Australia’s merger rules aren’t up to scratch, ACCC chair says, with new proposal likely to flow to SMEs

Australia’s competition watchdog is advocating for new rules which would allow it to screen potential corporate mergers before they take place, saying extra checks and balances will protect the economy from anti-competitive behaviour and steer large incumbents from amassing market-defining power.

In a speech to the National Press Club on Wednesday, Australian Competition and Consumer Commission (ACCC) chair Gina Cass-Gottlieb said the current system is inadequate to protect the market from damaging mergers.

Currently, businesses do not need to notify the ACCC of their plans to merge. Businesses pursuing a merger can seek the ACCC’s view beforehand through informal assessments or more rigorous authorisations, but those systems are voluntary.

This means the ACCC is tasked with pursuing Federal Court orders to unwind allegedly anti-competitive mergers after they have already taken place.

The ACCC is now “finding that businesses are pushing the boundaries of the informal regime,” Cass-Gottlieb said.

“Given that there are no up-front information requirements for an informal review, merger parties are increasingly giving us late, incomplete, or incorrect information.

“An increasing number are threatening to complete their transaction before we have finalised our review,” she added, meaning the ACCC is forced to ‘negotiate’ with merger parties for access to relevant information.

Picking up the torch left by former ACCC chair Rod Sims, Cass-Gottlieb fears the current system is ill-equipped to stop mergers likely to have material affects on competition from getting off the ground.

Under a proposed new model, the ACCC “would not clear a merger unless it is satisfied that the transaction is not likely to substantially lessen competition,” she said.

Enhanced testing, including amendments to the so-called “SLC test” would also come into play.

Its wording could “make it clear that the substantial lessening of competition test includes ‘entrenching, materially increasing or materially extending a position of substantial market power’,” she added.

The thresholds for what constitutes a fair merger would adjust based on the size of the transaction and the scale of the companies involved.

Big competition reform, small business outcomes

While the proposed formal clearance model and testing regime is clearly aimed at the big end of the Australian market, any new merger rules would trickle down to smaller businesses and startups.

Cass-Gottlieb said the process of enhancing innovation through increased competition — a task of significant interest to regulators and lawmakers, and evidently includes merger rule adjustment — will “affect Australian consumers and small businesses.”

In big picture terms, making it tougher for major businesses to merge could keep small businesses in the fight for market share, and the lack of absolutely dominant players could convince entrepreneurs that establishing their own competitor is worth the effort.

The rules, if amended, could also affect startups actively courting acquisition by larger enterprises.

Cass-Gottlieb said the ACCC’s proposal “would also assist with addressing concerns about creeping acquisitions – the accretion of market power through a strategy of small serial acquisitions that may not amount to a substantial lessening of competition on their own.

“While this is an issue across the economy, this has been a particular concern in digital platform markets.”

For Australia’s flourishing startup realm, this means a major tech firm with a defined pattern of corporate pick-ups could draw further scrutiny from the ACCC before its next local startup acquisition.

Albanese government sympathetic to competition focus

Those changes would require significant legislative reforms, but some signs from Canberra indicate a sympathy to the cause.

The ACCC’s broad ideals have been championed by today’s lawmakers, including Assistant Minister for Competition, Charities and Treasury Andrew Leigh, who said competition-related barriers to new business formation are of keen interest.

“If you’ve got an economy in which large firms have a leg up over their competitors, because it’s hard for new businesses to get going, then that’s an economy that’s likely to need that sort of market dynamism that we would like to see,” Leigh told SmartCompany last week.

“In corporate strategy, they call this building a moat around your business.

“As the former competition tsar Rod Sims points out, one company’s moat can be an industry’s uncompetitive practice.”

Reflecting the government’s openness to reform, Leigh said he is “very aware of the need to ensure that firms aren’t using regulatory lockouts or other sharp practices in order to prevent new entrants.”

The implications of the ACCC’s proposal, for the startup scene, including its ‘creeping acquisitions’ plan, are yet to be fully mapped out.

However, Leigh indicated the Albanese government is hopeful Australia’s competition settings will have local founders “thinking about starting and starting a business as readily as people in the famously entrepreneurial areas like Silicon Valley and Tel Aviv.”