The COVID-19 pandemic is having immediate and longer term impacts on the global economy and M&A activity. The crisis has resulted in important changes to the policies, rules and processes to be applied by many foreign investment and competition regulators, including Australia's Foreign Investment Review Board (FIRB) and the Australian Competition and Consumer Commission (ACCC). This briefing examines the key COVID-19 related changes to Australian foreign investment and merger control policies, rules and processes applicable to both direct inbound investments as well as offshore transactions which involve changes of indirect interests in Australian companies or assets located in Australia
Temporary changes to Australia’s foreign investment regime have been implemented by Government with the stated aim to ‘protect Australia’s national interest as we deal with the economic implications arising from the spread of the coronavirus’.
Changes to the FIRB regime include temporarily reducing monetary screening thresholds for foreign investments to $0 for all captured transactions and up to a six month extension on the FIRB decision making period.
This means that all offshore transactions with downstream Australian companies/businesses may now be subject to the FIRB regime.
This will have far reaching implications for any international and cross-border transactions with an Australian dimension. This has follow on ACCC implications.
During the temporary changes to the regime, FIRB will continue to consult with government agencies including the ATO and ACCC as required when assessing applications to ensure they are not contrary to the national interest. In particular, this will have ramifications for transactions which would have otherwise avoided ACCC scrutiny, and which will now be pulled into Australia’s merger control regime. Early and coordinated engagement with these agencies is critical to ensure that transaction regulatory approvals can be obtained as quickly as possible.
Parties to a potential transaction should recognise a number of COVID-19 related impacts on the ACCC's merger review process and timelines.
Key considerations include:
The immediate and longer term decline in global economic output and consumer demand will have ripple effects on the financial position of a wide range of businesses, putting many into the 'flailing' and potentially 'failing' category.
This means M&A activity involving failing, flailing and distressed businesses and assets, including those in various forms of external administration, is likely to increase.
However, the ACCC will not take a light touch approach to 'failing firm' type arguments. It has reiterated that it will carefully scrutinise any failing firm argument to justify potentially anti-competitive mergers.
In this context, there are a number of insights to be gleaned from the ACCC's approach to merger control in the global financial crisis. During that period, for example, the ACCC highlighted that Australia's merger control regime should not be relaxed, and that a focus on the longer term effects of competition was paramount.