How Australia’s New Mandatory Merger Control Regime Will Impact M&A Activity

Navigating the New Mandatory Merger Control Regime: Implications for Australian Businesses

The Australian government’s introduction of a mandatory merger control regime has brought significant change to the landscape of mergers and acquisitions (M&A) in the country. Effective from July 2024, the regime requires businesses with substantial market share to notify the Australian Competition and Consumer Commission (ACCC) before proceeding with any merger or acquisition. This marks a notable shift from the previous voluntary notification system, raising critical questions about the future of M&A in Australia.

The Key Features of the New Regime

Mandatory Notification of Mergers and Acquisitions: Under the new regime, businesses that meet specific thresholds will no longer have the discretion to decide whether or not to notify the ACCC. Instead, they must submit a formal notification prior to proceeding with a deal. This applies to transactions involving businesses with significant market power, with the goal of ensuring that mergers and acquisitions do not unduly reduce competition in Australia’s markets.
Greater Scrutiny of Market Dominance: The ACCC now has the power to examine potential mergers more closely, assessing not just the direct financial implications but also the potential long-term impacts on market competition. Companies engaged in M&A must prepare for heightened scrutiny, particularly in industries where competition is already limited.

Implications for Australian Businesses and M&A Activity

Longer Timelines and Increased Costs: One of the immediate impacts of the mandatory merger control regime will be the increased timeline and potential delays for M&A transactions. What was once a straightforward process may now be extended by months as businesses wait for approval from the ACCC. This delay could also lead to additional costs, including legal fees, advisory costs, and expenses tied to revising deal structures to comply with the regime.
Changes to M&A Strategy: For companies contemplating mergers or acquisitions, the new regime introduces a significant shift in strategic planning. The requirement for mandatory notification means that companies can no longer afford to proceed with deals in the same manner as before. Due diligence becomes even more crucial, with businesses needing to carefully assess whether their deal will pass regulatory approval. Corporate advisory firms will have to adapt by offering more comprehensive analysis of potential regulatory hurdles early in the deal-making process.
Challenges for SMEs: Small to medium enterprises (SMEs) looking to expand through acquisitions could face more difficulty under the new regime. SMEs, which often rely on a smaller network of resources and financial capital, may find the regulatory burden associated with a mandatory merger notification to be an obstacle. While larger firms may have the resources to navigate this increased regulatory oversight, smaller companies may be forced to reconsider their approach to M&A or look for alternative growth strategies.

Strategic Recommendations for Businesses and Advisors

Comprehensive Pre-Merger Due Diligence: With regulatory scrutiny on the rise, it has never been more important for companies to conduct thorough due diligence before initiating any M&A transaction. This means not only evaluating the financial viability of the deal but also anticipating the potential regulatory hurdles that might arise from the ACCC. Corporate advisory firms should play a pivotal role in advising clients on these matters, helping to identify any potential anti-competitive concerns that could result in delays or rejections.
Engage with Competition Experts Early: As part of the enhanced due diligence process, businesses must engage competition law experts and legal professionals early in the deal-making process. This proactive approach can help identify any potential obstacles and allow businesses to structure their deals in a way that is likely to gain ACCC approval. Understanding the nuances of competition law and the ACCC’s approach to market dominance will be critical in ensuring that transactions proceed smoothly.
Adjust Business Models to Mitigate Regulatory Risks: In light of the increased regulatory scrutiny, businesses involved in M&A should consider adjusting their growth models to mitigate the risks associated with merger control regulations. This could involve focusing on organic growth strategies or exploring other ways to achieve market expansion without the need for high-profile mergers.

A More Complex M&A Landscape

The introduction of a mandatory merger control regime will undoubtedly have significant implications for Australian businesses, particularly in the M&A sector. While the regime is designed to protect competition and ensure fair market practices, it also introduces a layer of complexity that businesses will need to navigate carefully.

For those engaging in mergers or acquisitions, it is vital to stay ahead of regulatory changes, conduct comprehensive due diligence, and seek expert advice to ensure a smooth and successful transaction. Corporate advisory firms will play a crucial role in guiding businesses through this evolving regulatory landscape, helping to ensure that M&A deals remain viable and compliant.

By adapting to these new requirements, businesses can not only survive but thrive in the increasingly complex and competitive world of M&A.

If you have financial plans for 2024, book a complimentary consultation with DGMS Group.