The outlook for M&A in Canada is uncertain, with tariff wars weighing on investor decisions. At the time of writing in early 2025, the authors believed that a number of factors supported an optimistic climate for deal-making. However, the trade war launched by the United States against Canada in February 2025 and the wide-ranging retaliatory tariffs imposed by the United States on 2 April 2025 resulted in a global stock market crash. There is now a significant risk of both a global recession and higher inflation. These dramatic changes and the resulting uncertainty will impact the level of M&A activity in Canada.

Easing interest rates, decreasing inflation and a steady exchange rate against the US dollar throughout 2024 spurred just enough confidence for Canadian deal-making to carry on at higher deal values than 2023.

After the “soft landing” in 2024, investors were briefly hopeful for an uptick in Canadian M&A in 2025 given the stimulating effects of the lower cost of borrowing on housing activity, household spending and construction. Moreover, the financing market is robust, with an abundance of creative financing options; private equity firms continue to hold an abundance of cash ready to deploy; valuation gaps have narrowed as acquirors spend longer in due diligence; and the declining value of the Canadian dollar makes Canadian businesses more attractive for US bargain hunters.

However, since the US tariff war with Canada began in February 2025, business confidence has taken a significant hit, and the valuations of Canadian businesses will be impacted by the risk of a global recession, particularly those businesses that trade with the United States. With a majority of Canadian exports going to the USA, Canadians are uneasy watching the tariff story develop.

Though the news and outlook change day to day, it appears that businesses will be taking a “wait-and-see”, guarded approach to M&A in early 2025 and deferring transactions until confidence has recovered.

M&A activity in Canada was set to improve in 2025 as interest rates fell throughout 2024 and investor confidence improved. However, risks of a global recession and the expectation of increased inflation from the tariff war have created uncertainty for businesses and deal making going forward.

Key trends that are affecting M&A activity in Canada include the following:

• The Canadian government updated its investment guidelines to now explicitly consider investments and transactions that undermine the nation’s economic security. Canada continues to take a cautious approach to foreign investments in Canada.
• The Canadian government continues to invest in and take steps to protect critical minerals.
• The Canadian dollar has declined relative to the US dollar, and the growing list of tariffs on Canadian imports are damaging business and consumer confidence.

• Canadian retail businesses continue to face volatility – some benefitting from a surge of interest in supporting Canadian vendors, others struggling with supply chain challenges and decreasing consumer confidence. Hudson’s Bay, Canada’s oldest retail company, ended its 355-year run by filing for creditor protection this spring.

• While pipeline projects have previously faced staunch opposition, Canada is seeing a growing need to develop its infrastructure and focus on trading with friendly European nations.
• Provincial governments will reduce internal trade barriers to support interprovincial trade.
• The labour force will be directly impacted by new immigration policies following the upcoming federal election. A declining population and plans to decrease the number of temporary workers and permanent immigrants will shrink the labour force. Industries that heavily rely on temporary workers will be disproportionately affected.
• Private equity firms continue to sit on high levels of cash as they delay deployment until they see the impact of tariffs on the Canadian economy.
• Take-privates outnumbered IPOs in 2024 and are expected to continue into 2025.
• The use of limited partnerships in Canada remains a steady trend and a new trend towards investing at the fund manager level is emerging.
• Shareholder activism declined, possibly because the S&P/TSX Composite Index saw significant gains in 2023; however, it is expected to increase given the market disruptions.
• Criticism over environmental, social and governance (ESG) policies has led companies to refuse to publish ESG information (greenhushing) and instead to focus on “conscientious capitalism”.
• Cybersecurity and data safekeeping has become a top priority for Canadian companies with the increase in ransoms paid for data.
• A new digital services tax came into force in June 2024 requiring foreign and domestic large businesses to pay 3% DST on certain revenue earned from engaging with online users in Canada.
• Canada launched the Federal Plastics Registry in 2024, mandating certain reporting obligations on plastic, targeting businesses using “forever chemicals”.
• The use of an exchangeable share structure by US buyers to roll over the equity of Canadian sellers is increasing in popularity as it can provide meaningful tax deferral for sellers.
• Canada introduced employee ownership trusts as a new tool making it easier for employees to own businesses.
• Canadian regulators continue to be wary of certain foreign states and actors. The list of sanctioned entities and persons grew to include individuals connected to the Gaza war and human rights abuses in Guatemala and Sudan.
• Canada announced CAD2.4 billion in new federal funding towards its national AI strategy in April 2024. With the prorogation of Parliament and government elections looming in 2025, the viability of existing government initiatives and Canada’s leadership position on AI remain uncertain.

Automotive, Steel and Aluminium

Currently the industries that are hardest hit by the US tariff war are the automotive industry and the steel and aluminium industries.

The automotive industry in Canada over the past 30 years became inextricably linked with the United States. Automotive parts manufactured in Canada would cross the border up to eight times before final assembly. The tariffs imposed by the United States this year, and the countermeasures imposed by Canada, are expected to permanently break this arrangement. Canada will be developing a framework for auto producers that incentivises production and investment in Canada.

Similarly, the steel and aluminium industries have been singled out for tariffs and reciprocal tariffs. In 2024, roughly equivalent amounts of steel and iron crossed the border in each direction while more than three times the amount of aluminium flows from Canada to the USA.

These industries and the industries that support them will be suffering significant losses of revenue and employment.

Mining

Approximately half of all publicly traded mining companies in the world are listed on a Canadian stock exchange. In 2024, the mining and metals sector led materials M&A activity by sheer number of transactions and fell only behind the telecommunications sector in deal value. Notable deals included South Africa’s Gold Fields’ USD1.39 billion acquisition of Osisko Mining, and First Majestic’s USD970 million acquisition of Gatos Silver.

Canadian mining companies continue to face unique challenges such as increased government scrutiny on foreign investment, geopolitical risks, and environmental hurdles.

Canada is a key producer of copper, nickel, cobalt, lithium, graphite and vanadium. As global demand increases for critical minerals used in batteries and other clean technology, Canada continues to look for ways to invest in, and protect, these key resources.

A notable headline in the sector includes Noble Mineral Exploration and Canada Nickel’s announcement of the plan to consolidate their interests.

Oil and Gas

The oil and gas sector accounts for approximately 3% of Canada’s real gross domestic product. Canada is the world’s fourth-largest producer of oil and fifth-largest producer of natural gas and Canadian refineries can process nearly 1.9 million barrels of crude oil per day.

Oil industry M&A remained active in 2024, with notable transactions such as: Canadian Natural Resources’ acquisition of Chevron's Alberta assets for USD6.5 billion, Enbridge’s CAN4.3 billion acquisition of Fall West Holdco from Dominion Energy and Teck’s sale of its steel-making coal business to Glencore for USD7.3 billion.

M&A in the oil and gas sector appears promising. A major deal already underway is the USD2.05 billion acquisition of Dutch green fuel-maker, OCI Global by Canada’s Methanex, the largest methanol producer in the world.

Technology

Canada has a solid presence within the technology sector. It is home to leading technology hubs and companies, such as Shopify, as well as to market leaders in numerous sectors, including cleantech.

As of May 2024, 88% of the cleantech sector companies listed on the TSX and TSX-Venture exchanges were headquartered in Canada.

Technology companies have lost a lot of value from the stock market highs of 2021, and more going-private transactions are expected. For example, Montreal-based Nuvei Corp. was taken private by a US private equity firm for USD6.3 billion, and Industrial and Financial Systems acquired Copperleaf Technologies for CAD1 billion.

The technology sector has been active: Canada Pension Plan Investments participated in the largest data centre deal globally – the acquisition of Airtrunk by Blackstone, and Singapore’s Bitdeer Technologies Group announced in February 2025 its acquisition of a 101 MW site in Alberta for USD21.7 million where it will build a data centre for Bitcoin mining.

Most public company acquisitions in Canada are conducted by way of:

• a takeover bid, either hostile (unsolicited) or friendly (solicited and/or negotiated); or
• a negotiated, court-approved plan of arrangement.

Companies can also be acquired by way of:

• an asset or share purchase; or
• an amalgamation or other corporate reorganisation.

M&A activity in Canada is primarily regulated by:

• the Canadian federal government, particularly where the target is in a regulated industry or the acquiror is non-Canadian;
• provincial securities regulators; and
• stock exchanges.

Reporting issuers, including all issuers with securities listed on a Canadian stock exchange, must file continuous disclosure documents on SEDAR+, a web-based platform for electronic filing and public data access for Canada’s capital markets. Reporting insiders – including directors, officers and 10% beneficial owners of a class of securities of a reporting issuer – must file trade reports on the System for Electronic Disclosure by Insiders (SEDI) unless an exemption is available.

There is no single national securities regulator in Canada and multiple attempts at creating one have failed. At present, there are 13 securities regulators in Canada, across its ten provinces and three territories.

Investment Canada Act (ICA) and National Security Review

Canada has traditionally welcomed foreign investment and has a reputation as an attractive and trusted destination for investors. However, like most countries, the Canadian government may restrict the ability of a non-Canadian to acquire or start a business in Canada, in particular if the investment relates to a cultural business (for example, broadcasting and publishing) or raises national security concerns. The government may block proposed foreign investments, allow them to proceed with conditions, or order divestiture if an investment has already been made.

A transaction by a non-Canadian is reviewable if the enterprise value of the target business exceeds certain financial thresholds (for WTO investors that are not state-owned enterprises, the threshold is an enterprise value of CAD1.386 billion). If a transaction is reviewable, the foreign investor must prove that the transaction is of “net benefit” to Canada. If not reviewable, a notification under the ICA must be filed within 30 days after commencing a new business activity or acquiring control of an existing Canadian business.

Separately, the Canadian government may review any acquisition on national security grounds under the ICA, whether or not it is subject to a net benefit review. There is no definition of “national security” in the ICA, nor are there specific monetary thresholds that automatically trigger a national security review. Any foreign investments in businesses involved in the Canadian oil sands, the critical minerals sector, defence, and certain other protected industries are likely to be subject to greater scrutiny. In particular, the government has stated that any investment (regardless of size or industry) into a Canadian business from an investor with direct or indirect ties to Russia, and any investment by a foreign state-owned enterprise into Canada’s critical minerals sector, will trigger a national security analysis. The government is also more likely to take a closer look at opportunistic acquisitions of targets hit hard by tariffs.

Following amendments to the ICA in 2022, investors may make a voluntary pre-closing filing regarding a proposed minority investment to determine if it would be subject to a national security review, triggering a 45-day review period for the government. If no voluntary notification is filed, the government has up to five years to make an order for a national security review after becoming aware of the investment. The national security review provisions can apply to acquisitions even where there is a limited connection to Canada. 

Further amendments to the ICA were introduced in 2024, including permitting the Minister of Innovation, Science and Industry to impose interim conditions on investors or other relevant parties during the course of a national security review. Such conditions include restricting the investor from appointing board members or senior management, restricting physical access to sites, and suspending the investors’ contracts.

Sanctions

Canada has sanctioned countries, individuals and entities that it considers to be connected to human rights violations, corruption, or terrorist activities. Canada currently has sanctions in place against 24 countries and has enacted measures to freeze or restrain the property of certain politically exposed foreign persons. Sanctions can require, among other things, restrictions on trade, and disclosure and/or divestiture of assets in sanctioned jurisdictions.

Industries with Limits on Foreign Ownership

Ownership by non-Canadians is restricted in certain sectors, including the airline, banking, telecommunications and insurance industries. In 2022, the federal government imposed a temporary ban (with some exceptions) on foreign ownership of Canadian non-recreational residential property, which was recently extended until 1 January 2027.

In March 2024, the government of Canada issued a policy statement setting out that foreign investments in the interactive digital media sector will be subject to enhanced scrutiny under the national security review framework. In February 2025, the government of Canada released a Sensitive Technology List, setting out technologies which will be protected from “unwanted transfer to foreign threat actors to the detriment of its own national security and defence.”

In March 2025, the ICA Guidelines were amended to include as a decision-making factor the potential of an investment to undermine Canada’s economic security through the enhanced integration of the Canadian business within the economy of a foreign state.

Competition Act

Foreign investment is also subject to pre-merger notification under the Competition Act if it meets both of the following thresholds:

• Size of Parties: The parties to the transaction, together with their affiliates, have combined assets in Canada or total annual gross revenues from sales in, from or into Canada with a value in excess of CAD400 million.
• Size of Transaction: The aggregate value of the Canadian assets or annual gross revenues from sales in or from Canada of the target exceed CAD93 million.

The Competition Bureau reserves the right to review any transaction. Under the Competition Act, the Competition Bureau has up to three years post-closing for transactions that are not notifiable, and one year for notifiable transactions to determine whether it is likely to lessen or prevent competition substantially. In addition, all business activity in Canada is subject to scrutiny for anti-competitive behaviour.

Significant amendments to the Canadian Competition Act have been made in recent years. Among other things, these amendments expanded the non-exhaustive list of acts that may be considered an abuse of dominant position and increased the applicable penalties. The amendments also removed the efficiency defence for anti-competitive collaborations and in merger reviews.

In 2024, the Competition Bureau took legal action against Google for engaging in anti-competitive practices following an investigation that found that Google abused its dominant position by preventing rivals from being able to compete.

Canada continues to amend its Competition Act to target unsupported ESG claims by including harsher penalties, and will soon allow private parties to seek leave for proceedings (whereas currently this right is limited only to the Competition Bureau).

Employment legislation varies by jurisdiction in Canada. Minimum statutory employment standards, such as notice requirements on termination, generally cannot be contracted out of or waived. For example, an employment agreement providing for “termination at will” would not be enforceable.

Other legislation applies to the employment relationship, including the applicable human rights code, pay equity statute and occupational health and safety legislation.

Canada supports the principles of collective bargaining. Each jurisdiction in Canada has a labour code.

Ontario prohibits non-competition provisions in employment agreements and requires certain employers to have a written policy with respect to “disconnecting from work”. In 2024, Ontario and British Columbia adopted standards for minimum working conditions for digital platform workers such as app-based ride-hailing and delivery drivers.

Acquirors should conduct due diligence to understand the potential severance costs associated with a target’s key employees and consider whether any future plans (for example, a return-to-office policy) could be construed as constructive dismissal requiring severance payments.

In the context of M&A transactions, while there is no requirement to engage with employees or pension trustees, target company directors in discharging their fiduciary duties are encouraged to take the interests of these stakeholders into account. If a target business is unionised or about to become unionised, a potential acquiror should also learn more about the current collective bargaining agreement and any negotiation process that is underway.

See 2.3 Restrictions on Foreign Investments.

Poonian v British Columbia (Securities Commission)

Filing for bankruptcy will not discharge all penalties relating to fraudulent securities conduct. The Supreme Court of Canada ruled that administrative penalties may be dischargeable through bankruptcy; however, disgorgement orders, which are designed to return ill-gotten gains to victims, are not dischargeable.

Riot Platforms v Bitfarms

Riot, the largest shareholder in Bitfarms, sought a cease trade order for Bitfarms’ shareholder rights plan. The plan contained a 15% trigger threshold, which Riot argued undermined the takeover bid regime (which has a 20% trigger threshold). The Capital Markets Tribunal granted the cease trade order and found that a shareholder rights plan could be cease-traded if it substantially undermines securities law principles. The Tribunal stated that “exceptional circumstances” would be required to justify a trigger below the 20% threshold of the takeover bid regime.

Re Cormark Securities

The Ontario Capital Markets Tribunal held that a “distribution” is the first sale of securities in the market and that pledging restricted shares as collateral for a share loan and selling the borrowed shares on the secondary market does not qualify as a “distribution”.

Mithaq Canada (Re)

Following an attempted hostile takeover bid, the Ontario Capital Markets Tribunal held that while a private placement was a defensive response, it was permissible, due to the target’s need for financing. This case signals a more flexible stance on defensive tactics in Canada (even if they restrict shareholder choice during hostile takeovers) and indicates that defensive placements may make future takeover attempts more challenging.

Achter Land & Cattle v South West Terminal

The Saskatchewan Court of Appeal reinforced that although it is a highly fact-specific analysis, a thumbs-up emoji can constitute acceptance of a contract.

Dr. C. Sims Dentistry v Cooke

Following the sale of his practice, the seller went on to work at a competing practice, contrary to the non-competition clause. The Ontario Court of Appeal upheld the restrictive covenant and confirmed such provisions are intended to protect the goodwill of the acquired business and, therefore, are deemed lawful unless shown to be unreasonable. Alternatively, in an employment context, courts will often find the same covenant overbroad and unenforceable.

Dente v Delta Plus

An Ontario court held that post-closing communications between counsel and the sellers of a target corporation may be subject to joint privilege whereas during negotiations, such communications and documentation are privileged.

Lochan v Binance Holdings

The Court of Appeal of Ontario emphasised that standard-form “click” contracts that require users to accept numerous terms, including burdensome arbitration clauses, can render such clauses invalid on the grounds of public policy or unconscionability. Businesses should carefully consider the structure of their arbitration clauses, particularly with respect to forums and cost.

Takeover Bid Amendments

The last significant amendments to the takeover bid rules in Canada were implemented in 2016. These amendments included:

• the extension of the minimum bid period from 35 days to 105 days (which may be shortened in certain circumstances) to allow target boards adequate time to respond to hostile bids;
• the introduction of a mandatory 50% minimum tender condition (at least 50% of the shares not already owned by the acquiror and its joint actors must be tendered before any shares can be taken up by the acquiror); and
• a mandatory ten-day extension to the bid period if, at the end of the initial deposit period, all terms and conditions of the bid have been complied with or waived and the minimum tender requirement has been met.

Securities regulators are inclined to strictly enforce these rules in order to promote predictability in the takeover bid regime. Exemptions and variations are rare.

It is common in Canada for prospective acquirors to accumulate shares of their target prior to launching a takeover bid or change of control transaction. An acquiror may establish a “toehold” through open market purchases or private transactions with other shareholders.

Acquirors may also seek support from other shareholders through accumulation of proxies or lock-up or voting agreements in support of a transaction.

An acquiror must publicly disclose its ownership of a reporting issuer once it directly or indirectly beneficially owns, or has control or direction over, 10% or more of a class of securities (whereas in the USA, the threshold is 5%). This threshold is reduced to 5% in Canada if a takeover bid for the relevant securities is outstanding.

Beneficial ownership of securities is calculated on a partially diluted basis by class and includes:

• all securities of that class that could be acquired within 60 days upon the conversion or exercise of convertible securities; and
• all securities of that class beneficially owned by any joint actors of the acquiror.

Control or direction generally is established by the ability to vote, or direct the voting of, shares or the ability to acquire or dispose of, or direct the acquisition or disposition of, shares.

Equity equivalent derivatives, such as equity swaps, generally are not included in determining whether the 10% ownership threshold has been crossed, although interests in these and other related financial instruments must be disclosed in reporting required once the 10% ownership threshold has been crossed.

The determination of whether parties are joint actors hinges on establishing the existence of a plan of action or a mutual understanding about how shareholders will vote their shares. Having a common goal or concern is insufficient to establish that the parties are acting jointly or in concert.

Early Warning Disclosure

Upon crossing the 10% ownership threshold, the acquiror is subject to the early warning regime and must file a press release and an early warning report (similar to a Schedule 13D in the USA). After the 10% threshold is met, an early warning report is required for the acquisition of or disposal of additional shares that results in a 2% or more change in total share ownership.

Eligible institutional investors, which include passive financial institutions, pension funds, mutual funds, investment managers and SEC-registered investment advisers, may file a less onerous alternative monthly report (similar to a Schedule 13G in the USA). Access to the alternative monthly report regime is contingent on, among other things, the institutional investor having no current intention of acquiring control of the reporting issuer.

Insider Reporting

Directors, officers, 10% beneficial owners and other “reporting insiders” of reporting issuers must file insider reports disclosing any change to their beneficial ownership of, or control or direction over, the reporting issuer’s securities or interest in a related financial instrument.

Unlike in the USA, structural defences to stakebuilding in constating documents or by-laws are not common in Canada because they are not required or would be ineffective under Canadian law.

Early Warning Standstill

An acquiror that is obligated to file an early warning report may not acquire any more securities of that class (or securities convertible into such securities) until the expiry of one business day after the early warning report is filed.

Takeover Bid Rules

Once an acquiror has beneficial ownership of, or control or direction over, 20% or more of the outstanding voting or equity securities of a class, any further acquisitions of outstanding securities of that class would constitute a takeover bid that requires an offer to be made to all security holders unless an exemption is available.

Rights Plans

Before the 2016 takeover bid regime amendments, the primary structural defence mechanism for an issuer in Canada was a shareholder rights plan (commonly known as a “poison pill”). Rights plans are still in use, albeit with some differences to pre-2016 plans. Typical features of a rights plan include the following:

• Upon an acquiror’s acquisition of, or announcement of its intent to acquire, beneficial ownership of (typically) 20% or more of the company’s shares, all other shareholders will be given the right to purchase shares at a significant discount to the market price, substantially diluting the acquiror. See also Riot Platforms v Bitfarms in 3.1 Significant Court Decisions or Legal Developments.
• Rights plans may allow for a “permitted bid”, which typically now means one that is required to stay open for at least 105 days and includes a minimum tender condition.

The primary value of a tactical rights plan adopted following the emergence of a bid traditionally has been to buy time for a board and shareholders to consider an offer and (where appropriate) seek alternatives to the bid.

As takeover bid offers must remain open for at least 105 days, it is generally expected that regulators will cease-trade a rights plan after that timeframe. Even where a regulator permits a rights plan to remain in place, certain Canadian stock exchanges may refuse a plan if it does not receive shareholder approval within six months of being implemented, which often functions as a de facto termination date for tactical rights plans.

Other Hurdles to Stakebuilding

Acquisitions of shares generally cannot be made if a person is in a special relationship with an issuer and possesses inside information (information that has not been generally disclosed and could reasonably be expected to significantly affect the market price or value of a security of the issuer).

Most private companies have restrictions on share transfers in their articles or in unanimous shareholder agreements that would prevent a third party from acquiring shares without board or shareholder approval.

For reporting issuers with a public float, it would not be possible to restrict share transfers in the articles or by-laws, but individual shareholders may agree to a standstill as part of a negotiated transaction.

Dealings in derivatives are permitted in Canada.

Disclosure by 10% holders must be made of the material terms of any “related financial instrument” involving the issuer’s securities as well as any other “agreement, arrangement or understanding that has the effect of altering, directly or indirectly”, the investor’s economic exposure to the issuer’s securities. Disclosure is also required of any securities lending arrangements.

See 2.4 Antitrust Regulations for filing requirements under competition laws.

Early warning reports and alternative monthly reports require disclosure of any plans or intentions that investors and joint actors may have relating to any changes in their security ownership, voting intentions or any material transaction they may propose.

An eligible institutional investor will be disqualified from filing alternative monthly reports if the investor intends to propose a transaction that would result in it acquiring effective control.

Reporting issuers must immediately disclose all “material changes”. In the context of a proposed transaction, the threshold for a material change requiring disclosure is typically met when both parties have decided to proceed with a potential transaction and there is a substantial likelihood that the transaction will be completed. There is no bright-line test for this determination.

Certain Canadian stock exchanges require disclosure of all “material information”, which includes both material changes and material facts. Confidential material change filings and trading halts may be made in certain circumstances.

The acquisition by a reporting issuer of a private company will require disclosure only if the transaction is a material change for the reporting issuer. A transaction between two private companies carries no public disclosure obligation.

Most acquisitions are announced publicly only once definitive acquisition agreements are signed. Companies tend to avoid disclosing a potential transaction at the non-binding letter of intent stage because the transaction may be tentative or uncertain and premature disclosure could unduly affect the share price or give potential competitors or stakeholders time to mobilise in opposition prior to the issuer having any deal certainty. If the transaction is announced prematurely, the target could suffer reputational harm or face questions from regulators.

Significant business combinations usually involve a thorough scope of due diligence including searches of public bankruptcy, lien and litigation registries, obtaining a corporate profile, and a review of public filings on SEDAR+, SEDI and other databases.

Searches are typically run against the target company and its management and material subsidiaries; for privately held companies, they are also run against the selling shareholders.

Diligence documents, such as financial statements and material contracts, will typically be supplied by the target to the buyer and its counsel via an electronic dataroom.

Common factors affecting the scope of due diligence include the nature of the target’s industry, the jurisdiction where assets are located, whether the target competes with the buyer, and the access to sensitive information the target is willing to grant.

Most letters of intent and acquisition agreements include exclusivity obligations on the target. Acquirors will usually want to know that the target has ceased all negotiations and is not shopping their deal to third parties.

Most targets will want a standstill arrangement in place with the acquiror.

For the acquisition of a reporting issuer, it is common for exclusivity obligations to contain a “fiduciary out” clause allowing the target to terminate the agreement and accept a superior proposal if doing so would be consistent with the target board’s fiduciary duties. The acquiror would typically have a right to match the superior proposal or would be entitled to be paid a break fee (as described in 6.7 Types of Deal Security Measures) if the agreement is terminated.

A “superior proposal” will typically need to satisfy specific negotiated conditions, including that:

• it is for all the target’s shares (or in some cases substantially all assets);
• it is reasonably capable of being completed without undue delay with regard to all financial, legal, regulatory and other aspects of the competing transaction;
• it is not subject to any financing condition; and
• the target board make a determination that it is a more favourable transaction.

The existence of “hard” lock-up agreements (ie, the shareholder is not permitted to withdraw and tender its shares to, or vote in favour of, any other competing transaction) with target shareholders holding a significant percentage of shares could render an offer incapable of being a “superior proposal” because it is not reasonably capable of being completed.

The documentation used to set out the terms of a deal is determined by the nature of a transaction.

If the transaction is a takeover bid, the acquiror must publicly file a takeover bid circular that describes the terms of its offer and includes other required disclosure. If the terms of the takeover bid subsequently change, further notices must be filed. For friendly takeover bids, the acquiror would typically enter into a support agreement with the target prior to launching the bid setting out the process of the bid, conditions and certain deal protections.

If the transaction is a plan of arrangement or other negotiated business combination, the acquiror and the target would enter into an arrangement or combination agreement. The agreement would set out the process of the transaction (including shareholder, court and other approvals), conditions and certain deal protections.

Parties typically enter into a non-binding letter of intent setting out the proposed deal terms with binding provisions regarding exclusivity, expenses and confidentiality.

Parties then conduct due diligence and negotiate a definitive acquisition agreement. The time required varies depending on the size and nature of the target and the involvement of third parties, such as lenders.

The timeline for a friendly takeover bid generally is 50–65 days beginning from the start of preparation of the takeover bid circular to the completion of the transaction, assuming the target waives the minimum bid period of 105 days (shortening it to no less than 35 days).

A hostile takeover bid must remain open for at least 105 days. The bid period may be shortened by the target or reduced to no less than 35 days if the target announces an alternative transaction, such as a plan of arrangement, requiring approval by the target’s shareholders. A mandatory ten-day extension period will apply if the bidder satisfies the minimum tender condition and is required to take up securities that were tendered under the bid. Defensive tactics used by the target may vary the timeline to complete the bid.

Typically, following a successful takeover bid, the acquiror will conduct a second-step transaction to obtain 100% of the outstanding shares.

If the target is a private company, the parties may sign the definitive documents and close the transaction on the same day. Otherwise, closing may take 30–60 days or longer depending on the extent to which shareholder, court or regulatory approvals are required.

Complex transactions often will have outside dates that may be extended to accommodate regulatory approvals.

An acquisition of outstanding voting or equity securities of a reporting issuer that would cause a shareholder to, together with any joint actors, have beneficial ownership of and/or control over 20% or more of the outstanding securities (calculated on a partially diluted basis) is prohibited unless:

• the shareholder makes an offer to all shareholders of the same class via a takeover bid; or
• an exemption from the takeover bid rules is available.

Such exemptions include:

• certain purchases by private agreement from not more than five persons; and
• normal course market purchases of no more than 5% of the outstanding securities in any 12-month period.

Both cash and shares of the acquiror are commonly used in Canada as consideration in M&A transactions.

The takeover bid rules require that identical consideration be provided to all target shareholders, with limited exceptions. Generally, no collateral benefits are allowed to be offered selectively to certain shareholders.

Plans of arrangement offer flexibility on consideration, so long as the arrangement overall is fair and reasonable.

In private M&A, particularly in industries with high valuation uncertainty, tools commonly used to bridge value gaps between parties include holdbacks and earn-outs.

• With a “holdback”, an acquiror will hold on to some of the purchase price until after closing in order to satisfy indemnity or breach of warranty claims. This holdback amount may be provided to an escrow agent, particularly in cases where the seller has concerns about the creditworthiness of an acquiror.
• With an “earn-out”, part of the purchase price will remain subject to performance requirements or other milestones that must be satisfied after closing and may also be used to set off indemnity or breach of warranty claims. The most common criterion is financial performance.

Sellers may also provide some or all of the financing, or reinvest proceeds in the purchaser, to facilitate the closing.

Common conditions for takeover bids include:

• There is no shareholder rights plan in effect or the rights plan will be waived.
• Regulatory approvals (including, under the Competition Act and the ICA) and third-party approvals or consents have been obtained.
• There has not been a material adverse change.
• There is no existing, pending or threatened litigation involving the target that would lead to a material adverse effect.
• There are no laws that would prevent the bidder from taking up or paying for the securities subject to the bid and there are no laws in effect or proposed that would have an adverse effect on the target.

Takeover bids cannot be subject to a financing condition as discussed in 6.6 Requirement to Obtain Financing.

All bids, even partial bids, must provide for a mandatory minimum tender condition that more than 50% of securities owned by security holders other than the bidder be tendered to the bid. This minimum tender requirement must be met before the bidder may acquire any of the securities subject to the bid.

Bids for all of the outstanding shares may include a higher minimum tender condition to ensure that the bidder, through a second-step business combination, can obtain the remaining shares that are not deposited. This condition will usually require a deposit of at least 66⅔% of the outstanding shares and sufficient shares to obtain approval of a majority of the minority shareholders for the second-step transaction. Canadian securities regulations allow securities that were obtained under a lock-up to be voted as part of the majority of the minority vote if the locked-up security holder is treated identically to all others under the offer.

If a bidder is only seeking control, it may include a minimum tender requirement of, for example, 51% of the outstanding shares instead. Parties may apply to Canadian securities regulators to waive or vary the minimum tender condition, although regulators will only allow such a waiver in rare cases.

In an arrangement, amalgamation and other business combinations, there is no regulatory requirement or restriction on financing conditions. However, the target will generally require that the acquiror show evidence that it will be able to fund the cash consideration.

For takeover bids that offer cash consideration, the bidder must have pre-arranged financing before launching the bid. The financing itself may be conditional at the time the bid is commenced, if the bidder reasonably believes that the possibility is remote that it will not be able to pay for securities deposited under the bid.

Acquirors may seek a wide variety of deal protection measures, examples of which are described below.

Support Agreements and Lock-Ups

In a friendly takeover, before launching the bid, the bidder and the target may enter into a support agreement whereby the target agrees to recommend that its shareholders tender to the bid and the bidder agrees to launch the bid on terms specified in the support agreement, subject to conditions such as a fiduciary out.

The directors, officers or significant shareholders of a target may also enter into lock-up or voting agreements with the acquiror to deposit their shares to the bid or vote their shares in favour of an arrangement. These agreements may be “hard” or “soft” (see 6.11 Irrevocable Commitments).

Stock exchange rules may require that disinterested securityholders approve of voting agreements requiring shareholders to vote their shares in accordance with management recommendations. Negative voting agreements (those requiring a shareholder to not vote against management’s recommendations), on the other hand, are not required to be approved by disinterested securityholders.

Break/Termination Fees

A common deal protection measure in Canada is a break fee which may be paid by the target to the acquiror if an arrangement or other business combination is not completed. These types of fees usually range from 2% to 4% of the target’s equity value.

Reverse break fees requiring a payment by the acquiror to the target if the acquiror breaches the acquisition agreement or is not able to complete the sale may also be used.

No-Shop/Go-Shop Clauses

No-shop clauses prohibit a target from soliciting other takeover offers or providing information to other third parties that might be used to make an offer. These provisions will typically include a “fiduciary out” (see 5.4 Standstills or Exclusivity).

Go-shop clauses, on the other hand, allow a target to negotiate or “shop” a transaction with third parties for a specific amount of time after the execution of the agreement. Go-shops are less common but may be desirable if the acquiror wants to publicly announce the deal before the target tests the market.

Matching Rights

The acquiror may be provided the right to match a superior proposal and complete the transaction.

Managing Risk During the Interim Period

Once a definitive acquisition agreement is signed or a takeover bid launched, the acquiror is bound to complete the transaction unless one of the expressly stated conditions is not satisfied.

Definitive acquisition agreements now contain specific pandemic or epidemic provisions, including representations about the impact of public health measures on the business and the extent to which government support has been relied on. Material adverse effect and ordinary course of business provisions have garnered greater attention in recent years, in part due to COVID-19 pandemic’s impact and current global trade uncertainty.

If an acquiror is not seeking 100% ownership of a target, it may negotiate for additional governance rights with respect to a target outside its shareholdings, including the right to:

• nominate individuals to the target’s board and/or to sit on board committees;
• be a board observer;
• participate in, or require, a public offering of the target’s equity securities; and
• approve of change of control transactions, issuances of shares and other major decisions.

Shareholders are permitted to vote by proxy in Canada.

If an acquiror wishes to obtain 100% of the shares of a target and is not able to do so through the bid process, there are two other methods that can be used to acquire the remaining shares depending on the holdings of the acquiror after the bid is complete.

Second-Step Business Combination/Going-Private Transaction

A second-step business combination or a going-private transaction can be implemented if the bidder holds between 66⅔% and 90% of the outstanding shares after the bid is complete. Following the bid, the bidder will be able to take the company private through an amalgamation or a plan of arrangement.

Such a business combination will need to be approved by a special majority of the shareholders at a shareholder meeting and will be subject to certain minority shareholder protections. (For instance, a majority of the minority of the shareholders will be required to approve of the business combination.) However, as the majority shareholder, the bidder can participate and vote the shares that were acquired under the takeover bid. Thus, if the bidder acquires 66⅔% of the outstanding shares, in most cases, it will have sufficient votes to obtain the majority of the minority approval.

Compulsory Acquisition

Under corporate law, if a bidder obtains 90% of the outstanding shares subject to the bid within 120 days of the commencement of the bid, it can acquire all of the shares that remain outstanding for the same price as was offered under the bid. This compulsory acquisition procedure does not require a shareholder vote.

Shareholders that did not tender to the bid are provided with dissent rights that allow them to apply to a court to fix the fair value of their shares.

Before launching a bid, it is common for the bidder to enter into lock-up agreements with major target shareholders whereby the shareholders agree that they will tender to the bid. A “soft” lock-up allows a shareholder the right to withdraw and accept a higher offer, while a “hard” or irrevocable lock-up does not. Hard lock-ups are less common, and are generally time-limited.

A takeover bid in Canada is launched by:

• mailing the bid materials to the target shareholders directly; or
• placing an advertisement in at least one daily newspaper in each applicable province in Canada and, concurrently with or prior to such publication, filing the bid documents and delivering them to the target.

The advertisement method is typically used in hostile bids when the acquiror does not have access to the shareholder lists to complete the mailing itself and does not want to request the list in advance for fear of tipping off the target. Once the advertisement is placed, the acquiror must request the shareholder list from the target and mail the circular to target shareholders.

In the context of an amalgamation, arrangement or other business combination, public companies in Canada are required to disclose material changes, which may include the decision to implement these kinds of transactions at the board level or by senior management if they believe board approval is probable.

If the consideration for a bid is to be shares or partly shares, the bidder must provide prospectus-level disclosure.

The target must publicly file a directors’ circular, prepared by its board, which includes the board’s recommendations regarding the bid and other information.

An acquiror providing share consideration must provide its audited financial statements for the past three years, interim financial statements if available, and pro forma financial statements that give effect to the acquisition.

The financials must include a statement of the financial position of the issuer as at the beginning of the earliest comparative period for which financial statements that are included comply with the International Financial Reporting Standards (IFRS) in certain cases. If the statements are the first IFRS financial statements prepared by the issuer, the issuer must include the opening IFRS statement of financial position at the date of transition to IFRS.

The pro forma financial statements must be those that would be required in a prospectus, assuming that the likelihood of the acquisition is high and that the acquisition is a significant acquisition for the acquiror.

If the acquiror is a reporting issuer, it may incorporate by reference its existing continuous disclosure.

Securities laws in Canada require that annual and quarterly financial statements of reporting issuers be prepared in accordance with Canadian generally accepted accounting principles (GAAP) applicable to publicly accountable enterprises and disclose, in the case of annual financial statements, an unreserved statement of compliance with IFRS. GAAP, in the context of Canadian securities regulation, must be determined in accordance with the Handbook of the Canadian Institute of Chartered Accountants.

In a takeover bid, the following transaction documents are required to be disclosed in full:

• the takeover bid circular and any documents incorporated by reference;
• the directors’ circular;
• any lock-up agreements; and
• any support agreement.

In a plan of arrangement or other business combination, the following documents are required to be disclosed in full:

• the management information circular delivered with the meeting materials and any documents incorporated by reference;
• any support agreements; and
• the arrangement or business combination agreement.

Reporting issuers are required to meet certain continuous disclosure obligations and file material contracts on SEDAR+.

Directors’ duties in Canada include the following:

• to act honestly and in good faith, with a view to the best interests of the corporation; and
• to exercise the care, diligence and skill of a reasonably prudent person in comparable circumstances.

In discharging their fiduciary duties, directors must exercise their powers for the benefit of the corporation and not for an improper purpose.

These duties are owed to the corporation even in the context of a business combination or a hostile bid. However, the Supreme Court of Canada has confirmed that directors are permitted to consider the interests of a variety of stakeholders in fulfilling their responsibilities. This stakeholder-friendly corporate governance model has been codified in the Canadian federal corporate statute.

The common law provides guidance as to which stakeholders’ interests may be considered, but does not provide guidance on whose interests, if any, should be prioritised. Although directors do not owe a fiduciary duty to shareholders and the “Revlon duty” (ie, when a break-up or change of control transaction is inevitable, the board’s fiduciary duty is to maximise shareholder value) has not been upheld by Canadian courts, directors are not prohibited from taking steps to maximise shareholder value or prioritise shareholders over other stakeholders.

As of 2024, directors of Canadian corporations involved in producing, selling, distributing or importing goods in or outside Canada have a new responsibility: to approve an annual report detailing the steps the company has taken to prevent and reduce the risk that forced labour or child labour is used in any step of its operations.

Special committees comprised of target directors who are independent of a proposed transaction are often established to evaluate the terms of the transaction. They may also:

• consider strategic alternatives;
• negotiate the proposed transaction;
• provide recommendations to the board about the proposed transaction; and
• if applicable, supervise a valuation or fairness opinion.

It is common for target boards to establish special committees in business combinations involving a related party. Special committees are required by Multilateral Instrument 61-101 (MI 61-101) in certain circumstances when one or more directors have a conflict of interest. Members of the special committee must be free of real or perceived conflicts.

Courts will often consider whether and at what time in the process of a transaction a special committee was formed and the procedures it followed in evaluating the transaction. Establishing a special committee as soon as possible and before the material terms of a transaction are in place is a way to show that directors’ decisions have been made without conflicts.

Directors are provided a high level of deference at common law. Canadian courts have recognised the “business judgement rule”, which sets out that a court should not substitute its own decisions for those decisions made by directors, and deference should be accorded to business decisions of directors provided they are taken in good faith and within a range of reasonableness in the performance of the functions the directors were elected to perform by the shareholders.

If directors act independently, in good faith and on an informed basis in a way that they reasonably believe is in the best interests of the corporation, courts generally will defer to their judgement.

Independent outside advice is commonly given to directors in a business combination from:

• investment bankers;
• outside legal counsel;
• financial and tax advisers;
• public relations firms; and
• proxy solicitation firms.

Under Canadian corporate law, if a director is a party to a transaction with the corporation, is a director or officer of a party to the transaction or has a material interest in a party to transaction, the director must disclose the nature and extent of this interest and may be required to refrain from voting on the matter.

Under Canadian securities law, MI 61-101 regulates transactions with potential conflicts of interest. This instrument provides procedural protections for minority shareholders. Depending on the type of transaction, the following may be required:

• a formal valuation by an independent valuator supervised by a special committee;
• majority of the minority shareholder approval; and
• enhanced disclosure, including disclosure of prior valuations prepared for, and offers received by, the target in the past two years.

MI 61-101 encourages, but does not require, targets to form special committees and encourages the formation of a special committee in any transaction to which MI 61-101 applies.

Conflicts of interest of directors, managers, shareholders or advisers have been the subject of judicial and regulatory scrutiny as well. Securities regulators in Canada have, in particular, examined the question of whether a party is a joint actor with the acquiror. This is a factual analysis, and its finding may have an impact on whether the transaction is an insider bid or related party transaction and hence subject to the additional requirements under MI 61-101 set forth above.

Hostile takeover bids are permitted in Canada but are not very common as the takeover bid regime is relatively target friendly.

Canadian securities laws allow directors to use measures to defend against hostile takeovers. Regulators may intervene when defensive measures are likely to deny or severely limit the ability of shareholders to respond to a takeover bid.

Shareholder Rights Plans

Shareholder rights plans or poison pills are often used by target companies to defend against hostile bids. Rights plans will not block hostile bids entirely but are instead a way to encourage the fair treatment of shareholders in connection with a bid and to allow the target board and shareholders to respond to and consider the bid. They also allow time for the target board to seek available alternatives and prevent creeping takeovers. See 4.3 Hurdles to Stakebuilding.

Crown Jewel/Scorched Earth

A target may attempt to restructure or recapitalise so as to provide shareholders with cash value, for instance, by selling a significant asset in order to become less attractive to a bidder. The directors must undertake a “crown jewel” transaction with a view to the best interests of the corporation, and the sale must have a demonstrable business purpose. The board of a target may also decide to substantially increase long-term debt and concurrently declare special dividends to distribute cash to its shareholders.

Defensive Private Placements

Private placements that have the effect of blocking a bid have been recognised by Canadian securities regulators as a possible defensive tactic, but they could be found to be inappropriate if they are abusive or frustrate the ability of shareholders to respond to a bid or competing bids.

Golden Parachutes

Golden parachutes for key employees may be triggered if such employees are terminated after a third-party acquisition.

White Knight

Targets may seek an alternative transaction with a friendly party or a “white knight” that might offer more value (or in some cases more preferential terms or deal certainty) to its shareholders than the original bidder.

Issuer Bid

If a target is unable to find a white knight, it may offer to repurchase its outstanding shares itself.

Pac-Man

A target might flip the script and make a bid for the shares of the hostile bidder.

Advance Notice By-Law

A target’s by-laws or other constating documents may be amended to require advance notice of shareholder nominations for members to the board of directors, thereby giving the target the time to strategically respond to a proxy fight in the context of a hostile bid.

Canadian directors owe the same duties when they are enacting defensive measures as in any other context. Boards in Canada owe a fiduciary duty to the corporation, not to the shareholders, and are not required to conduct an auction once a company is “in play”.

This principle is especially important for nominee directors, who should be careful to manage conflicts of interest and only share information with their nominating shareholder with the consent of the company.

Canadian courts have held that the conduct of directors will be analysed on an objective standard of what a reasonably prudent person would do in comparable circumstances. See 8.3 Business Judgement Rule.

Target boards in Canada cannot “just say no” in the same way that this strategy is understood in the USA. Canadian directors of public companies, while they may implement defensive measures, are not able to indefinitely prevent a bid from being presented to the shareholders.

M&A litigation in Canada is not as prevalent as in other jurisdictions such as the USA. Class action securities litigation is relatively new in Canada. Parties involved in private acquisitions will often choose arbitration over litigation to provide them with greater efficiency and confidentiality.

Notably, there has been a rise in the use of representation and warranty insurance, which serves as the primary recourse for a breach of representations by the company or its security holders in instances where a policy has been put in place as part of closing.

Litigation can occur at any stage of a transaction. A plan of arrangement requires court approval, which provides a forum for aggrieved stakeholders.

Other remedial avenues for stakeholders include a cease-trade order or other relief preventing the consummation of a takeover bid from a securities regulator.

Courts will typically uphold agreements in the M&A context and only in exceptional circumstances will they find an agreement unenforceable or allow parties to walk away from an agreement. 

See 3.1 Significant Court Decisions or Legal Developments.

Although Canada is seen by some as an activist-friendly jurisdiction, levels of shareholder activism tend to lag behind levels of activity in the USA and Europe, particularly among large-cap Canadian issuers. 

In 2024, a significant proportion of shareholder demands focused on M&A and ESG matters.

Typically, an activist’s first step is to approach a board confidentially with their demands, with the implicit or explicit threat of a public battle if the requirements are not met. From there, activism can take many forms.

Board activism and proxy fights are prominent in Canada, in which shareholders seek to have their nominees put forward for election to the board. In 2024, activists had two high-profile wins, with the replacement of the entire board of both Gildan and Dye & Durham.

While shareholder proposals on matters within the board’s purview are only advisory and not binding, they remain important forms of activism as the publicity they attract can create pressure for change.

Transactional activists sometimes demand strategic reviews, divestitures, share buy-backs or increased dividends. They might requisition a shareholder meeting, wage a public broadcast campaign in the media or on social media, or launch their own competing tender offer. Sometimes the goal is to see an alternative transaction implemented; other times, activists try to improve the terms of the original deal.

In transactional shareholder activism, announced transactions are frequently a target for campaigns. In some notable examples, shareholders issued open letters advocating for higher values for their shares and engaged securities regulators to address claims of unequal treatment, called on a board to launch strategic reviews of fossil-fuel assets, and requisitioned a shareholder meeting in response to a REIT’s plan to sell off some real estate assets.

However, courts may interfere with such activism to help secure the required shareholder vote. Recently, the British Columbia court permitted the option holders of Fission Uranium to exercise their options such that they become part of the shareholder vote, thereby overcoming the opposition and approving a plan of arrangement.