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M&A in Canada: The Increasing Importance of Navigating National Security Approvals

March 18, 2019

Getting a merger reviewed on national security grounds can cause delays and even lead to failed transactions.

Canada began screening foreign takeovers on national security grounds in 2009, and today merger planning requires careful consideration of national security closing risks of every transaction. The United States has also recently expanded the scope of its national security review, and Europe recently adopted a foreign investment review coordination framework that will apply to all member states. The United Kingdom and Germany have also expanded their investment review regimes with Germany recently blocking two foreign investment transactions on national security grounds.

On February 28, 2019, the federal government highlighted and clarified the importance of national security reviews in the regulatory process in its Annual Report on the Investment Canada Act (ICA) for the fiscal year ended March 31, 2018.

The Canadian government’s Annual Report is the first of its kind to provide detailed information on countries of origin and the nature of businesses subject to national security reviews under the ICA. It also touches on so called “net benefit” reviews.

As more countries introduce or expand foreign investment review regimes, the Canadian experience under the ICA, including with national security reviews, provides helpful insights for companies and their domestic and international advisers.


The main takeaways from the Annual Report relating to national security are:

National Security Reviews

  • Most investments by non-Canadians do not raise any national security issues. Out of the 3,547 reported investments made in the last five years, only 15 (or 0.4 per cent) have been subject to a full review on national security grounds involving investors primarily from the People’s Republic of China, Egypt, Cyprus, Russia and the United Kingdom.
  • In the previous fiscal year, two investments underwent a full national security review (out of 751 reported investments or 0.3 per cent). Both national security reviews involved investors based in the People’s Republic of China. However, the government continues to screen all investments for national security concerns even if the government does not conduct a full review.
  • The report disclosed that most national security reviews (10 out of 15) have been in technology-related industries such as telecommunications and electronic equipment; however, two reviews undertaken last year involved Canadian businesses in the construction and pharmaceutical industries.

Mitigation Measures in National Security Reviews

The Annual Report also provides guidance on mitigation measures that may be considered in the context of national security reviews. These measures or “remedies” have included:

  • Requiring government approval of proposed business locations in order to avoid proximity to strategic assets
  • Requiring that all servicing and support for some or all business lines is conducted in Canada
  • Creating approved corporate security protocols to safeguard information and access to a site
  • Requiring the engagement of a security-cleared compliance officer to ensure and report on compliance
  • Requiring third-party compliance audits on request
  • Requiring access to facilities for compliance inspection
  • Requiring employees with access to sensitive information to attest to compliance with approved security protocols
  • Notifying existing customers of pending new ownership
  • Providing notice to the Minister of new prospective employees who would have access to sensitive information or technology as a part of their job description
  • Excluding sensitive business segments or assets from a transaction

Net Benefit Reviews

Aside from national security reviews, the Annual Report also provided feedback on so called “net benefit” reviews. With the increase in the monetary threshold for economic “net benefit” reviews to over C$1-billion for most investments, the number of such reviews decreased from 22 to nine. This has also translated into shorter reviews, with the average review period being 77 days (down from 85 in the prior year). The United States continues to be the primary source of investment into Canada, followed by the European Union and the People’s Republic of China. The primary areas of investment continue to be in the business or professional services industries, followed by the manufacturing, wholesale/retail and natural resources sectors.

If you have any questions regarding these developments, please do not hesitate to contact your usual Blakes contact or any member of the Blakes Competition, Antitrust & Foreign Investment group.