Australian merger control reform: new thresholds risk uncertainty and over-capture

On 30 August 2024, Treasury released proposed notification thresholds for Australia’s forthcoming mandatory and suspensory merger control regime, which was announced earlier this year, consulted on in July, and is proposed to commence on 1 January 2026.

Treasury proposes that parties will be required to notify a merger where the target business or asset has material connection to Australia and meets certain revenue or transaction value thresholds, or certain market concentration thresholds. Treasury’s objective is “to ensure the Australian Competition and Consumer Commission (ACCC) is informed of mergers most likely to be anti‑competitive, while minimising the overall compliance burden on businesses”. Our initial view is that the monetary thresholds are likely to over-capture transactions for review and the market concentration thresholds will be challenging to apply in practice, leading to conservative over-reporting from merger parties.

Monetary thresholds

It is proposed that transactions will require notification if they meet either of the following monetary thresholds (and there is a “material connection” to Australia):

• If the combined Australian turnover of the merger parties (including the acquirer group) is at least $200 million, and either the Australian turnover of at least two merger parties is at least $40 million or the global transaction value is at least $200 million.

• If the acquirer group’s Australian turnover is at least $500 million, and either the Australian turnover of at least two merger parties is at least $10 million or the global transaction value is at least $50 million.

The circumstances in which a target business or asset has a material connection to Australia would include where it is registered or located in Australia, supplies goods or services to Australian customers, or generates revenue in Australia.

All acquisitions by an acquirer and its corporate group within the previous three years in relation to the same product or service market/s (irrespective of geographic location) would be aggregated for the purposes of assessing whether an acquisition meets the monetary turnover threshold, regardless of whether those acquisitions themselves would have individually required notification.

Market concentration thresholds

It is also proposed that transactions will require notification if they meet either of the following market concentration thresholds:

• A share of 25% of any “affected” or “adjacent” market, where Australian turnover of at least two of the parties to the acquisition (including the acquirer group) is at least $20 million.

• A share of 50% of any “affected” or “adjacent” market, with a lower turnover requirement of $10 million.

Treasury’s proposal appears to be that the bare acquisition of a greater than 25% or 50% market position would require notification and that no increment to an existing market position would be required. That seems to be designed to capture both horizontal overlaps in merger parties’ products or services (i.e. at the same level of the supply chain), and vertical or conglomerate acquisitions where merger parties have moderate to large positions in “adjacent” markets.

Initial takeaways

• More transactions will require notification. The Treasury anticipated in April that the thresholds would be set such that the overall volume of notifications to the ACCC will be similar to current volumes (approximately 300 per year). This consultation paper appears to substantially increase that estimate (as we predicted). Applying the notification thresholds to historical data, Treasury estimates that between 300-500 acquisitions would require notification each year. Between 2013-2023, the average number of mergers assessed annually by the ACCC was 330. If 500 mergers are to be notified under the new regime (an estimate we still think is likely to be understated), that would represent a 52% increase in the ten-year average. The extra administrative burden on the ACCC and parties will likely result in substantial delays and major teething problems for the new regime.

• Thresholds lower than peer jurisdictions. Treasury’s position is that the monetary thresholds align with international best practice. While overseas jurisdictions have similarly-structured monetary thresholds, the target turnover thresholds in Australia are proposed to be substantially lower than similar thresholds in Germany, Spain, Denmark, Netherlands, France, South Korea and Japan. This suggests that they will capture more transactions than those regimes.

• “Material connection” unclear. It will be critical for the ACCC to provide greater detail about how the jurisdictional nexus test would apply, including the amounts of goods or services supplied to Australian customers or revenues generated in Australia by target businesses that will indicate a “material connection” to Australia. Setting the jurisdictional nexus at an appropriate level of materiality is of central importance. Otherwise, large businesses with significant Australian turnovers may have to notify competitively insignificant acquisitions of overseas targets with tenuous connections to Australia if the transaction values exceed a fairly low $50 million threshold. In view of the substantial penalties for getting it wrong, parties will be incentivised to over-report to the ACCC.

• Market concentration thresholds should be excluded. Treasury is consulting on whether the market concentration thresholds will be determined by reference to the parties’ market share (their proportion of the total market size by sales value and/or volume) or share of supply (the activities of the parties in the areas in which they are both active in Australia or a part of it). While there are a small number of regimes that use market concentration thresholds, they are challenging to apply if they are based on ‘share of supply’ rather than principled and conventional market definition principles. ‘Share of supply’ is a substantially broader and more fluid concept that in the United Kingdom, where it is used as a notification threshold, can include the numbers of workers employed or even IP rights held. That creates substantial uncertainty for merger parties and significant over-reporting. If market concentration thresholds are to be retained, parties should be able to apply them based on principled and conventional market definition principles. A significant bank of ACCC precedent setting out detail on market definitions in a variety of industries will be required so that parties can have reasonable clarity as to how the ACCC will apply this threshold in practice. Developing this precedent base will take time. It will also be important to ensure that the concepts of “affected” and “adjacent” markets are properly defined.

• Options to promote simplification are unclear. Treasury has proposed that the ACCC would be able to grant parties a “notification waiver” within 30 business days of receiving a complete application where there is uncertainty as to whether the notification thresholds are met. Most applications would be listed on the ACCC’s public register, decisions would be published and the parties and certain third parties would be able to seek review. We agree that it will be important to develop some processes to provide for simplification and for the parties to seek advice from the ACCC. However, the notification waiver regime seems unwieldy and uncertain, such that merger parties are unlikely to take advantage of it. First, it will take too long. The notification waiver application process is scheduled to take 30 business days – which is the same length of time as a first-phase decision on notification. Parties will be able to seek a fast-track review in 15 business days and it seems that in edge cases, for example where jurisdictional nexus is limited, parties would be likely to prefer that process. Second, there is no clarity as to how the ACCC will exercise its discretion to grant a waiver, particularly with respect to jurisdictional nexus or market concentration. Third, permitting third parties to challenge notification waiver decisions will deliver incentivised third parties (e.g. underbidders in competitive bid situations) a procedural option to delay transactions. Third parties typically do not have the same information as the parties or the ACCC as to the parties’ turnover or their businesses, and accordingly should not have any level of control over this procedure. Effective confidentiality protections will be essential to protect this process from misuse.

• Sector-specific notification thresholds will add complexity. Treasury proposes that “high-risk” acquisitions would require notification based on separate, sector-specific notification requirements. This raises the prospect of multiple layers of thresholds for parties to consider, and further uncertainty.

The thresholds and process more generally are subject to consultation and may change before the regime comes into force.