M&A+: Merger clearance reforms and what it means for the mid-market
On 28 November 2024, Parliament passed a bill approving major change to the existing merger control regime. The new system is set to begin on 1 January 2026, with a voluntary period starting on 1 July 2025 phasing out the current merger authorisation process.
The ACCC’s role in merger control will remain focused on assessing whether a proposed transaction will result in a substantial lessening of competition. However, the scope of its role is set to increase significantly, with the introduction of mandatory notification obligations for acquisitions that exceed specific monetary thresholds and where the target carries on, or intends to carry out, business in Australia.
The intended notification thresholds are:
- Large Merger Threshold – where Australian turnover of the combined businesses exceeds $200 million, and either the businesses or assets being acquired have Australian turnover above $50 million or a global transaction value above $250 million.
- Large Acquirer Threshold – any merger involving a very large business with Australian turnover of more than $500 million buying a smaller business or assets with Australian turnover above $10 million.
- Serial Acquisition Threshold – all mergers by businesses with combined Australian turnover of more than $200 million where the cumulative Australian turnover from acquisitions in the same or similar goods or services over a three-year period is at least $50 million will be captured, or $10 million if a very large business is involved.
Prospective merger parties will be pleased by the Government’s decision to scrap the proposed market share thresholds (alleviating concerns about how the ACCC would define market share) and, to an extent, will be reassured by the more objective and transparent test set by the monetary thresholds. That said, the monetary thresholds are broad and will likely capture a substantial number of transactions, and they are in themselves not without uncertainty. Parties should remain mindful that the Government has confirmed these intended thresholds are subject to further consultation and will be regularly reviewed once in force (including after 12 months) and has suggested that lower, discretionary, thresholds for specific, contentious sectors will be introduced.
Look back rule
Although, these thresholds are still subject to change, businesses should note the effect of the ACCC’s look back power under the thresholds. Under this power, the ACCC can review all acquisitions (with Australian turnover exceeding $2 million) made within the past three years by the acquiring party when assessing a new merger. Therefore, despite the new regime not yet being in force, businesses that have recently carried out merger activity or are planning merger activity in 2025 should consider the effect of this look back power on application of the Serial Acquisition Threshold.
There will be heightened scrutiny of serial acquisitions under the new regime. It is not clear how stringently the ACCC’s powers will be applied or how intrusive they will be for deal activity in the mid-market. However, the Government has confirmed that its purpose is to target anti-competitive roll up strategies, not small and medium sized acquisitions in the start-up/entrepreneur sector.
Suspensory timelines
A current flaw in the existing merger regime is the lack of certainty around timelines for review. A key feature of the new regime is the suspensory powers conferred on the ACCC and the introduction of set review timelines for notifiable transactions:
- Phase 1 – an initial review period of 30 working days commencing on receipt of a completed notification, with the option of fast-track determination after at least 15 working days if no concerns are identified; and
- Phase 2 – a subsequent review period of 90 working days.
The ACCC expects that 80-90 per cent of merger reviews will be completed in 15-20 working days. Practically, it is unclear whether this target will be achieved. What is clear is that the timelines are not as cut and dried as the phases above suggest. Built into these phases are additional windows for the ACCC to extend the timeline: first, at the notification point; secondly, if the ACCC requires more information; and thirdly, with the agreement of the parties. What’s also clear, is that:
- to achieve these targets, the ACCC will need to be appropriately resourced, and the cost of this will be covered by the notification fee paid by the merger parties; and
- since ACCC approval is required for a transaction to go ahead, merger parties will be required to consent to any requested time extension and bear the consequential transaction costs.
Costs
The expectation is that the average notification fee will be between $50,000 and $100,000, with an exemption available for small businesses. As indicated above, the notification fee will not be the only cost. Merger parties should also be aware of the likelihood of increased transaction costs, incurred in preparing submissions, complying with timeline extensions, and responding to requests for further information (if any) from the ACCC.
Certainties
There remains significant work for the Government to do to implement the reforms and, ultimately, time will show how they work in practice and their impact (if any) on deal activity in the mid-market. The adoption of regulations firming up notification thresholds and the ACCC's guidance, which is expected to be published in Q2 of 2025, will provide further clarity on their practical effect. That said, there are some certainties we can point to now:
- prospective merger parties will be required to notify qualifying transactions to the ACCC;
- a substantial number of transactions will be caught by the monetary thresholds and will become conditional on obtaining ACCC approval;
- the timeline for carrying out a notifiable transaction will be extended concurrently with the ACCC’s review process;
- costs for all parties will increase; and
- despite the additional regulatory, timing, and costly hurdles, deals will continue to be done for commercial reasons irrespective of the new regime.
For further information, please contact Chris Brown, Partner.
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