How the Investment Canada Act Changes Are Reshaping Private M&A in Canada, What Buyers, Sellers and PE Need to Know

The Investment Canada Act (ICA) has undergone its most consequential overhaul in decades, and the 2025–2026 amendments are fundamentally changing how private M&A transactions are planned, structured and closed across the country. For mid-market deal teams, corporate counsel, private equity sponsors and company owners alike, the expanded national-security screening powers, revised review thresholds and new ministerial authorities mean that foreign investment review in Canada now touches a far wider range of transactions than ever before. This practical guide walks through every decision point that matters: whether a deal must be notified, how to build ICA filings into a transaction timeline, which structuring tactics reduce regulatory risk, and what mitigation measures regulators are likely to impose.

Key Takeaways for Buyers, Sellers and Private Equity

Before diving into the detail, here is what every deal team working on investment Canada Act private M&A Canada transactions needs to know right now:

• Broader reach. The 2025–2026 ICA amendments expand the definition of investments that may be subject to national security review, capturing minority stakes, asset acquisitions in designated sectors, and transactions involving foreign state-owned or state-influenced investors, even where no change of control occurs.
• Lower thresholds, higher scrutiny. Revised review thresholds and new enterprise-value-based calculations mean more mid-market private deals now cross the notification line.
• Mandatory pre-closing filing for sensitive sectors. Transactions involving critical minerals, semiconductors, AI-related technology, telecommunications infrastructure and defence-adjacent assets face enhanced pre-implementation filing requirements.
• Longer timelines. National security reviews can extend well beyond the standard 45-day initial assessment period, with additional extension windows that may add 200 or more days to a deal’s closing horizon.
• Mitigation is now the norm, not the exception. Industry observers expect that regulators will impose behavioural undertakings or structural conditions on a growing share of reviewed transactions, rather than simply approving or blocking deals outright.
• Due diligence must start earlier. Buyers and private equity sponsors need to integrate ICA risk assessment into the earliest stages of target evaluation, not as a post-LOI afterthought.
• Structuring choices matter. Share sales, asset carve-outs, holdco interpositions and escrow mechanisms each carry different ICA risk profiles that directly affect deal certainty and timeline.
• Non-compliance penalties are severe. Failure to notify, or breach of undertakings, can result in orders to divest, significant financial penalties and reputational damage.

What Changed: 2025–2026 Investment Canada Act Amendments and Policy Updates

The ICA has governed foreign investment review in Canada since 1985, but the legislative landscape shifted dramatically through a series of amendments enacted in 2024 and brought into force during 2025 and 2026. These Investment Canada Act changes expanded the government’s screening toolkit, broadened the categories of transactions subject to review, and granted the Minister of Innovation, Science and Industry new powers to act pre-emptively on national security grounds.

The table below summarises the key amendments and their practical impact on private M&A deal teams.

Why This Matters for Private M&A

The practical effect of these amendments is threefold. First, deal teams can no longer treat the ICA as relevant only to large-cap public transactions; mid-market private acquisitions, particularly those involving foreign buyers, PE sponsors with international limited partners, or targets operating in technology-adjacent sectors, must now conduct a thorough ICA risk assessment at the LOI stage. Second, the mandatory pre-implementation filing regime for designated sectors removes the option of closing first and notifying later, which was previously a common approach for transactions below the review threshold. Third, the Minister’s new interim-condition powers mean that even transactions ultimately approved may face operational restrictions during the review period, requiring careful planning around transitional service agreements and information firewalls.

Which Private Deals Are Now Subject to National Security Review?

Understanding whether a transaction is notifiable, reviewable, or both is the critical first-order question for any deal team engaged in foreign investment review in Canada. The 2025–2026 framework creates a layered system of obligations depending on the type of investor, the nature of the target business, and the level of control being acquired.

The core distinction remains between net benefit review (triggered when a non-Canadian acquires control of a Canadian business above the applicable threshold) and national security review (which can be initiated for any investment by a non-Canadian, regardless of whether it constitutes control). The recent amendments have substantially widened the second category.

Entities and Transactions That Commonly Trigger Review

• State-owned or state-influenced enterprises. Investments by entities with direct or indirect ties to a foreign government, including sovereign wealth funds, state pension vehicles, and companies with significant state board representation, face heightened scrutiny and lower review thresholds.
• Minority stakes with significant influence. Acquisitions of board seats, veto rights, or access to proprietary technology, even without majority ownership, can now be captured by the national security review provisions.
• Acquisitions in designated sectors. Targets involved in critical minerals extraction or processing, semiconductor design or manufacturing, artificial intelligence and machine learning, quantum computing, telecommunications infrastructure, space technology, or defence and dual-use goods attract mandatory pre-implementation filing requirements.
• Private equity with foreign LP exposure. PE funds whose limited partners include foreign state entities or investors from jurisdictions of concern may find that their portfolio acquisitions are treated as foreign state-influenced investments for review purposes.
• Asset purchases involving critical IP or data. Even where the target entity itself is not acquired, a purchase of assets that includes sensitive intellectual property, datasets, or government contracts may be reviewable.

Model Timeline: Integrating ICA Filings and National Security Screening into Private M&A

One of the most disruptive effects of the Investment Canada Act changes on private M&A is the impact on deal timelines. Where a transaction is likely to attract national security review, the period from signing to closing can stretch significantly. Deal teams that fail to build ICA timing into their transaction model risk blown drop-dead dates, financing complications, and deteriorating commercial relationships.

The following model timetable illustrates three scenarios that cover the range of ICA exposure in a typical mid-market deal in Canada.

Fast-Track Tactics and When to Pre-Notify

Industry observers note several approaches that experienced deal teams use to compress ICA timelines and reduce uncertainty:

• Pre-notification engagement. Engaging informally with the Investment Review Division before or immediately after signing, particularly where the buyer is from a jurisdiction of concern or the target is in a designated sector, can surface potential objections early and allow the filing package to be tailored to anticipated questions.
• Voluntary filing below threshold. Even where a transaction falls below the mandatory notification threshold, a voluntary filing can provide comfort that the investment will not later be called in for national security review, improving deal certainty for both parties.
• Parallel preparation of mitigation proposals. Rather than waiting for the regulator to request mitigation measures, proactively preparing a draft set of undertakings, covering information security, governance, supply chain commitments and personnel clearances, can accelerate the negotiation phase.
• Flexible drop-dead dates. Building sufficient buffer into the purchase agreement’s outside date (or including ICA-specific extension provisions) prevents the deal from collapsing if the review timeline extends beyond initial expectations.

Due Diligence Checklist: How to Surface National Security Risks (Buyers and Private Equity)

The expanded scope of the ICA means that the traditional M&A due diligence checklist must now incorporate a dedicated national security risk assessment. This is not a box-ticking exercise, it is a substantive analysis that can determine whether a deal is viable, what conditions may attach, and how the transaction should be structured. For private equity in Canada, where portfolio companies may be acquired and later sold to international buyers, this assessment has implications at both entry and exit.

The following checklist covers the core areas that buyers and PE sponsors should investigate:

• Corporate ownership and shareholder identity. Map the target’s full ownership chain and identify any direct or indirect connections to foreign governments, state-owned enterprises, or investors from jurisdictions flagged in government guidance. For PE funds, this includes an analysis of LP composition and governance rights.
• Supply chain and export controls. Assess whether the target supplies goods, technology or services to Canadian or allied government agencies, or whether its supply chain involves controlled goods under the Export and Import Permits Act or the Controlled Goods Program.
• Critical IP and technology. Identify proprietary technology, particularly in AI, quantum computing, semiconductors, cryptography, biotechnology, or advanced materials, that could be classified as sensitive under ICA guidance. Evaluate whether the technology has dual-use applications.
• Data residency and cross-border data flows. Determine whether the target holds significant datasets containing personal information of Canadians, government data, or geolocation/infrastructure data that could raise national security concerns if transferred to a foreign acquirer.
• Government contracts and security clearances. Review whether the target holds active contracts with federal or provincial governments, especially those involving classified information or critical infrastructure, and whether any personnel hold security clearances.
• Defence and security links. Investigate any involvement in defence procurement, NORAD or NATO supply chains, or critical infrastructure (energy, water, transportation, financial systems).
• Foreign state investor indicators. For PE sponsors, assess whether any co-investors, co-lenders, or strategic partners in the acquisition have state affiliations that could change the ICA characterisation of the investment.

Sourcing Evidence and Preparing an ICA Filing Package

A thorough ICA filing package goes well beyond the standard notification form. Deal teams should compile corporate organisational charts with beneficial ownership traced to natural persons, a technology and IP schedule with sensitivity classifications, a summary of government contracts and clearances, data flow maps, and a preliminary self-assessment of whether the investment raises national security considerations. Early preparation of these materials, ideally during the due diligence phase, substantially reduces the time required to respond to supplementary information requests from the review directorate and signals a cooperative, transparent approach that can facilitate a smoother review process.

Deal Structuring: Options to Reduce Review Risk Under the Investment Canada Act in Private M&A

How a transaction is structured can materially affect its ICA risk profile. While no structure guarantees that a deal will avoid review, the national security provisions are deliberately broad, careful deal structuring in Canada can reduce the likelihood of a prolonged review, limit the scope of potential mitigation conditions, and improve closing certainty.

Share Sale vs Asset Sale: Checklist

The choice between a share sale and an asset sale is the foundational structuring decision in any private acquisition, and it carries distinct ICA implications. A share acquisition of a Canadian target by a non-Canadian buyer is the most straightforward trigger for ICA review, as it directly results in a change of control of a Canadian business. An asset acquisition, by contrast, may in some cases fall outside the ICA’s scope, particularly where the assets being acquired do not, in themselves, constitute a “Canadian business”, though the review directorate has taken an increasingly expansive view of what constitutes a business for ICA purposes.

Use of Holdco and Non-Canadian Intermediate Entities

Interposing a Canadian holdco between the foreign buyer and the target is a common structuring approach, but it does not eliminate ICA obligations. The Act applies a “look-through” principle: the review directorate will assess whether the ultimate investor is non-Canadian, regardless of how many Canadian entities sit in the chain. That said, a holdco structure can be useful for isolating sensitive assets, creating a governance firewall between the foreign parent and the Canadian operating company, and facilitating future mitigation measures (such as restricting foreign board representation at the holdco level).

Contract Clauses to Limit Post-Closing Remediation Risk

Beyond structural choices, deal agreements should contain tailored contractual protections that address ICA risk:

• ICA condition precedent. Make closing conditional on ICA clearance (or expiry of the applicable review period without the Minister taking action). This is now standard practice in transactions involving non-Canadian buyers.
• Regulatory cooperation covenants. Require both parties to cooperate fully in preparing the ICA filing, responding to information requests, and negotiating any mitigation measures with the review directorate.
• Risk allocation for mitigation costs. Specify which party bears the cost of compliance with undertakings, such as implementing security protocols, appointing independent monitors, or divesting specific assets, and whether such costs reduce the purchase price or trigger indemnification.
• Reverse break fee. Include a reverse break fee payable by the buyer if the transaction is blocked on national security grounds, protecting the seller from the costs and disruption of a failed deal.
• ICA-specific representations and warranties. The seller should represent the accuracy of information provided for the ICA filing, and the buyer should represent the completeness of its disclosure regarding foreign state affiliations, beneficial ownership, and related-party relationships.

Mitigation Measures: Negotiating Undertakings, Typical Conditions and Enforcement

When the Minister determines that an investment raises national security concerns but does not warrant an outright block, the standard outcome is approval subject to mitigation measures, legally binding undertakings that the investor must comply with as a condition of the investment proceeding. The 2025–2026 amendments have given the Minister greater flexibility to tailor these conditions, and early indications suggest that regulators are imposing more granular, operationally specific undertakings than in prior years.

Common categories of mitigation measures include:

• Governance conditions. Requirements that a specified number or proportion of the Canadian subsidiary’s board be Canadian citizens with appropriate security clearances, or that certain board committees be composed exclusively of independent Canadian directors.
• Information security protocols. Restrictions on the transfer of sensitive data, IP or technical information outside Canada, often accompanied by requirements for third-party audits and secure data storage.
• Supply chain commitments. Undertakings to maintain existing supply relationships with Canadian or allied-nation suppliers, or to refrain from sourcing critical components from jurisdictions of concern.
• Employment and operations. Commitments to maintain specified employment levels, R&D expenditure, or operational headquarters in Canada for a defined period.
• Divestiture undertakings. In more serious cases, the investor may be required to divest specific business lines, contracts, or assets that are particularly sensitive, effectively a partial block.
• Independent monitor. Appointment of a government-approved third party to monitor and report on compliance with undertakings, at the investor’s expense.

How Mitigation Is Enforced and Consequences of Non-Compliance

Undertakings are legally binding, and the consequences of non-compliance are severe. The Minister may apply to the Federal Court for an order directing compliance, and in cases of wilful or repeated breach, the Governor in Council may order the investor to divest the Canadian business entirely. Financial penalties may also apply. For private equity sponsors, the reputational consequences of non-compliance can be equally significant, a track record of breaching ICA undertakings will make future acquisitions in Canada substantially more difficult to clear.

When negotiating undertakings, deal teams should focus on ensuring that conditions are time-limited, objectively measurable, and commercially workable. Vague behavioural conditions should be resisted in favour of specific, auditable obligations. The cost of compliance, including monitor fees, security infrastructure, and governance changes, should be quantified during due diligence and factored into the deal’s economics.

Practical Next Steps and Recommended Resources

For deal teams navigating the Investment Canada Act in private M&A transactions, the following immediate actions are recommended:

1. Conduct an ICA risk screen at the LOI stage. Before committing to a transaction, assess whether the buyer, target, or sector triggers any ICA notification or review obligation.
2. Integrate ICA timelines into the deal model. Build the applicable review period, 45 days for a clean notification, potentially 12+ months for a full national security review, into the transaction timetable, financing arrangements, and drop-dead dates.
3. Prepare a comprehensive filing package during due diligence. Compile ownership charts, technology schedules, government contract summaries, data flow maps, and a preliminary national security self-assessment.
4. Engage experienced ICA counsel early. The complexity of the 2025–2026 amendments warrants specialist advice, particularly for transactions involving designated sectors, state-affiliated investors, or cross-border PE structures.
5. Proactively develop mitigation proposals. Rather than waiting for the regulator to dictate terms, prepare a draft set of undertakings that addresses likely concerns while remaining commercially viable.

For access to experienced private M&A practitioners in Canada, including specialists in foreign investment review and ICA compliance, consult the Global Law Experts directory.

Conclusion

The 2025–2026 Investment Canada Act amendments have reshaped the regulatory landscape for private M&A in Canada. Every non-Canadian buyer, PE sponsor, and seller of a Canadian business must now treat ICA compliance as a core transaction workstream, not a peripheral regulatory filing. Early risk identification, disciplined timeline planning, thoughtful deal structuring, and proactive engagement with the review directorate are the hallmarks of transactions that close successfully under the new regime. For deal teams seeking specialist guidance on investment Canada Act private M&A Canada requirements, engaging experienced counsel at the earliest opportunity remains the single most effective step toward deal certainty.

Sources

1. Innovation, Science and Economic Development Canada, Investment Canada Act
2. ISDE, ICA Frequently Asked Questions
3. Canada Gazette
4. Blakes, Cross-Border Private M&A in Canada
5. Fasken, Private M&A into Canada
6. Practical Law / Thomson Reuters, Investment Canada Act Overview
7. BLG, Foreign M&A under the Investment Canada Act
8. Stikeman Elliott, M&A in Canada Guide
9. Goodmans LLP, Structuring Private M&A Transactions in Canada
10. McInnes Cooper, What the Investment Canada Act Means for Your Acquisition