporarily restrain closing while the merger is under review and/or challenge before the Competition Tribunal. A merger will be prohibited from closing until the application for an interim order to block closing has been disposed of by the Competition Tribunal. This may result in delays that businesses should consider when assessing the risks and benefits of substantively complex mergers. 
• Increased Risk of Post-Closing Scrutiny for Non-notifiable Mergers. Proposed amendments will allow the Competition Bureau to review a non-notifiable merger for up to three years post-closing (an increase from the current one-year post-closing review period). The longer review period will increase the risk of scrutiny for certain types of non-notifiable mergers. The Competition Bureau, through public statements, has signaled its intention to focus on “killer” acquisitions, acquisitions of nascent competitors, and roll-up acquisitions by private equity firms. Businesses will need to consider both the short and medium term when assessing the substantive risk associated with a non-notifiable merger post-closing as business practices and further industry consolidation may become relevant considerations.
• National Security Risk. Proposed amendments to the ICA will require non-Canadian investors to file pre-closing notifications if their investments in a Canadian business fall within prescribed business sectors that are deemed to raise potential national security risk. While the prescribed business sectors will be identified through regulations that will be released at a future date, early indications are that these sectors will be similar to and reflect the categories set out in the current Guidelines on the National Security Review of Investments. Broader geopolitical risks must also be factored into investing in Canada with respect to both the target’s business activities, and the identity of the investor.

1 Bill C-34, “An Act to amend the Investment Canada Act” (“Bill C-34“), which proposes to strengthen the national security provisions of the Investment Canada Act. Bill C-34 is expected to receive royal assent in early 2024. See our recap of the proposed amendments for Bill C-34.

2 Bill C-56, the “Affordable Housing and Groceries Act” (“Bill C-56“), broad legislation which proposed targeted amendments to the Competition Act received royal assent on 15 December 2023. See our recap of the proposed amendments for Bill C-56.

3 Bill C-59, “An Act to implement certain provisions of the fall economic statement tabled in Parliament on 21 November 2023″ and certain provisions of the budget tabled in Parliament on 28 March 2023” (“Bill C-59“), broad legislation which proposes further targeted amendments to the Competition Act. Bill C-59 was tabled on 30 November 2023. See our Year in Review, which discusses the Competition Act amendments proposed in Bill C-59.