Anonymised, illustrative composite. The review did not block the deal. It damaged the business the buyer was paying for, through a mechanism no filing or waiting-period rule describes.
At a glance
A distributor of industrial fasteners to energy-services and heavy-equipment customers, with two Alberta depots and one in Saskatchewan, was sold to a competitor for $94,000,000. Roughly a fifth of the consideration sat in an earn-out on gross profit over the two years after closing; the structure and its failure modes are in the earn-out glossary entry and an earn-out measured on a metric the buyer controlled.
The transaction was notifiable and was filed. The Commissioner did not clear it in the initial waiting period: the two businesses were the first and third suppliers in a narrow product niche in one province, and the Bureau wanted evidence from the people who actually buy the product.
That evidence does not come from the parties. It comes from customers, and the Commissioner has a statutory instrument for getting it. Three of the target's largest customers — a drilling contractor, an equipment rebuilder and a pipeline maintenance business, together 44% of the target's revenue — each received an order of a superior court requiring production of records about their purchasing, switching and pricing.
The parties had planned for the review to be slow. They had not planned for it to be visible. Until the orders landed, the transaction was known to the two boards, their advisers and a handful of lenders. Afterwards it was known to three procurement departments who had every reason to act on the information and no obligation to keep it.
The three accounts were $41,400,000 of the target's $94,000,000 of annual revenue. Within four months of the orders being served, two of the three had opened qualification files on an out-of-province supplier — a step that on this product set takes six to nine months and, once completed, is not usually reversed.
In the twelve months after closing, revenue from those three accounts fell 11%, or about $4,550,000. Gross profit fell rather more because the retained volume was repriced. The earn-out, measured on gross profit and set at a target the vendor had had every reason to believe was conservative, paid out at 38% — a shortfall of roughly $11,600,000 against the vendor's expectation and against the price the buyer had modelled.
Neither side had done anything wrong. The Bureau had done exactly what a merger review requires. The value simply left the business while the review ran.
s.11(1) is a third-party compulsion power. On the ex parte application of the Commissioner, where “a judge of a superior or county court is satisfied by information on oath or solemn affirmation that an inquiry is being made under section 10 or 10.1 and that a person has or is likely to have information that is relevant to the inquiry”, the judge may order that person to attend for oral examination, to “produce to the Commissioner or the authorized representative of the Commissioner within a time and at a place specified in the order, a record, a copy of a record certified by affidavit to be a true copy, or any other thing, specified in the order”, or to deliver a written return.
Get the unit right: the target of a s.11 order is a person who has relevant information. It is not a party to the transaction and need not be. That is the whole point of the power — the parties' own documents will not tell the Commissioner whether customers can switch. s.11(4) gives the order effect anywhere in Canada, and s.11(5) reaches “a person outside Canada who carries on business in Canada or sells products into Canada”. s.11(3) removes the usual excuse: “No person shall be excused from complying with an order under subsection (1) or (2) on the ground that the testimony, record or other thing or return required of the person may tend to criminate the person”.
The asymmetry that mattered here is one of direction. s.29(1)(b) prohibits the Bureau from communicating “any information obtained pursuant to section 11, 15, 16 or 114”, and s.29(1)(c) stops it confirming a filing exists. Nothing in the Act restrains the recipient of a s.11 order. A customer served with one may tell its board, its own suppliers or a trade journal. s.10(3) provides that “All inquiries under this section shall be conducted in private.” That governs the conduct of the inquiry by the Commissioner; it is not a gag on the world.
The Commissioner concluded her review and did not challenge the merger; the evidence the orders produced showed switching was practical and had happened. The transaction closed on its original terms. The damage was already done and it was done by the customers' entirely rational response to information they had lawfully acquired.
The buyer, in the round, still bought a good business at a price that reflected two years of trading it never got. The vendor bore most of the loss through the earn-out. Neither the purchase agreement nor the Act allocates that risk anywhere, because neither contemplates it: the agreement's regulatory condition dealt with whether the deal would be permitted, not with what reviewing it would cost. Compare the margin data a vendor would not put in a filing, where the confidentiality analysis ran the other way, and sixty per cent of revenue from one customer on concentration risk generally.
There is no version of this file in which the orders could have been resisted. Compliance is compelled, self-incrimination is not an excuse, and the parties have no standing to object on a customer's behalf. What could have changed is who bore the consequence.
An earn-out measured across a period that includes a live merger review puts the vendor on the wrong side of a risk it cannot manage and the buyer cannot either. Two drafting responses exist and cost nothing: start the earn-out measurement period on clearance rather than on signing, or carve regulatory-review effects out of the measurement the way a well-drafted agreement already carves out buyer interference. On these numbers, a clearance-dated start would have moved roughly $11,600,000 of value back across the table, and it would have been a fair allocation rather than a windfall — the loss was caused by a process neither party controlled.
The tell was the customer concentration, read together with the fact that the parties were first and third in a narrow niche. Where three accounts are 44% of revenue and the competitive question is whether customers can switch, the Bureau's evidence has to come from those three accounts. That is foreseeable at the point the filing is made, not a surprise four months later.
The generalisable version: a merger review is not a passive event that happens alongside the business. Its investigative steps reach into the customer base, and the more concentrated that base, the more of the business the review will touch. Price the review as an operating risk, not only as a timing risk.
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