We are pleased to share with you the 6th edition of our report on recent trends in complex informal merger clearance decisions made by the Australian Competition & Consumer Commission (ACCC).
While the ACCC considered substantially more transactions in 2021 than in any previous year, there was no corresponding increase in SOI transactions.
This does not mean the ACCC is taking a more lenient approach to informal merger clearance. Rather, the small number of SOI transactions reflects the fact that businesses generally made smaller or complementary acquisitions in response to the ongoing effects of the COVID-19 pandemic.
While the ACCC ordinarily publishes around 10 SOIs each year, in 2021 it only considered five transactions that ultimately proceeded to SOI.
We think the economic effects of the COVID-19 pandemic played a significant role in this.
First, as a result of upstream disruptions, many companies sought to sure up their supply chain by making vertical acquisitions rather than rely on third party supply and inputs.
Secondly, in order to respond to business uncertainty, companies sought to diversify their offering through complementary acquisitions.
Thirdly, companies had greater opportunities to make “failing firm” acquisitions.
All of the above types of transactions are less likely to raise serious competition concerns than, for example, horizontal transactions in concentrated sectors.
Almost all SOIs last year had orange lights. They were not opposed and did not require any remedy.
While the incidence of red light transactions have generally been higher than orange light transactions in recent years, in 2021 there were four orange light transactions compared to one red light transaction.
All orange lights were not opposed and did not require a remedy. The one red light transaction was ultimately withdrawn by the parties.
Red lights are not fatal – since 2006 just under half have been cleared and only one quarter blocked - but the clearance rate is declining.
Since 2006, 45% of all transactions with one or more red lights have been cleared while 25% have been blocked. In the last 5 years however, only 35% of red light transactions have been cleared and 10% have been blocked.
Red lights do not mean that remedies are required to obtain clearance.
Since 2006, 49% of all cleared transactions with one or more red lights have not required a remedy. Consistent with the average, in the last 5 years, 57% of all cleared transactions with one or more red lights have not required a remedy.
There has been an increasing tendency by parties to withdraw their transactions after a red light but before a final ACCC decision.
Between 2017-2021, the percentage of red light transactions that have been withdrawn before the final ACCC decision (55%) has almost doubled compared to 2012-2016 (30%).
The large majority of orange light (no red lights) transactions since 2006 have been cleared, but more are being withdrawn.
On average, 71% of all transactions with one or more orange lights (no red lights) have been cleared while only 11% have been blocked. The remaining transactions were withdrawn. Between 2017-2021, 21% of orange lights transactions were withdrawn (compared to 17% in the period 2012-2016).
Almost every orange light transaction that has been cleared by the ACCC since 2006 did not require a remedy.
89% of all cleared orange light transactions did not require any remedy. The remaining transactions required remedies (two divestitures, two behavioural and one combination).
The ACCC is taking longer to consider SOI transactions.
While the average time for the ACCC to make a decision for SOI transactions is approximately 5.3 months, in 2021 the ACCC took around 6 months for such transactions.
There are a few reasons for this.
First, the substantial majority of transactions continue to be cleared by the ACCC without public review or SOI. Those transactions that proceed to SOI are complex and take time to consider.
Secondly, the record number of transactions considered by the ACCC in 2021 would have resulted in resource and time constraints.
Thirdly, companies sought urgent authorisations for collaborations in response to the COVID-19 pandemic which in turn extended the timelines for informal merger clearance processes.
Fourthly, even though the ACCC continues to be willing to use its compulsory evidence gathering powers to consider the competitive effects of a transaction, it has been prepared to extend the time for compliance due to the COVID-19 pandemic. The ACCC has also experienced delays from market participants due to the logistical difficulties associated with COVID-19.
Orange light transactions last year took longer than the average time for red light transactions.
In 2006, the average time taken for an orange light transaction was around 1.8 months but this has steadily increased to over 6 months in 2021 (a 32% increase from the all-time average of 4.6 months).
The average time for a red light transaction is 5.6 months and slightly longer where remedies are required.
The ACCC still prefers divestitures over behavioural undertakings.
Since 2006, 51% of all red light cleared transactions have required a remedy, 55% of which have been divestitures. Since 2015 however, 60% of all remedies for red light cleared transactions have been divestitures. These statistics reflect the ACCC’s preference from structural remedies over behavioural remedies.
Significantly, the ACCC also showed that it was prepared to take legal action to prevent completion of a transaction while informal clearance was still being considered.
In 2021, the ACCC successfully sought an urgent injunction to prevent merger parties completing a transaction while its informal clearance process was still running.
This was the first successful ACCC interlocutory injunction in a merger case in 27 years.
Download the full report now.
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