There’s a new ACCC merger control regime! Here’s what investors need to know

With this new year comes a new ACCC merger control regime. Now that it is formally in place, investors who don’t yet know about the regime should. So to those investors…you’re welcome.

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What you need to know about the ACCC merger control regime

On January 1, a new mandatory and suspensory merger control framework administered by the Australian Competition and Consumer Commission (ACCC) formally came into effect. This represents the most substantial reform of Australia’s merger laws in decades.

Under the previous rules, companies could voluntarily seek informal merger clearance from the ACCC, but there was no requirement to do so and no statutory clock on timing. But now certain acquisitions of shares or assets that meet prescribed monetary and other thresholds must be formally notified to the ACCC and cleared before they can be completed.

If a transaction that should be notified is completed without ACCC clearance, that transaction can be void and the parties may face substantial penalties. It’s not enough to just give a heads up once the deal is done, it must be done in advance.

ACCC will assess notified transactions for their likely effect on competition, using a framework similar to many other jurisdictions. A key objective is to prevent acquisitions that would substantially lessen competition in any market, while also providing a clearer, more structured process for deal assessment and approval.

So this isn’t entirely bad news – yes more red tape, but perhaps clearer red tape. Moreover, it is not as if this is entirely unprecedented, the EU and US do have a regime where where pre-merger notification and waiting periods are standard for transactions above certain thresholds.

The thresholds

The new rules will operate with specific turnover/asset thresholds and other criteria — if a transaction meets these, notice is compulsory unless an exemption or waiver applies. There are exemptions for some low-risk assets and transactions, and a waiver process for certain deals that meet the thresholds but are unlikely to raise competition issues.

The basic thresholds for large merged firms are: a combined Australian revenue of the acquirer and target ≥ $200 million, AND either the target’s Australian revenue ≥ $50 million or global transaction value ≥ $250 million.

For ‘very large acquirers’ the acquirer’s revenue will need to be above $500m and the target above $10m.

Any loopholes?

Creeping and serial acquisitions are also captured. What is meant by that? Companies that buy smaller ones over time and several ones to the extent it is similar to buying one large company. In the ACCC reforms as they stand, if the acquirer has made related acquisitions over the past three years in the same or substitutable markets that cumulatively exceed $50 million (or $10 million for very large acquirers), notification may be required.

There are some exemptions. For instance, small acquisitions with target Australian revenue below $2 million, Certain land and development rights under specific conditions and financial market transactions (e.g., debt instruments, derivatives) under the exemption rules.

Some deals could’ve been blocked, or made tougher – and others will going forward

We could think of many deals that could’ve been blocked. Just look for instance at the ANZ-Suncorp deal that took so long to get through – this would clearly meet the revenue and size thresholds.

Deals involving large retail chains (for example, Ampol’s acquisition of EG’s service stations noted in commentary about the regime) would almost certainly be captured due to high combined revenues. The proposed Brookfield buy of Origin Energy would’ve been captured too.

Looking to sectors that could be affected, we could think of major miners buying our juniors or even transacting with its peers. Large resource asset sales (e.g., BHP selling a mine to a competitor) will now require pre‑completion ACCC clearance. For junior miners, acquisitions of smaller but strategically located assets could be exempt unless the junior has revenue > $50 million or is part of a larger group.

The banks will inevitably impacted going forward. Hang on, which bank would sell itself to a competitor? None, right? Yes, but deals like AMP acquiring wealth management platforms or IAG’s insurance acquisitions would now have to be cleared before closing. We already implied utilities stocks could be captured.

So could big tech. SaaS, fintech, and cloud software companies often grow via acquisitions of smaller competitors or complementary platforms like Aussie Broadband (ASX:ABB), Xero (ASX:XRO) and WiseTech (ASX:WTC). Revenue thresholds are lower for mid-market tech companies, but multi-million-dollar acquisitions (especially involving recurring subscription revenue) may now be captured.

And finally, deals like Woolworths or Coles – or perhaps Chemist Warehouse – acquiring smaller regional chains would require ACCC review.

Takeaways for investors

Closing M&A deals is harder now. Any material M&A transaction must now factor in ACCC notification timeframes — even for acquisitions previously considered “small” under the voluntary system.

The ACCC may impose divestments or other conditions before allowing deals to proceed and there’ll be more costs and red tape to consider including notification forms, filing fees, and legal costs will add to transaction budgets.

But like it or loathe it, the new regime is here to stay.