ACCC finds evidence to back merger reforms

The Australian Competition and Consumer Commission (ACCC) has said law reforms surrounding mergers and acquisitions governance are “urgently needed” and backed up its claims to the ongoing competition review.

On Friday the competition regulator said its second submission to the review “highlights its concerns with Australia’s current merger laws and how the cost of an ineffective merger regime largely falls on consumers and the economy.”

In August 2023, the Treasurer announced a Competition Review which will last two years aimed at guiding the government on how to improve competition across the economy.

The ACCC’s second merger reform consultation paper [pdf] stated that over the years “the informal merger review process has been the primary mechanism to protect the competitiveness of Australian markets from anti-competitive mergers.”

ACCC chair Gina Cass-Gottlieb said, “Australian consumers, farmers, and small businesses need to have confidence that potentially anti-competitive acquisitions will be scrutinised and if necessary prevented.”

“Without effective merger control, we are all likely to face higher prices, lower quality, less innovation, less choice and lower productivity across the economy.”

“The submission outlines the ACCC’s proposed reforms which, as a package, are effective, balanced and proportionate,” Cass-Gottlieb said.

According to the regulator, in the past, its calls for merger reform saw resistance from various stakeholders who claim a lack of evidence justifying any changes.

But, from research commissioned by the Competition Review Taskforce, there is clear evidence in support of merger reform, strengthening the ACCC’s confidence in its recommendations, the regulator stated. 

The ACCC said the findings show roughly 1000-1500 mergers occur in Australia each year, however, only about 330 are notified to the ACCC under the existing voluntary merger regime.

About half of these mergers are made by the largest one per cent of businesses.

Cass-Gottlieb, who has called for reforms in the past, said, “New data from the Competition Review Taskforce confirms that we are not being told of many mergers taking place, including by Australia’s biggest corporations. 

“In addition, the Taskforce’s analysis shows that larger firms have increased their merger activity over recent years.”

Cass-Gottlieb said, “This means we do not have the chance to consider how they may harm competition and consumers.”

Industries will the most merger activity according to Cass-Gottlieb are from sectors like manufacturing, retail, professional services, and health and social services. 

“For example, we recently found while investigating a separate transaction that Petstock, a speciality pet product and services retailer, had completed a large number of concerning acquisitions in the pet industry that were not notified to the ACCC despite raising significant competition concerns. 

“This matter was ultimately resolved with Petstock committing to sell a significant number of stores,” Cass-Gottlieb said.

Cass-Gottlieb added, “This is particularly concerning given an ongoing and significant increase in market concentration in Australia’s economy over the last decade. This rise in market concentration has brought with it a noticeable weakening of the intensity of competition across a number of sectors.”

The reforms proposed in the ACCC’s report fall in line with other countries and have mandatory notification of mergers above set benchmarks and a requirement to not complete the transaction until approval is granted. 

Waivers for non-contentious mergers were proposed with the ACCC stating that commissioned analysis showed that among the most contested transactions, 60 percent occur in already highly concentrated markets with three or fewer remaining competitors, where consumer harm is more likely to occur.

“Dealing with serial or ‘creeping’ acquisitions has been a long-standing challenge for the ACCC, particularly as it may be argued that each separate acquisition may not trigger current legal prohibitions in our merger laws, but together, and over time, they can result in serious harm to competition,” Cass-Gottlieb said.