Over the past year, geopolitical instability and Canada’s shifting relationships with allies and trading partners have prompted several policy changes aimed at fortifying the country’s economy and security. At the same time, anticipated regulations are slated to change Canada’s relationship with foreign investors. Below, Lexpert talks to three mergers and acquisitions experts about the policy changes they believe will have the greatest impact on deal-making over the next year.
Defence industrial strategy
One of the key takeaways from Prime Minister Mark Carney’s first budget last year was its major investment in defence – $81.8 billion over five years to “rebuild, rearm, and reinvest in the Canadian Armed Forces.”
In February, Carney’s government elaborated on its defence plans by releasing a new defence industrial strategy outlining initiatives and targets to strengthen Canada’s defence capabilities over the next decade. These include directing 70 percent of defence acquisitions to Canadian firms, increasing Canada’s defence exports by 50 percent, growing defence revenues for small and medium-sized Canadian businesses by more than $5.1 billion annually, and abiding by a new “build-partner-buy” framework for defence procurement.
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Under this framework, Canada will build domestically to strengthen its defence
capabilities and direct new defence procurements to Canadian firms “as a matter of policy”; partner with trusted allies in Europe, the United Kingdom, and the Indo-Pacific in cases where Canada lacks the capacity to build domestically; and buy from allies when the first two options are not feasible.
The build-partner-buy framework is “really focused on Canada,” says Myron Mallia-Dare, a partner at Dentons Canada LLP whose practice focuses on mergers and acquisitions, private equity, and emerging companies. He adds that the government’s strategy is expected to fuel deal activity nationwide: “I think we’re going to see a lot of domestic consolidations first, allied partnerships – so non-Canadian entities that are allies – and then foreign acquisitions when we’ve seen that meaningful reinvestment.”
According to the government, implementing the defence industrial strategy over 10 years will involve an estimated $180 billion investment in defence procurement.
As a result of this investment, “You’re going to see a pipeline of M&A activity across sovereign capability areas such as aerospace, digital systems, ammunition, sensors, and infrastructure,” says Mallia-Dare.
Building Canada Act
Another development that’s slated to have a big impact on transactional activity is the Building Canada Act. Passed by federal legislators last year as an explicit response to US tariffs, the law aims to fast-track major infrastructure projects and grow the Canadian economy by lifting some of the red tape that can prevent projects from developing efficiently.
The BCA was one of the components of Bill C-5, which received Royal Assent in June and contained a second component that removed federal barriers to interprovincial trade. According to the federal government, the slew of unilateral tariffs the US levied on Canada after President Donald Trump took office underscored the need for Canada to diversify its trading partners and strengthen its economy.
The BCA contributes to the cause by empowering the government to classify infrastructure projects as being in the national interest if they meet certain criteria, like strengthening Canada’s autonomy, resilience, and security; providing economic or other benefits to Canada; advancing the interests of Indigenous peoples; having a high likelihood of successful execution; and contributing to the country’s climate-change goals. When a project receives a “national interest” designation, it can bypass a range of federal requirements, including the planning phase that is typically mandatory for certain projects under the Impact Assessment Act.
Jeremy Fraiberg, a partner at Osler, Hoskin & Harcourt LLP and co-chair of the firm’s M&A group, says he expects the BCA to ramp up transactional activity across the country.
“By streamlining the regulatory approval process, the BCA should spur additional investment in designated ‘national interest projects,’” Fraiberg says.
Mahdi Shams, a partner at MLT Aikins LLP whose practice primarily involves corporate and securities law, notes that many of the ventures the federal government has identified as national interest projects to date involve mining and critical minerals. While he agrees with the federal government’s argument that the BCA paves the way for beneficial nation-building, Shams says the legislation’s removal of regulatory barriers to project development also raises potential issues.
“In Canada, and especially in BC … we’ve had a very rigorous review process [for projects], which takes multiple years sometimes,” Shams says, adding that part of the process involves consulting with Indigenous communities about the impact of the projects. Under s. 35 of the Constitution Act, 1982, the Crown has a duty to consult Indigenous groups about matters that could impact their rights – a duty that cannot be overridden by legislation.
However, the accelerated review process introduced by the BCA has prompted concerns that consultation processes will also be accelerated or shortened, leading to less meaningful dialogue with Indigenous groups and potential litigation that could further stall projects.
“Indigenous groups have very much… expressed their concerns on how this would negatively impact their rights to consultation,” Shams says.
Forthcoming Investment Canada Act regulations
When Bill C-34 received Royal Assent in 2024, it introduced significant changes to the Investment Canada Act, giving the federal government broader authority to address national security concerns in foreign investments. Since then, “national security considerations have become a central part of cross-border deal planning,” says Shams. “Even smaller minority investments by non-Canadian entities are attracting a lot more scrutiny under the Investment Canada Act, especially when you’re talking about critical minerals, technology, and infrastructure.”
This year, provisions of the ICA that are not yet in force are expected to take effect via new regulations. One of the most notable provisions – which will require foreign entities to notify the government before they close on investments in certain sectors – will introduce another layer of regulatory complexity to the deals covered by the change.
According to the federal government, the 2024 amendments to the ICA – which represented the most substantial changes to the statute since 2009 – aim to make Canada’s regulatory regime more predictable for foreign investors while ensuring it has the tools to act quickly in cases where deals pose a threat to national security. Many of its provisions have been in force since September 2024, including expanding the Minister of Innovation, Science and Industry’s authority to initiate national security reviews, impose interim conditions on investors during the course of a review, share information about deals with foreign investment review agencies when there are national security concerns, and conclude a review based on undertakings.
The government said it would roll out other provisions of the act later through regulations. This includes the requirement to notify the government before closing on a transaction involving foreign investors, which applies to specific “sensitive sectors.”
While the government has not yet revealed which industries are included among these sectors, Shams says the final list will likely align with the Sensitive Technology List the government published in early 2025. The non-exhaustive list identifies “broad technology areas” that may have national security implications, including artificial intelligence and big data, critical materials, advanced weapons, robotics and autonomous systems, advanced energy technology, and more.
Mallia-Dare notes that under the ICA, the government already has 45 days to review a deal and determine whether to allow it, “which is a significant period of time when you’re doing a transaction.”
Adding another regulatory hurdle in the form of pre-closing notification requirements will further extend the transaction process, Mallia-Dare adds.
Shams notes that Bill C-34 effectively modernized Canada’s national security review process so that it more closely aligns with those of the United States and the United Kingdom, where “from a permitting standpoint and review of M&A transactions, there is a bit more rigorous screening when it comes to national interests.” He adds that this close alignment has given the three jurisdictions “more of a uniform stance” on Chinese deals, for example.
As Canada continues to readjust its approach to foreign trade and investment, though, Shams says a tension has emerged.
“The government right now is a bit capricious because we’re seeing changes on the regulatory side that will affect review processes, [make] it a bit more stringent,” he says. “But at the same time, on the business side, we’re trying to strengthen some relationships with China and other countries to allow for businesses to again explore [other] types of investments such as joint ventures and strategic alliances.”
Key laws and legislative changes
Defence Industrial Strategy – A blueprint for boosting Canada’s security and economic growth
Building Canada Act (BCA) – Lets Ottawa fast-track “national interest” infrastructure projects
Bill C-5 – Enacts the BCA and cuts federal barriers to interprovincial trade
Impact Assessment Act – Outlines the process for assessing the impact of projects carried out on federal lands or outside of Canada
Bill C-34 (Investment Canada Act amendments) – Gives the federal government broader authority to address national security concerns in foreign investments