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Evidence mounts for urgent reforms in Australia’s merger laws

By Lauren Croft
4 minute read

Despite continued resistance from stakeholders, new research has shown that many mergers and acquisitions are not being reported properly – evidence which the ACCC said proves that Australia’s merger laws need reform.

The Australian Competition and Consumer Commission (ACCC) has continued to call for reforms to the laws governing mergers and acquisitions in Australia. According to the competition watchdog, these laws are not currently effective in preventing anti-competitive transactions, particularly during the current cost-of-living crisis and need to be in line with other developed economies.

The ACCC first called for reforms to Australia’s merger laws in April last year with ACCC chair Gina Cass-Gottlieb claiming the laws were “no longer fit for purpose” in protecting competition in Australia’s economy.

Now, in the ACCC’s second submission to the Treasury Competition Review, published on Friday (2 February), the regulatory body has persisted with ongoing concerns with merger laws and how the cost of an ineffective merger regime largely falls on consumers and the economy.

This news comes after BigLaw partners told InvestorDaily’s sister brand Lawyers Weekly recently that 2024 would likely be a “stronger” year for M&A.

“Australian consumers, farmers, and small businesses need to have confidence that potentially anti-competitive acquisitions will be scrutinised and if necessary, prevented,” Ms Cass-Gottlieb said.

“Without effective merger control, we are all likely to face higher prices, lower quality, less innovation, less choice, and lower productivity across the economy. The submission outlines the ACCC’s proposed reforms which, as a package, are effective, balanced, and proportionate.”

Despite resistance from some stakeholders citing a lack of evidence, new research commissioned by the Competition Review Taskforce now provides clear evidence in support of merger reform.

The research revealed that an estimated 1,000–1,500 mergers occur in Australia each year. The ACCC is only notified about approximately 330 of these deals, under the existing voluntary merger regime.

About half of the 1,000–1,500 mergers are made by the largest 1 per cent of businesses.

“New data from the Competition Review Taskforce confirms that we are not being told of many mergers taking place, including by Australia’s biggest corporations. In addition, the taskforce’s analysis shows that larger firms have increased their merger activity over recent years,” Ms Cass-Gottlieb said.

“This means we do not have the chance to consider how they may harm competition and consumers. It is important to note that the most significant increases in merger activity are occurring in sectors like manufacturing, retail, professional services, and health and social services, which are markets that directly impact consumers as they go about their lives.”

The watchdog has therefore proposed a reform package which includes many of the features contained in merger regimes in other major economies, including mandatory notification of mergers above certain thresholds and a requirement to not complete the transaction until approval is granted.

To minimise any burden on businesses involved in non-contentious mergers, the ACCC has also proposed a waiver process which would allow for a fast-track 20-business-day exemption from the requirement to lodge a formal notification. This would allow the vast majority of mergers to be assessed quickly.

Businesses would also benefit from greater certainty about review timeframes and published reasons.

The ACCC’s proposal also provides for a right of review to the Australian Competition Tribunal which is not available under the current informal merger clearance regime.

Further, reforms would include the combination of an administrative regime, mandatory notification, appropriate call-in powers, and a fit-for-purpose approval test to provide the necessary tools to deal with serial acquisitions. This, according to the ACCC, would help “overhaul Australia’s outdated merger reform regime, move away from the current inefficient and ineffective enforcement-based model, and follow international best practice”.

“Dealing with serial or ‘creeping’ acquisitions has been a longstanding challenge for the ACCC, particularly as it may be argued that each separate acquisition may not trigger current legal prohibitions in our merger laws, but together, and over time, they can result in serious harm to competition,” Ms Cass-Gottlieb explained.

“The ACCC’s strong view is that the competitiveness of Australian markets is best preserved by moving to a regime where, for the most significant mergers, the merger parties must make their case that their proposed transaction should be cleared. They should be required to produce evidence that satisfies the ACCC that there will be no likely substantial lessening of competition.”