What ECEC operators must know about the landmark merger reform bill

The Australian childcare sector remains in focus for corporate dealmakers following the recent introduction of the Australian Government’s merger reform Bill.

As the multi-billion dollar sector continues to evolve and consolidate following several high-profile acquisitions and in the wake of the release of the Australian Competition and Consumer Commission’s (ACCCs) Childcare inquiry, childcare owners and operators in the corporate space need to be aware of the upcoming changes and prepare for added scrutiny. 

What are the changes?

Following a lengthy public consultation process, the highly anticipated Treasury Laws Amendment (Mergers and Acquisitions Reform) Bill 2024 (Bill) was tabled in the Australian Parliament on 10 October 2024.

Marking a shift from the current voluntary ‘informal’ notification system, the existing framework will be replaced with a mandatory and suspensory administrative system for mergers and acquisitions that meet certain notification thresholds, with the ACCC as the first instance administrative decision-maker.

This means that a transaction involving early childhood education and care (ECEC) operators which falls within the new regime must be notified to the ACCC and cannot be completed without the regulator deciding that the transaction can proceed.

Subject to the passage of the Bill, the new laws will come into effect from 1 January 2026, but voluntary notification will be available to merger parties from 1 July 2025.

The new provisions will apply to acquisitions by persons, partnerships, units trusts and corporations of shares, assets, control of a business, units in unit trusts and interests in managed investment schemes.

However, the acquisitions provisions will not apply to internal restructures or reorganisations, acquisitions which do not result in control, and those that are unlikely to impact Australian markets. 

Notification thresholds

The Bill introduces mandatory notification obligations requiring ECEC merger parties to notify the ACCC if their transaction meets at least one of the notification thresholds (or the class determinations set by the Minister) and when there is a material connection to Australia (i.e. the parties are in the country, or supply goods and/or services in Australia).

The government has announced three key notification monetary thresholds:

1. economy-wide monetary threshold: A single economy-wide monetary threshold focused on large mergers which will apply to acquisitions where the Australian turnover of the combined businesses is above $200 million, and either the business or assets being acquired has Australian turnover above $50 million or global transaction value above $250 million
2. very large acquirer threshold: Lower thresholds will apply for very large businesses with Australian turnover of more than $500 million that are buying a smaller business or assets with Australian turnover above $10 million
3. serial acquisitions threshold: All mergers by businesses with combined Australian turnover of more than $200 million where the cumulative Australian turnover from acquisitions in the same or similar goods or services over a three-year period is at least $50 million, or $10 million if a very large business is involved.

If a party fails to notify about a deal that meets the thresholds, the transaction will be declared void and the existing (and significant) penalties under the Competition and Consumer Act 2022 will apply (being $50 million, three times the value of the benefit or 30 per cent of a corporation’s annual turnover over the period the breach occurred, whichever is greater, for body corporates and $2.5 million for persons).

Expanded substantial lessening competition test

The ACCC will assess notified acquisitions by applying a modified ‘substantial lessening of competition’ test. This is significant for ECEC operators, as acquisitions within a geographical area might be barred if the ACCC believes the deal will lessen competition. 

Waiver notification process

The merger reforms provide for a new notification waiver process to remove the obligation for businesses to notify in appropriate cases, for example, in acquisitions that have minimal competitive overlap or no vertical integration.

Upon application, the ACCC will determine if an acquisition is not required to be notified based on the likelihood that the acquisition would meet notification thresholds and whether it would substantially lessen competition.

Confidential review processes

To balance the commercial realities of commercially sensitive acquisitions, the new regime contemplates a confidential review process for certain acquisitions including for surprise hostile takeover bids involving the acquisition of shares in a body corporate. 

Rights of review

The new regime adopts a limited merits review process to the Australian Competition Tribunal of determinations made by the ACCC under the new regime. This enables the Tribunal to ‘stand in the shoes’ of the original decision maker and make its own findings of fact, and reach its own decision based on the information presented before the ACCC.

Transparency

The ACCC will maintain a public register listing all mergers notified to it (save for hostile takeovers) and set out its findings on material facts and the reasons for all merger decisions. It will also provide details of the theory of harm and the matters for further review with its written notice on the investigation when progressing the acquisition from phase one to phase two.

Next steps

If the Bill is passed, these new reforms will represent a major and fundamental change in Australia’s approach to merger control under the competition law. 

While the Bill is still before Parliament, the ACCC has published a Statement of Goals for Merger Reform Implementation outlining the goals and objectives in delivering the Australian Government’s merger reforms. The regulator has also signalled an intention to consult and publish new guidelines for businesses, the community and interested stakeholders.