Economic Undertakings

ACCC Complex Merger Review Case Trends for 2021

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).

Although the ACCC reviewed significantly more transactions in 2021 than in any previous year, there was no corresponding increase in SOI transactions.

This does not mean that the ACCC takes a more lenient approach to informal merger approvals. Rather, the small number of SOI transactions reflects the fact that companies have generally made smaller or add-on acquisitions in response to the ongoing effects of the COVID-19 pandemic.

Why are there so few SELFs?

While the ACCC usually publishes around 10 SOIs each year, in 2021 it only considered five transactions that ultimately resulted in an SOI.

We believe that the economic effects of the COVID-19 pandemic have played an important role in this regard.

First, due to upstream disruptions, many companies have sought to secure their supply chain by making vertical acquisitions rather than relying on third-party supply and inputs.

Second, to respond to business uncertainty, companies have sought to diversify their offer through complementary acquisitions.

Third, companies had more 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.

Trends in transactions involving an SOI

Almost all SOIs from last year had amber lights. They were not opposed and did not require any recourse.

While the incidence of red light transactions has generally been higher than amber light transactions in recent years, in 2021 there were four amber light transactions per one red light transaction.

Not all amber lights were opposed and did not require remedy. The only red light transaction was eventually withdrawn by the parties.

Red lights aren’t lethal – since 2006 just under half have been cleared and only a quarter blocked – but the clearing rate is falling.

Since 2006, 45% of all transactions with one or more red lights have been cleared while 25% have been blocked. However, in the last 5 years, only 35% of red light transactions were allowed and 10% were blocked.

Red lights do not mean that recourse is necessary to obtain authorization.

Since 2006, 49% of all transactions cleared with one or more red lights have not required recourse. Consistent with the average, over the past 5 years, 57% of all transactions cleared with one or more red lights did not require recourse.

Parties increasingly tend to withdraw their trades after a red light but before a final decision by the ACCC.

Between 2017-2021, the percentage of red light transactions that were withdrawn before the ACCC’s final decision (55%) almost doubled compared to 2012-2016 (30%).

The vast majority of amber light transactions (no red lights) since 2006 have been cleared, but others are being withdrawn.

On average, 71% of all transactions with one or more amber lights (no red lights) were authorized, while only 11% were blocked. The remaining transactions have been removed. Between 2017-2021, 21% of orange light transactions were withdrawn (compared to 17% over the 2012-2016 period).

Almost all orange light transactions authorized by the ACCC since 2006 have not required recourse.

89% of all amber light transactions cleared did not require corrective action. The remaining trades required corrective action (two divestments, two behavioral and one combination).

The ACCC takes longer to review SOI transactions.

While the average time for the ACCC to make a decision on SOI transactions is approximately 5.3 months, in 2021 the ACCC took approximately 6 months for such transactions.

There are several reasons for this.

First, the vast majority of transactions continue to be cleared by the ACCC without public review or SOI. Transactions that proceed to SOI are complex and time-consuming to consider.

Second, the record number of transactions being considered by the ACCC in 2021 would have resulted in resource and time constraints.

Third, companies have requested urgent clearances for collaborations in response to the COVID-19 pandemic, which has lengthened delays in informal merger approval processes.

Fourth, while the ACCC continues to be willing to use its mandatory evidence-gathering powers to review the competitive effects of a transaction, it is willing to extend the time for compliance due to the COVID-19 pandemic. 19. The ACCC has also experienced delays from market participants due to logistical challenges associated with COVID-19.

Amber light transactions last year took longer than the average red light transaction.

In 2006, the average time taken for an orange light transaction was around 1.8 months, but it has steadily increased to over 6 months in 2021 (a 32% increase from the historical average of 4, 6 months).

The average length of a red light transaction is 5.6 months and slightly longer when corrective action is needed.

The ACCC always prefers assignments to behavioral commitments.

Since 2006, 51% of all red-light transactions required corrective action, of which 55% were disposals. However, since 2015, 60% of all recourses for transactions authorized at the red light have been assignments. These statistics reflect the ACCC’s preference for structural remedies over behavioral remedies.

Significantly, the ACCC has also shown its readiness to take legal action to prevent a transaction from occurring while informal clearance is still under consideration.

In 2021, the ACCC successfully sought an urgent injunction to prevent the merging parties from entering into a transaction while its informal clearance process was still ongoing.

This was the ACCC’s first successful interlocutory injunction in a merger case in 27 years.

Download the full report now.