Proposed notification thresholds for M&A transactions under Australia's merger control reforms

On Friday 30 August 2024 the Australian Government released for comment its much-anticipated mandatory merger notification thresholds, adding a key detail to the proposed mandatory merger regime announced earlier in the year.

Background

In April 2024, the Federal Government announced a package of significant reforms to Australia's merger control regime, with an exposure draft of the proposed legislation released in July. For the first time, Australia will have a system of mandatory notification to the Australian Competition and Consumer Commission (ACCC) of proposed mergers. Parties will be prevented from proceeding with a notifiable transaction until it has been cleared by the ACCC.

Under the new regime, due to commence on 1 January 2026, an acquisition must be notified to the ACCC if:

• there is a material connection to Australia and any one of the monetary or market concentration thresholds is met; or
• it is a "high-risk" acquisition, as determined by the Minister.

Notification thresholds

Treasury's Consultation Paper sets out its proposed design and values for the notification thresholds, which are based on international experience and Treasury's analysis of the ACCC's historical public merger review data. Treasury is seeking feedback on the proposed thresholds by 20 September 2024.

Each of the proposed monetary and market concentration thresholds have two limbs, and a merger that satisfies a limb of either threshold must be notified to the ACCC. The Minister will also be granted a power, subject to evidentiary and consultation requirements, to implement by legislative instrument additional targeted notification requirements (for instance, based on particular markets, an asset or class of assets).

The proposed thresholds are set out below.

An acquisition will be notifiable if at least one of the monetary or market concentration thresholds limbs are met and there is a material connection to Australia
Monetary thresholds	Limb 1 Combined Australian turnover of merger parties (including acquirer group) 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	OR	Limb 2 Acquirer group Australian turnover 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
OR
Market concentration thresholds	Limb 1 Combined share of the merger parties is at least 25 per cent AND  Australian turnover (including acquirer group) is at least $20 million for each of at least two of the merger parties	OR	Limb 2 Combined share of the merger parties is at least 50 per cent  AND  Australian turnover (including acquirer group) is at least $10 million for each of at least two of the merger parties

A business or asset will have a material connection to Australia if, for example it is registered or located in Australia, supplying goods or services to Australian customers or generating revenue in Australia.

For the purposes of the monetary thresholds only, all acquisitions by the acquirer within the previous three years within the same product or service market/s (regardless of geographic location) will be aggregated.

For the purposes of the market concentration thresholds, Treasury is considering two options: market share (based on a defined market) and share of supply (based on sales activities of the acquirer and target, without reference to a defined market).

Impact

The Federal Government estimates that 300-500 of the approximately 1,500 M&A transactions that occur each year would be notifiable.

A key focus of the reforms is to capture certain types of M&A transactions that are not being adequately considered under Australia's current regime. Considering the proposed thresholds and commentary from both the Federal Government and the ACCC, we foresee that the following types of M&A transactions will be subject to greater regulatory scrutiny:

• serial small acquisitions, which individually do not create material changes to market concentration but form part of consolidation strategies;
• acquisitions by significant market participants of small businesses, which may pose a serious competitive threat in the future (e.g. innovative businesses); and
• expansions into related markets, particularly in the digital and technology sectors.

For more information in relation to the proposed merger control reforms, please contact one of our experienced mergers & acquisitions lawyers