Merger control reforms and notification thresholds – the 'missing piece of the puzzle'

In April 2024, the Australian government announced an overhaul of Australia's merger control regime with a set of sweeping reforms to the current voluntary regime. Since then, Treasury has consulted on draft legislation intended to codify key components of the proposed mandatory notification regime. While detailed, the draft legislation did not address all elements of the proposed regime, including, critically, lacking details of any proposed notification thresholds.

On 30 August 2024, the government released a much-anticipated consultation paper on the proposed notification thresholds underpinning the regime. The paper proposes a series of thresholds, encompassing monetary (turnover and transaction value) and market concentration limbs, as well as mechanisms to target creeping acquisitions.

Notification thresholds settings – when will we need to notify the ACCC?

The government has proposed a series of monetary and market concentration thresholds that merger parties will need to consider when assessing whether a transaction needs to be notified to Australia's competition regulator, the ACCC.

First, the regime will include an overarching threshold requiring the target business or asset to have a 'material connection to Australia'. While this has not been addressed in detail yet, it is likely to involve factors including a business being registered or located in Australia, supplying goods or services to consumers in Australia, or deriving revenue that is generated in Australia.

Second, if a necessary Australian 'connection' is established, then transaction parties will need to consider a series of thresholds.

The government has proposed that a transaction will need to be notified if any of the following are met:

Monetary thresholds

If either of the following limbs is met, then notification will be required:

• The combined Australian turnover of the merger parties (including the acquirer group and the target) is at least $200 million and either:

the Australian turnover is at least $40 million for each of at least two of the merger parties;

or

the global transaction value is at least $200 million.

• The Australian turnover of the acquirer group is at least $500 million and either:

the Australian turnover is at least $10 million for each of at least two of the merger parties;

or

the global transaction value is at least $50 million,

Market concentration thresholds

If either of the following limbs is met, then notification will be required:

• Combined share of the merger parties is at least 25% and Australian turnover for at least two of the merger parties is at least $20 million each (including acquirer group).
• Combined share of the merger parties is at least 50% and Australian turnover for at least two of the merger parties is at least $10 million each (including acquirer group).

From the government’s perspective, the proposed thresholds are structured to ensure that transactions which may harm competition are notified to the ACCC. This includes lower deal value thresholds for acquisitions by large businesses (targeting so-called 'killer' acquisitions of nascent competitors), as well as retaining market concentration thresholds to ensure that smaller acquisitions that may nevertheless harm competition do not slip through the cracks.

There remain some areas of uncertainty where consultation is ongoing, including whether the market concentration thresholds should focus on 'market share' (which is currently used in the ACCC's indicative notification thresholds as part of the informal merger clearance regime), or the concept of 'share of supply' which is used in the United Kingdom.

Despite these uncertainties, it is clear the proposed regime will cast a wider net. While the government previously indicated that the regime was intended to capture roughly the same number of transactions that the ACCC currently reviews (300-400), the government has now projected that the thresholds may generate up to 500 notifications. Importantly, this includes a substantial margin of error, and does not fully account for acquisitions involving patents, land and minority interests.

Creeping acquisitions, roll-up strategies and bespoke thresholds

The proposed thresholds, according to the government, are also structured in a way that is designed to give the ACCC the opportunity to review smaller deals that might be characterised as a 'creeping acquisition' or forming part of a broader roll-up strategy.

In particular, all acquisitions within the previous 3 years within the same product or service market (irrespective of geographic location) by the acquirer's corporate group will need to be aggregated when assessing if the monetary turnover thresholds are met (irrespective of whether each of those individual deals would have met the thresholds).

There will also be scope for ministerial determinations to set additional notification requirements in parts of the economy that warrant further scrutiny. While the government has not provided further details at this stage, the ACCC has previously flagged groceries, fuel, liquor and oncology-radiology as sectors where it has heightened concerns.

Further mechanisms to address uncertainty and manage risk

Failing to notify an acquisition that falls within the proposed notification thresholds will have serious consequences, including financial penalties and the relevant acquisition being void. The paper flags two measures intended to reduce regulatory risk:

1. The ability to seek a 'notification waiver' from the ACCC.
2. Scope to voluntarily notify transactions to the ACCC and 'opt in' to the process.

The waiver process is intended to provide an alternate option for parties where there may be uncertainty as to whether the notification thresholds are met. At present, the government is proposing a 30 business day process for the ACCC to provide a notification waiver, with applications (and any waiver) still to be listed on the public register. Further details will be required to assess the benefits of the waiver pathway against a 'fast-track' review within 15 business days.

Next steps in finalising the regulatory package

The government is consulting on the proposed notification thresholds until 20 September 2024.

We anticipate that a complete regulatory package will be finalised to put to the Australian parliament later this year. Once the reforms pass parliament, attention will turn to key ACCC guidance materials that will underpin the new regime, and transitional arrangements that will take effect later in 2025 (including the ability to voluntarily file ahead of commencement) before the regime formally commences in January 2026.