Out-Law Analysis 6 min. read
06 Sep 2024, 1:02 am
The Australian government has begun consultation on its recently proposed notification thresholds for companies undertaking merger and acquisition (M&A) activity in Australia.
The consultation, which closes on 20 September, follows the government’s announcement of wide-ranging reforms to Australia’s merger control laws which were released earlier this year.
The purpose of the thresholds is to ensure Australia’s competition regulator, the Australian Competition and Consumer Commission (ACCC), receives notification of those mergers that are most likely to impact Australian consumers if they are anti-competitive. The thresholds are based on international practice and the Treasury’s analysis of the ACCC’s historical public merger review data, capturing 90% of the acquisitions that were publicly reviewed and considered by the ACCC as potentially raising competition concerns since 2018.
Both monetary and market concentration thresholds have been proposed. The monetary thresholds are designed to target mergers that are economically significant in size or mergers where the acquirer is a large business. For the proposed market concentration thresholds, the Treasury is considering two different approaches – one based on ‘market share’ and the other based on ‘share of supply’.
The Treasury is proposing monetary and market concentration thresholds. Notification will be required if an acquisition has a material connection to Australia and at least one of the following ‘limbs’ is met:
Limb 1 | Limb 2 | |
---|---|---|
Monetary thresholds |
Combined Australian turnover of merger parties (including acquirer group) is at least AU$200 million AND either the Australian turnover is at least AU$40 million for each of at least two of the merger parties OR the global transaction value is at least AU$200 million |
Acquirer group Australian turnover is at least AU$500 million AND either the Australian turnover is at least AU$10 million for each of at least two of the merger parties OR the global transaction value is at least AU$50 million |
Market concentration thresholds | Combined share of the merger parties is at least 25 per cent AND Australian turnover (including acquirer group) is at least AU$20 million for each of at least two of the merger parties | Combined share of the merger parties is at least 50 per cent AND Australian turnover (including acquirer group) is at least AU$10 million for each of at least two of the merger parties |
Source: Australian Government ‘Merger Notification Thresholds’ Competition Review (30-page / 571KB PDF)
The monetary thresholds are designed to target mergers that are economically significant in size (‘limb 1’) or mergers where the acquirer is a large business (‘limb 2’). Guidance on how turnover and transaction value are to be calculated will be set out in regulations.
The Treasury has asked the following questions about the proposed monetary thresholds:
The Treasury is considering two options for market concentration thresholds. One option is based on ‘market share’ – the combined parties' portion of total market size by sales or volume – and the other option is based on ‘share of supply’ – the combined parties’ share of supply in the goods or services they operate in.
Regardless of which measure is chosen, the Treasury proposes a two-tiered market concentration threshold. It proposes to set the first threshold (limb 1) at a combined market share of 25% with the total turnover of at least two of the merger parties being at least AU$20 million (US$13.4 million). This threshold aligns with the European Commission’s guidelines that market shares exceeding 25% may impact effective competition.
The second threshold (limb 2) would be set at 50%, reflecting mergers involving a business with substantial market power, with a lower turnover requirement of AU$10 million. This approach is designed to avoid capturing very small acquisitions, but to recognise that even a small acquisition involving an existing business with substantial market power may risk harm to consumers.
The Treasury has asked the following questions about the proposed market concentration thresholds:
The Treasury expects that 300 to 500 acquisitions will be notifiable each year, of an estimated 1,500 or more mergers expected to occur in Australia annually. Mandatory notification of up to one-third of annual mergers is a significant additional regulatory imposition on the Australian M&A market and appears to be higher than mandatory notification percentages in other countries.
All acquisitions within the previous three years within the same product or service markets - irrespective of geographic location - by the acquirer and acquirer corporate group are proposed to be aggregated for the purposes of assessing whether an acquisition meets the monetary turnover threshold only. This applies regardless of whether those acquisitions were themselves individually notifiable.
Treasury are proposing a notification waiver process whereby businesses can opt into notifying the ACCC of an acquisition or seek a ‘notification waiver’ if they are below the merger thresholds, or it is unclear if the acquisition meets the thresholds.
The government will be able to set, by a ministerial determination process, additional targeted notification requirements in response to evidence-based concerns about competition risks in certain markets that may not be captured by the monetary or market concentration thresholds. The ACCC has identified groceries, fuel, liquor and oncology-radiology as sectors where potential competition issues may arise.
The Treasury has asked the following additional questions in relation to the thresholds and the ACCC’s proposed approach:
Co-written by Elizabeth Bruce of Pinsent Masons.