“Killer” buyouts: Small business acquisitions under Competition Taskforce scrutiny

Acquisition by a major company is the end goal for many small business founders, but the federal government’s new Competition Taskforce promises to scrutinise Australia’s deal-making scene — and the “killer” acquisitions that make it harder for homegrown businesses to flourish on their own.

In a speech to the Chifley Research Centre in Melbourne on Tuesday, Assistant Minister for Competition, Charities and Treasury Andrew Leigh will outline how new data analysis and market oversight will inform Australia’s approach to M&A activity.

Beyond the spreadsheets and number-crunching, the Competition Taskforce’s findings could also influence how mergers take place, and the number of acquisitions scrutinised by the Australian Competition and Consumer Commission (ACCC).

Ultimately, the data provided to the federal government, policy experts, and the public by the Competition Taskforce may have real-world ramifications for small businesses and startups that view an acquisition or merger as their next big step.

Competition, and the ability for market participants to fend for themselves, “provides a check on unbridled profit-seeking by business,” Leigh will say, according to a transcript.

“In a competitive market, innovators can bring new products and services to market, without fear of being shut down by entrenched monopolists.

It also “limits unearned privilege and seeks to treat everyone fairly.

“Competition guides labour and capital to their most valuable uses and combinations, driving productivity that underpins sustainable wages growth.”

All good things for innovative small businesses and startups looking to bring new ideas to the market.

Mergers “aren’t necessarily a bad thing,” Leigh will say, pointing to the way a smart merger can allow businesses to reach new economies of scale, or allow a founder to gracefully exit the business they created.

The problem, according to the data, is how mergers and acquisitions are actually taking place.

Of an estimated 1,000 to 1,500 mergers that take place each year, only 330 are scrutinised by the ACCC, Leigh will say.

Further, data shows the top 1% of firms execute half of all acquisitions.

Limited regulatory oversight is a problem when those M&A activities serve to dilute competition and concentrate market power at a few successful firms.

“For business, a less competitive market can increase the cost of doing business, and reduce the incentives and opportunities to invest, grow and innovate,” Leigh will say.

Focus on ACCC’s merger powers

Leigh’s speech arrives months after the Treasury released a consultation paper that outlined potential reforms to how the ACCC oversees mergers, and invited comment on how the watchdog could do better.

The Competition Taskforce has also sought comments on how acquisitions are covered by today’s competition laws, including “creeping or serial acquisitions… that is a series of smaller acquisitions by large firms which are unlikely to raise alarm bells on their own”.

“There are also so-called killer acquisitions – where a large player, such as a pharmaceutical company, snaps up a smaller competitor with the aim of killing off its products or innovations,” Leigh will say.

Citing data that suggests most mergers fail to meaningfully increase business value, Leigh will contend that boosting Australia’s understanding of the market will help to preserve the value created by entrepreneurs.

“For the sake of shareholders, workers and citizens, it is important to ensure that Australia’s regulatory system is not facilitating value-destroying mergers,” the transcript says.

Leigh will use the speech to outline how the Competition Taskforce will utilise microdata from the Australian Bureau of Statistics, as well as de-identified data from the Australian Taxation Office and IP Australia, to reach its conclusions.

Analysis of merger activity will be handled in collaboration with experts from the Reserve Bank of Australia and the Australian National University.

Instead of “door-stopper” reports, the Competition Taskforce is set to use that data flow to provide a steady stream of insight to lawmakers.

Leigh’s speech closely follows news the ACCC will helm a year-long investigation into pricing at Australian supermarkets, and legislative reforms outlawing unfair contract terms between big businesses and their smaller partners.