Competitive tension – what the Government’s proposed merger reforms could mean for private equity, venture capital and tech transactions

On 10 April 2024, Treasurer Jim Chalmers unveiled the Government’s proposed reforms for a single mandatory and suspensory merger control system. You can find our detailed insights on the Treasurer’s announcement here.

Many important details concerning the new ACCC merger clearance regime remain subject to further consultation during 2024 and, ultimately, the drafting and passage of relevant legislation. However, we provide below some observations on what we expect the changes could mean in practice for three common deal scenarios relevant to private equity, venture capital and tech businesses.

The reforms specifically targeted at multiple “creeping” acquisitions and at preventing acquisitions that “enhance” market power may have specific application to the tech industry.

Importantly, no changes are expected until 1 January 2026 – until then, parties can continue to file under the ACCC’s current informal clearance regime, which is not suspensory and does not have set filing fees or minimum information requirements.

What could the new regime mean in practice?

If the combined businesses meet the new share-based thresholds,¹ the parties will need to file with the ACCC and will be legally prohibited from completing without clearance.  Treasury’s merger reform paper suggests that the share thresholds will trigger notification, even if the merger falls below the separate monetary thresholds.

The precise thresholds and the basis for measuring them will be a focus of consultation.  However, once met, a filing will be required irrespective of how contestable and competitive the parties perceive the market to be.

The transaction will attract a filing fee, which the Government has indicated will likely fall in the range of $50,000 to $100,000.

While timelines will apply to the ACCC’s consideration, the clock will not start running until the ACCC accepts the filing as valid.  The parties will need to provide the ACCC a significant amount of specified up-front information, including about the parties and the proposed transaction (the precise requirements are yet to be determined). 

The indicative ACCC decision timeframes are up to 30 working days for a Phase I review, and an additional 90 days for Phase II. There will be the option of a fast-track determination after 15 working days, if no concerns are identified by the ACCC.

Importantly, if the merger falls below the notification thresholds, the ACCC will not have a power to ‘call in’ the merger for review. This highlights the importance of the coming consultation on the appropriate thresholds.

The specific monetary thresholds are subject to consultation.  However, a large tech company may be likely to satisfy revenue or profitability-based tests. If there is also a transaction value-based threshold, then the value placed on the target will also be relevant.  Even if the target’s share is very small, the share-based thresholds could separately be triggered.

As above, where a filing is required, the parties cannot complete without ACCC clearance, will need to pay the filing fee, and will need to provide the ACCC sufficient information to meet the filing requirements.

The ACCC would need to be affirmatively satisfied that the deal is likely to have the effect of substantially lessening competition, before refusing to grant clearance. The reformulated test is expected to expressly refer to consideration of whether the proposed merger ‘creates, strengthens or entrenches’ a position of substantial market power.

In advocating for merger reform, the ACCC has indicated its view that the new regime should ensure adequate scrutiny of acquisitions of smaller or nascent competitors, particularly in the tech sector.  The ACCC’s view is that “the current test … may not sufficiently address acquisitions by a dominant firm of smaller or nascent competitors” because the focus is on the incremental change from an acquisition, rather than whether the acquisition increases or enhances a position of market power.²

Even if each of the buyer’s three acquisitions were not notifiable individually, the cumulative change is expected to be aggregated for the purposes of the notification thresholds.  The private equity seller may find that its exit is subject to ACCC review and clearance, where the previous two similarly sized acquisitions by this buyer were not.

In addition, all acquisitions undertaken within the last three years will be relevant to the ACCC’s substantive consideration of the merger.  In this case, the ACCC will not have considered the previous acquisitions at all. The ACCC will, under the proposed model, look at the cumulative change in market conditions across the three deals – which could create uncertainty and delay for the private equity firm’s exit.

Treasury has indicated that the proposed three-year reference period is intended as a targeted measure to address concerns about anti-competitive roll up strategies, while “minimis[ing] unintended impacts on Australia’s vibrant start-up and small-and-medium enterprise sector”.³

• Treasury is expected to consult on whether the share thresholds will be measured by reference to market share or “share of supply”.
• ACCC Submission to Treasury Competition Taskforce Merger Reform – Consultation Paper (January 2024), [3.17].
• reasury, Merger Reform: A Faster, Stronger and Simpler System for a More Competitive Economy (10 April 2024), p 9.