By Daniel Livingston, Partner, Kathryn Edghilll, Partner and Andrew Mathieson, Paralegal
The key statistics given by the ACCC appear encouraging. The ACCC states that it has met its timing commitments, phase 2 referrals are rare, and almost every waiver application has been granted. Statistics are, however only one measure by which to gauge the success of the new regime. What the statistics don’t reveal, is the practical experience and, in some cases the practical problems experienced by those required to navigate the new regime.
For the ACCC, success comes from the ability to gain advance notice of acquisitions and oppose those that substantially lessen competition. Conversely, success for merger parties is obtaining approval at the lowest possible cost in the shortest possible time. For those advising merger parties success is measured by the correct identification of whether the regime applies, assessment of the competition effects, and guiding the parties through the process.
The recently released data emphasises the ACCC’s measure of success whilst remaining silent on other measures. They also mask what is a fundamental issue, yet to be assessed – which is, has the notification regime overshadowed the only vice it is required to protect, namely, identifying those transactions which have the purpose, effect or likely effect of substantially lessening competition?
A key element of the regime is the threshold requirements for prospective acquisitions. There are two different monetary thresholds, depending on whether the acquirer is a very large corporation (with group revenue of AUD500 million or more and target revenue of AUD10 million or more) or the transaction will result in a large corporation (where the merger parties’ combined group Australian revenue is at least $200 million and either the target’s Australian revenue is at least $50 million or the global transaction is valued at $250 million or more.
Built into each of these thresholds are complex rules requiring aggregation into the target revenue of Australian revenue from acquisitions involving similar goods or services by the acquirer over a three-year lookback period. If those monetary thresholds are met complex provisions also apply where share purchases lift voting power above certain percentages even if there is no change of control, and where an asset transaction does not involve all or substantially all of the assets of the target.
Sounds complex? In practice, the preliminary question of whether the regime applies is often difficult. Determining relevant revenue is rarely straightforward. The three-year lookback captures earlier acquisitions of businesses supplying the same or substitutable goods or services. The question of substitutability often requires a complex legal and economic analysis. This can create difficulties for acquisitive companies and private equity advisers with diversified portfolios.
Acquisitions and investments which provide for future shareholding changes which are dependent on the occurrence of future events can also raise issues, as voting power tests are applied at the contract date. This creates issues where the level of shareholding or voting rights cannot be determined at that point, such as the use of convertible securities. The question of whether an asset acquisition amounts to all or substantially all of the assets of a target can also be similarly uncertain where a target has multiple business streams and there is no simple quantifiable test.
The consequences for failing to identify whether notification is required, and, where it is required, for failing to notify the ACCC, can expose the merger parties to significant financial penalties (up to $100 million) but can also result in an inability to complete the transaction or, if completed, being unwound.
The ACCC statistics place much emphasis on meeting the statutory timeframes imposed on it by the legislation. Prior to the regime’s introduction, the ACCC committed to determining 80 percent of acquisitions within 15 to 20 business days. Through the first six months it determined 92 percent of matters within the 20-business day commitment. Phase 1 determinations occurred in a median of 17 business days, and waiver determinations had a median of 11 business days. This success has occurred despite the large increase in waiver and notification applications.
Those statistics do not address a number of potential issues which can have significant timing and other ramifications for merger parties. Those issues include:
For the six months prior to the introduction of the mandatory regime, notifications were voluntary. During this transitional period, 13 were lodged. From the commencement of the mandatory regime until the date of the ACCC report, this number increased to 145.
Prospective buyers can also apply for a waiver if the acquisition does not give rise to any competition concerns which would require investigation by the ACCC, despite meeting thresholds. During the same period, there have been 286 waiver applications, totalling 431 filings in the half-year.
Waiver applications therefore accounted for almost two-thirds of the ACCC’s case-load across the regime’s first six months. Prior to its introduction, Treasury forecast 50 waiver applications during the same period.
Approximately 95% of these waivers have been granted. By definition, a granted waiver is a confirmation that a transaction did not need to be notified and may proceed to completion. The high volume and grant rate suggests either that the thresholds are capturing the types of transactions which would never be caught by the substantive competition law test of substantial lessening of competition, or that a large share of the applications should not have been necessary.
There are a number of key issues that remain unanswered by the statistics. These include how many transactions are not proceeding due to the time, cost, and intrusiveness of the waiver and notification process. Similarly, whether parties are structuring transactions to avoid notification, hence abandoning the most commercial option.
Part of this may result from the threshold focus on the size of the parties rather than the size of the deal. A quirk of the thresholds is that a large corporate acquiring a small bolt-on falls under the regime, whilst a smaller buyer can complete a much larger acquisition without being subject to it. Serial acquisition compounds this effect, as the ACCC now assesses the cumulative turnover of similar acquisitions over a three-year period.
Of concern for mid-market buyers are the filing fees, which, until a Phase 2 investigation is required, do not scale with transactional value. A waiver costs $8,300, and a Phase 1 notification costs $56,800. Given the 95% grant rate for waivers, these costs are arguably burdensome on small deals captured under the regime’s thresholds. An exemption is available for businesses with aggregated turnover under $10 million.
If an application is referred to Phase 2, it attracts a further fee of between $475,000 and $1,595,000, dependent on transactional value, and a 90 business day assessment period. Both factors substantially inhibit transactions.
Questions also arise as to why there has been such a small number of Phase 2 investigations. Of the 158 Phase 1 notifications received to June 30 2026, six were referred to Phase 2. Three Phase 2 determinations have been made; two were not approved, and one was conditionally approved. While the small number of Phase 2 investigations may be due to the fact that few transactions raise competition concerns, more realistically it is evidence that Phase 2 is too uncertain and costly. Notably, the ACCC does not fully set out its competition concerns until the Phase 2 investigation concludes. A Phase 2 notice leaves the parties to determine what needs to be addressed, and whether it is worth spending significant resources on that assessment,
Finally, the lack of concluded Phase 2 determinations has resulted in a dearth of meaningful competition analysis on which practitioners can rely to assess the ACCC’s likely attitude to a proposed transaction.
Notification is a process, not the end of the journey. The ACCC must still apply the test of whether the acquisition has the purpose, effect, or likely effect of substantially lessening competition. The test needs to be considered before a decision is made regarding waiver or notification, and must be addressed in, the notification. An acquisition that may substantially lessen competition should also be considered for notification even where the thresholds are not met, to avoid the risk of the ACCC seeking to unwind it and the exposure to penalties that follows.
Six months of data demonstrates that the ACCC has been meeting its statutory timing commitments, but receiving far more applications, particularly waiver applications, than anticipated.
For the mid-market buyer, the practical questions are cost and time. Fixed initial filing fees do not scale with deal size, pre-notification engagement sits outside the published time-frames, and Phase 2 requires a substantial financial commitment before the ACCC fully discloses its concerns. The data can be a reliable indication of the ACCC’s administrative capacity, but is a much weaker indication of how the regime is affecting deal activity.
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