Anonymised, illustrative composite. The deal team had checked the Competition Act thresholds and the Investment Canada Act's net-benefit threshold, confirmed the transaction cleared both comfortably, and assumed that settled the regulatory question.
At a glance
A fund with a significant share of its capital committed by non-Canadian limited partners agreed to acquire an $18 million Canadian business that manufactures sensor components used in industrial and infrastructure monitoring systems. On the numbers alone, the deal team's regulatory screening looked straightforward: well under every size threshold that governs merger notification and foreign-investment review in Canada.
Under the Competition Act, notification is required only where both tests are met. Section 109(1), headed General limit relating to parties, asks whether the parties together with their affiliates have assets in Canada, or gross revenues from sales in, from or into Canada, “that exceed four hundred million dollars.” Section 110(7) then sets the transaction-size figure — “In the year in which this subsection comes into force, the amount for the purposes of subsections (2) to (6) is $70,000,000” — and s.110(8) re-indexes it every year to nominal GDP, with the Minister publishing the result in the Canada Gazette under s.110(9). Under the Investment Canada Act, a WTO investor's acquisition of control triggers the net-benefit review process only above an enterprise-value threshold set at $1,000,000,000 by s.14.1(1)(d) and likewise re-indexed annually under s.14.1(2). The figures in the statutes are floors that have since been indexed well above their enacted amounts, so the current published thresholds are higher than the numbers the Acts recite — but at $18 million the deal cleared every version of every one of them, which is exactly what made the deal team comfortable.
One thing clearing those thresholds did not clear was a filing. Being below the review threshold does not put a foreign buyer outside the Investment Canada Act at all: s.11(b) makes “an investment to acquire control of a Canadian business in any manner described in subsection 28(1), unless the investment is reviewable pursuant to section 14” subject to notification, and s.12 requires that notice be given “at any time prior to the implementation of the investment or within thirty days thereafter.” Small does not mean invisible. It means notifiable rather than reviewable.
Roughly six weeks after the parties signed, the fund received formal notice from the Minister under Investment Canada Act s.25.2: the Minister had “reasonable grounds to believe that an investment by a non-Canadian could be injurious to national security” and was notifying the fund that a further review order might follow under s.25.3.
This caught the deal team off guard precisely because it does not depend on the size thresholds they had already cleared. The government's own description of the power is explicit. ISED's plain-language account of the Act says it “allows the federal government to review investments of any size for national security concerns,” and that it permits a national security review “of any foreign investment, regardless of its value and whether it is subject to the mandatory filing requirements of the Act.” The Guidelines make the same point structurally: the investments Part IV.1 reaches include “acquisitions of control of a Canadian business of any dollar value.” It is a distinct legal test running in parallel to, and untouched by, both the Competition Act's dollar thresholds and the ICA's own net-benefit review threshold.
The notice also carried an immediate consequence the integration plan had not allowed for. Under s.25.2(2), a non-Canadian who has not yet implemented a proposed investment when the notice arrives “shall not implement the investment” unless and until it receives a notice under s.25.2(4), a notice under s.25.3(6)(b) or (c), or a copy of an order under s.25.4 authorizing implementation. The signed deal could not close while the question was open.
The sector, not the deal value, was what put this transaction in scope: sensor technology feeding into monitoring infrastructure sits inside the kind of sensitive-technology category the national security review power exists to reach, regardless of how small the transaction is in dollar terms.
Once the Minister issues an s.25.3 order for further review, the review runs on its own track. Section 25.3(6) requires the Minister, after consultation with the Minister of Public Safety and Emergency Preparedness, to act “within the prescribed period”; s.25.3(7) provides that where the Minister is unable to finish in that period, the Minister must send a notice to that effect and then has “until the end of the period prescribed for this subsection, or any further period that the Minister and the non-Canadian agree on.” The Act leaves the specific day-counts to regulation rather than stating them in the section itself, so the fund's counsel advised against assuming any fixed calendar until the government's own correspondence confirmed one.
A full review does not necessarily end in a Governor in Council order, and the branch points are worth stating because the range of outcomes is wide. Under s.25.3(6) the Minister may simply “send to the non-Canadian a notice indicating that consideration of the investment is complete” — either because the Minister is satisfied the investment would not be injurious, or because undertakings given to the Crown have made it so. The file goes to the Governor in Council under s.25.3(6)(a) only where the Minister is satisfied the investment would be injurious, or cannot determine whether it would be. Only then does s.25.4 engage, and there the Governor in Council “may, by order, within the prescribed period, take any measures in respect of the investment that he or she considers advisable to protect national security,” including directing the non-Canadian not to implement it, authorizing it “on the terms and conditions contained in the order,” or “requiring the non-Canadian to divest themselves of control of the Canadian business.” That range of outcomes, run by a regulator the deal's dollar value gave the fund no reason to expect scrutiny from, is what made the notice a genuine deal risk rather than a formality to disclose and move past.
The fund cooperated fully: it provided a full breakdown of its limited partner base, including the nationality and approximate commitment size of each LP above a materiality threshold, and answered a detailed questionnaire on the target's customer base and the end-use of its monitoring components. After a review that added roughly four months to the expected closing timeline, the Minister issued an s.25.2(4) notice that consideration of the investment was complete and no further order would be made.
The deal closed on its original terms, four months later than planned. The fund's standing process changed permanently: every acquisition involving a target in a sensitive-technology category now gets a national security screening memo at the letter-of-intent stage, independent of what the Competition Act and ICA size thresholds say, because on this deal the size thresholds had told the team nothing useful about the actual regulatory risk in front of them.
A 30-minute call is enough to tell you whether a structuring or diligence gap like this one is sitting in your pipeline.
