Australia’s proposed merger control reforms will impact future M&A activity

Released in April, the proposed reforms (25-page / 636KB PDF) under the Competition and Consumer Act 2010 (Cth) (CCA) have been described by the government as the country’s most significant merger control reforms in almost 50 years. Australia’s competition regulator, the Australian Competition and Consumer Commission (ACCC), has welcomed the proposed changes.

The reforms include mandatory notification of and prohibition on proposed mergers above certain thresholds, the implementation of an ACCC approval process and timeframes for mandatory notifications, limits on the ability to appeal ACCC decisions, amendments to the ‘substantially lessening of competition’ test, and new notification fees.

Draft legislation is scheduled to be published for consultation later this year, with the new merger control laws and processes expected to be in force from 1 January 2026.

Mandatory notification and prohibition above certain thresholds

Australia is currently one of only three OECD countries that does not have compulsory merger notification requirements. The reforms aim to bring Australia in line with most OECD countries by replacing the current voluntary notification regime with mandatory notification of mergers if they meet certain thresholds. Parties will not be able to complete a merger that triggers the thresholds until the ACCC has been notified and has authorised the merger.

Thresholds 

The exact thresholds are yet to be determined. However, the government has proposed that the notification thresholds will be both monetary based, considering the target’s turnover or the proposed transaction value, and market based, considering the target’s share of supply or market share. 

The government has stated that these thresholds will also be determined with reference to international practice and will be set through stakeholder consultation. The relevance of international practice to Australia, with its relatively small population and geographical challenges, will likely be a key concern to stakeholders. The merger notification thresholds will be reviewed periodically by the ACCC. 

It is expected that the ACCC will consult and provide guidance to transaction parties on whether their combined market share would trigger a relevant threshold. 

Creeping acquisitions

The reforms also capture serial or ‘creeping’ acquisitions by combining all previous acquisitions over a three-year period by a single acquirer or target for the purpose of assessing whether a merger meets the notification thresholds, regardless of whether those mergers are individually notifiable.

ACCC approval process and timeframes

Applications for merger approval will be considered by the ACCC in what will be known as the ‘Phase I’ test. A merger will be authorised to proceed where the ACCC does not raise any competition concerns or fails to decide within 30 working days. 

During the Phase I test period, an applicant will be eligible to fast track their approval application in situations where the ACCC does not identify any competition concerns after 15 working days. In situations where competition concerns are raised by the ACCC, applicants may be required to proceed to a ‘Phase II’ assessment.

A Phase II assessment is more extensive and needs to be completed within four and a half months. During the Phase II assessment process, parties may seek ACCC approval on grounds that the merger would likely result in a substantial benefit to the public which outweighs any actual or potential anti-competitive consequences. The ACCC review of notifications based on the substantial public benefit test would need to be completed in 50 working days. 

The more comprehensive examination of mergers created by this mandatory system will provide the ACCC with more evidence to build the case in favour or against proposed mergers. Merger parties will likely be required to provide more information to the ACCC for it to adequately assess and process merger notifications.  

The ACCC is expected to publish reasons for its decisions. The reasons, along with a list of mergers considered by the ACCC, will be published on an ACCC public register.

Limited ability to appeal ACCC decisions 

If a merger party wishes to appeal a decision by the ACCC, it will be entitled to apply to the Australian Competition Tribunal for a limited merits-based review. This proposed review process would replace the current right to appeal an ACCC decision in the Federal Court. 

The new process and changes to the ‘substantially lessening of competition test’ are intended to steer the assessment process away from evidentiary issues – such as to lessen the need for the ACCC to provide evidence of future competitive harm – and allow greater focus and emphasis on economic and market structure analysis. The proposed reforms do not, however, accept the ACCC’s original proposal to reverse the onus of proof and require merger parties to prove that their deal is not anticompetitive, which received numerous objections in earlier consultation rounds. 

Amendments to the ‘substantially lessening of competition’ test 

The ACCC must allow a merger to proceed unless it reasonably believes that the merger would have the likely effect of substantially lessening competition. This includes, but is not limited to, situations where a merger creates, strengthens, or entrenches a position of substantial market power in the market. 

The proposal’s inclusion of “creates, strengthens or entrenches a position of substantial market power” is designed to emphasise the importance of assessing the competitive structure of the market in the context of the overall assessment of the effects of the merger on competition. 

The ’merger factors’ in the current section 50(3) of the CCA are to be replaced by principles to supplement the ‘substantial lessening of competition’ test. These principles are intended to ensure that explicit emphasis is place on economic methodology and analysis of competitive effects. 

The ACCC will be able to consider factors such as the need to maintain and develop effective competition within markets, bearing in mind the structure of the market, the conditions for competition and the actual or potential competition of a business carrying on its business in Australia or overseas.

The ACCC will also be able to consider the market position of the target business, including its economic and financial power, commercial relationships, alternative suppliers and products, its access to supplies, any barriers to entry in the market, supply and demand trends for the goods or services, and consumer interests.  

Notification fees

Applications to the ACCC for merger approval will attract notification fees. The government estimates that the fees will range between AU$50,000 (US$32,291) to AU$100,000 for most mergers. Small businesses will be exempt from these fees. 

The introduction of these fees, plus the overall ACCC process, will add significant time and cost to undertaking M&A activity in Australia for those who trip the thresholds. Whether this will have an impact on the level of M&A activity in Australian markets will be a key issue to watch after the reforms are implemented.  

Co-written by Kaitlin Pert of Pinsent Masons.