Smoothing the Path: M&A transactions in Australia

M&A legal work in Australia covers a vast range of business transactions of all shapes and sizes.

During 2018 there was a substantial increase in inbound, domestic and outbound Australian M&A activity, increasing by almost 80 per cent to USD155.9billion by early December according to published data.

Materials, energy and power and healthcare are the sectors attracting most overseas attention, together with high growth technology. Deals involving targeted Australian Stock Exchange-listed companies last year include KKR’s offer for accounting software MYOB, Affinity Equity Partners’ acquisition of Scottish Pacific and Pacific Equity Partners’ acquisition of LifeHealthcare. In addition, there is considerable M&A activity of a smaller value, with overseas companies active in the services and manufacturing areas, as well as considerable investment in agribusiness.

Most of the M&A transactions that Shiff & Company are retained to assist with are of a value that does not involve the Australian government approvals. However, there are many large transactions involving intending offshore purchasers that do require approval by the Australian Commonwealth Government Foreign Investment Review Board (FIRB), which considers whether large offshore acquisitions are in the national interest.

The FIRB regime

The FIRB regime is set out in the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FIRB Act) and regulations supported by guidance notes and policies published by the Australian Treasury. The FIRB Act and regulations are intended to protect the control of only large scale infrastructure such as pipelines and telecommunications and mining and agricultural businesses.

The FIRB examines certain specified foreign investment proposals and advises the Australian Treasurer on national interest implications. FIRB can issue approvals of proposals that are submitted to it.

The FIRB Act defines ‘foreign persons’ generally as an individual that is not ordinarily resident in Australia, a foreign government or foreign government investor, a corporation, trustee of a trust or a general partner of a limited partnership where a foreign person holds a substantial interest of at least 20 per cent. It also includes a corporation, trustee of a trust or a general partner of a limited partnership in which two or more foreign persons hold an aggregate substantial interest of at least 40 per cent.

Real estate

It should be noted that regulation placed on the acquisition of Australian real estate, both residential and agricultural has substantially increased over the past few years. the thresholds for obtaining approvals by the FIRB for such real estate have been lowered considerably. In 2018 the threshold for the purchase of agricultural land by foreign purchasers was reduced from AUD252million to AUD15million. Sellers are now required to advertise farm holdings for 30 days before foreigners can purchase. Foreign buyers can also be blocked by the Australian Treasurer and there are comprehensive and strict FIRB guidelines to assess whether a bona fide agricultural business is being acquired.

Last year the Prime Minister rejected a bid by a majority Chinese-owned consortium for the large outback cattle holdings of S Kidman & Co.

In November 2018, the Commonwealth government, after review by the FIRB which expressed concerns, rejected an AUD13 billion bid by a Hong Kong company, CK Group, to buy the Australian APA Group and its dominant gas pipeline network. The Commonwealth Treasurer announced that the bid was not in the national interest.

Transaction types

There are regulated threshold investment levels and government policies that apply to each of the types of transactions that are briefly described below:

• Australian Entities and Business (Not Land Rich or Agricultural): There is special regulation of sensitive industries such as media and financial sector companies.
• Australian Land and Land Rich Entities: There are various categories and thresholds for newly built and existing residential real estate, commercial and agricultural land and policies pertaining to each.
• Agriculture: There are strict and comprehensive FIRB regulations and policies for agricultural land and agribusiness.
• Mining: Acquisitions of interests in mining tenements and land associated with oil and gas production will be notifiable as an acquisition of an interest in Australian land.

The Australian competition regulator, the Australian Competition and Consumer Commission (ACCC), also provides approval for certain substantial local acquisitions and mergers that may be deemed to lessen competition.

By way of a recent example, in a recent proposed local transaction, the ACCC raised concerns relating to the proposed acquisition by waste company Bingo Industries Limited, an ASX listed company, of Dial-a-Dump, a Sydney company that provides waste processing and landfill services to the building and demolition industries. The ACCC considered whether the divestment by Bingo of a Sydney waste treatment plant would be sufficient to address potential competition issues.

What we offer

Most of Shiff & Company’s work is on behalf of local and offshore companies that seek to grow by acquisition or divestment of local or international businesses.

The firm provides a full range of M&A legal services and assists in the conduct of all aspects of legal due diligence (including IP), negotiation of deal term sheets and the drafting and review of transaction documents through to the closing of the transaction. It also provides advice in relation to government foreign investment regulation and assists with deal structuring, negotiation and review of finance facility agreements and preparation and review of finance securities.