What are the proposed changes to merger laws?
Under proposed changes announced this week, Australia’s existing merger laws - which are currently premised on a voluntary notification system - will do a 180 degree pivot to a mandatory and suspensory regime.
This will mean that dealmakers must notify the Australian Competition and Consumer Commission (ACCC) if they want to do a transaction which meets the relevant monetary threshold and they will not be allowed to complete the deal unless the ACCC grants clearance. This is the case even for potential acquirers who have no existing horizontal or vertical interests in the relevant target sector nor are there any other apparent competition concerns.
The new laws will come into effect by 1 January 2026.
A full explanation of the new merger laws can be found here.
Will the new laws impact private capital deals?
Our view is “no”. In fact, the new merger regime may be a good thing for private capital investors. Let us explain -
Viewed in isolation, it is tempting to take the view that moving to a mandatory and suspensory merger regime can only be a bad thing for private capital investors and dealflow. However, Australia’s foreign investment regime means that most private capital investors doing deals in Australia are already working within a mandatory and suspensory regulatory regime with a zero-dollar threshold and a requirement to pass all potential acquisitions past the lens of the ACCC, even where there are no competition concerns.
However, when considered within this broader regulatory framework, the new merger laws potentially offer private capital investors 2 advantages:
- clarity on the tests being applied by the ACCC to review deals; and
- faster and more transparent timetable for ACCC review (more on this below).
For most private capital investors, the new merger laws will also have the further benefit of levelling the playing field with Australian buyers who otherwise are not currently required to notify the ACCC of transactions.
The consistent message we hear from our clients is that regulatory regimes which are clear and consistently applied encourage transactions and ultimately investment in Australia, whereas regulatory uncertainty or unpredictability on outcomes or timetable can lead to adverse deal outcomes and discourage investment.
How onerous will the new merger laws be to comply with in practice?
The details of the new merger laws are still to be determined following further consultation. But we expect 2 key factors to dictate how onerous the regime will be for practical purposes:
- how high the proposed thresholds for mandatory ACCC notification are set and by reference to which metrics. The thresholds are likely to be based on turnover, profitability and / or transaction value – with separate market share thresholds for mergers below monetary thresholds; and
- the interaction of the new laws with Australia’s foreign investment regime and – critically - whether the 2 regimes are administered in a co-ordinated and efficient way.
Will the notification process disrupt deal timelines?
As this point, the following indicative timeframes have been put forward:
- Non-controversial transactions can obtain a “fast-track” determination in as little as 15 working days. Many Private Capital deals that raise no competition issues are likely to fall into this bucket.
- “Standard” transactions will be subject to a 30 working-day initial review, and may be cleared at that point. Again, this would be quicker than current average clearance timeframes.
- For deals that the ACCC wants to look at more closely, a further 90 working-day review period will apply. This takes the total possible ACCC review time to 120 working days before a final determination by the ACCC, which roughly equates to what we see now (other than for controversial or complex deals).
The fast track and “standard” timeframes are shorter than the customary foreign investment timeframes. It would be a positive for PE dealmakers if the Foreign Investment Review Board also adopted an “in practice” maximum review period consistent with the maximum review period under the new merger laws.
Most importantly, the new laws will offer clarity to PE firms on the clearance timelines which is the key to efficient management and achieving transaction outcomes.
Will new powers to police serial acquisitions impact buy and build strategies?
We don’t see the change impacting roll-up strategies.
Sure, the new merger laws will allow the ACCC to look at the cumulative effect of all mergers within the previous 3 years by the merger parties (whether or not those mergers were themselves individually notifiable) and give the ACCC the potential to oppose an acquisition that of itself does not shift the dial enough to substantially lessen competition under the current law but might ‘entrench a position of market power’. But this is not a radical departure from the lens the ACCC was already applying.
Most importantly, as a result of the FIRB process most private capital investors already faced ACCC review of buy and build growth strategies. Like the above, to that extent the new laws offer greater clarity on the tests being applied by the ACCC in looking and roll-up acquisitions which are individually immaterial and ensure that all deals are subject to the same standards of competition review regardless of whether the acquirer is a foreign investor, it is another net positive for most private capital investors.
What next?
Consultation is expected to begin shortly on the elements of the new regime which are yet to be determined. An exposure draft of legislation to implement the reforms is expected by the end of 2024.