Recently, the Australian Competition and Consumer Commission (ACCC) opposed the $1.5 billion takeover of Healius by Australian Clinical Labs.

In providing its reasoning, the ACCC stated that the proposed acquisition would be “likely to result in a substantial lessening of competition”, as it would combine two of the three largest providers of pathology services in Australia. Significantly, the combination of these two providers would result in them operating more than 50% of approved pathology collection centres in Australia.

Although Australian Clinical Labs can challenge the ACCC’s decision, the decision highlights the importance of considering the merger control provisions under the Competition and Consumer Act 2010 (Act) for Mergers and Acquisitions within the Australian market.

What does the ACCC consider for proposed transactions?

Under the Act, corporations and individuals are prohibited from acquiring any shares or assets of another corporation or assets of a person which would or is likely to substantially lessen competition in any market. In deciding whether to oppose the transaction, the following factors are considered:

• the actual and potential level of import competition in the market;
• the height of barriers to entry to the market;
• the level of concentration in the market;
• the degree of countervailing power in the market;
• the likelihood that the acquisition would result in the acquirer being able to significantly and sustainably increase prices or profit margins;
• the extent to which substitutes are available in the market or are likely to be available in the market;
• the dynamic characteristics of the market, including growth, innovation and product differentiation;
• the likelihood that the acquisition would result in the removal from the market of a vigorous and effective competitor; and
• the nature and extent of vertical integration in the market.

What is the process of having a transaction approved by the ACCC?

There are two avenues available to have a proposed merger or acquisition considered and assessed by the ACCC:

1. the parties can seek an informal review to obtain the ACCC’s view on whether the proposed transaction is likely to have the effect of substantially lessening competition; or
2. the parties can formally apply to the ACCC for authorisation for the proposed transaction.

Although there is no mandatory requirement to notify the ACCC of a transaction, this is encouraged where:

• the products of the merger parties are either substitutes or complements; and
• the merged firm will have a post-merger market share of more than 20% in the relevant market/s.

This review process usually takes around 6-12 weeks but may be up to 6 months for more complicated cases. It is important to consider this review process when developing a timeline for a proposed transaction.

Does the ACCC need to be notified of all mergers?

Although this is a voluntary process and parties are not legally required to notify the ACCC or receive their clearance prior to proceeding with a transaction, failure to do so may result in the ACCC investigating the merger or acquisition after the fact.

If the ACCC does investigate after the fact and finds that the transaction does substantially lessen competition, the parties may be found in breach of the Act. In this case, the ACCC may seek an injunction to prevent or unwind the transaction as well as fine companies up to $50 million and individuals ‘knowingly concerned’ in such breach up to $2.5 million.

On 31 January 2024, the ACCC made a second submission to a Treasury inquiry into Australia’s merger laws, calling for an “urgent reform”. Specifically, that Australia should adopt a mandatory notification requirement for mergers above specified thresholds and a requirement that transactions be suspended from completion without clearance from the ACCC. Although the thresholds have not been determined yet, the ACCC Chair Gina Cass-Gottlieb has foreshadowed that it could be based on the size of the proposed transaction, the size of the business being acquired (globally and/or in Australia), or a combination of these factors.

This proposed reform would align with many other international markets, as the ACCC highlighted that Australia was one of only three countries within the OECD that has a voluntary regime.  We will keep you updated as this topic develops.

How we can help

If you’re considering a merger or acquisition where consideration needs to be given to the impact on competition in your market, please contact our MK team for support in developing a regulatory clearance strategy and clear timelines.

The information contained in this article is general in nature and cannot be relied on as legal advice nor does it create an engagement. Please contact one of our lawyers listed above for advice about your specific situation.