Executive Order Proposes Big Changes to Federal Procurement
The 2,000 page Federal Acquisition Regulation (the “FAR”) has guided and dictated federal procurement for more than forty years. Periodically, the FAR has been updated to make procurement more efficient and simpler. The Trump administration is now undertaking its own effort with the rollout of an executive order entitled “Restoring Common Sense to Federal Procurement.” It goes without saying that significant changes to the FAR will impact how federal contractors and their subcontractors do business with the federal government.
While changes to the FAR could take some time (though the Executive Order lays out an aggressive timeline, as discussed further below), some changes may come sooner through class deviations. Class deviations can be issued at any time without public comments and may have immediate effect.
What is Staying in the FAR?
The Executive Order provides that the only provisions that should be in the FAR are those required by statute or “or essential to sound procurement.” What falls in the latter category remains to be seen, but will probably be shaped by existing Administration priorities that have been signaled through already-released executive orders impacting procurement.
Recent previous efforts, such as the Section 809 Panel established by the 2016 National Defense Authorization Act (NDAA), proposed comprehensive changes to the FAR, many of which were not adopted because they required Acts of Congress. It remains to be seen how much of this effort will impact Congressionally-required FAR clauses (though the Executive Order seems to explicitly carve those out from consideration for removal).
Congressionally mandated FAR clauses include efforts to protect the supply chain (such as FAR 52.204-25 “Prohibition on Contracting for Certain Telecommunications and Video Surveillance Services or Equipment” implementing Section 889 of the 2019 NDAA) and domestic preferences (such as FAR 52.225-1 “Buy American-Supplies” implementing the Buy American Act). The origins of other familiar clauses are murkier – such as the ability of the Government to terminate for convenience (see 52.249-2), but will probably fall under a clause that is “essential to sound procurement.”
What is Next?
The Executive Order requires that “Federal Acquisition Regulatory Council (FAR Council), the heads of agencies, and appropriate senior acquisition and procurement officials from agencies” amend the FAR within 180 days to include only provisions that are required by statute “or that are otherwise necessary to support simplicity and usability, strengthen the efficacy of the procurement system, or protect economic or national security interests.” This will be a massive effort with far-reaching consequences.
Agency supplemental regulations will also be getting a closer look. As government contractors know well, the FAR overlays the entire regulatory system, but individual agencies are able to issue their own regulatory supplements so long as they do not contradict the FAR. See FAR 1.304(B)(2). Designated agency leads will work the FAR effort to identify and streamline agency-specific regulations. This includes, for example, the Defense Federal Acquisition Regulation Supplement, which is almost as lengthy as the FAR in its own right.
The Executive Order also contains a subset provision aimed at any regulatory clauses not required by statute. That provision suggests amending the FAR to subset those regulations unless specifically renewed by the FAR Council (or the individual regulations themselves). If this comes to fruition, contractors and their supply chains will have to pay close attention to a regulatory environment that will be more dynamic with significant changes coming more frequently as provisions are considered for renewal.
The Executive Order may have far-reaching impacts on companies, including retailers, supporting the nearly $1 trillion government marketplace. We will continue to monitor developments and provide updates when appropriate.
Ten Minute Interview: Bridging M&A Valuation Gaps with Earnouts and Rollovers [VIDEO]
Brian Lucareli, director of Foley Private Client Services (PCS) and co-chair of the Family Offices group, sits down with Arthur Vorbrodt, senior counsel and member of Foley’s Transactions group, for a 10-minute interview to discuss bridging M&A valuation gaps with earnouts and rollovers. During this session, Arthur explained the pros and cons of utilizing rollover equity, earnout payments, and/or a combination thereof, and discussed how a family office may utilize these contingent consideration mechanics, as tools to bridge M&A transaction valuation gaps with sellers.
Mergers and Acquisitions in Australia in 2025
A Recap: Expectations for 2025 Versus Reality to Date
2025 began with optimism that mergers and acquisitions (M&A) activity would continue to increase this year. In Australia and globally, 2024 saw the value of M&A activity increase on the prior year, with many surveys recording cautious optimism for increased deal flow in the year ahead across sectors and regions.
The key drivers of the expected upturn in M&A were the following:
Record levels of dry powder in private capital and private equity (PE) hands.
An expectation of further interest rate reductions.
The benefits of reduced regulation—cutting red tape was a mainstay of the policy promises of many of the political parties elected in 2024’s election cycles around the globe.
Greater political certainty following the unusually high number of elections globally in 2024.
Hot sectors, including technology, especially digital transformation, and artificial intelligence starting to deliver (or not) on its transformative promise, energy transition and financial services.
However, Q1 did not deliver on these early promises in the manner expected. In the United States, the expectations of greater certainty that dealmakers looked forward to because of single-party control of the White House and both houses of Congress was tempered by a lack of clarity on implementation.
Whilst directionally it remained clear through Q1 that significantly higher tariffs will be imposed by the United States on imports from many countries in addition to China, the extent remained unpredictable and the real motivations for introducing them uncertain. Similarly, whilst the new administration’s efforts to remove red tape were eagerly anticipated by many, the pace and extent of executive orders has surprised and is leading to widespread challenge, again undermining certainty.
Citing productivity and wage growth concerns, the Reserve Bank of Australia indicated at the end of March that further target rate cuts were unlikely in the near term.
Then the US “Liberation Day” tariffs were announced on 2 April, and the hopes of a more stable economic and political environment for M&A in 2025 were confounded. The sharp declines in global market indices immediately following their announcement is testament to the significant underestimation of the scope and size of the tariffs initially announced. Pauses on implementation, retaliatory and further tariffs, as well as bi-lateral tariff reduction negotiations, are set to continue to bring surprises for some time. Market sentiment will continue to decline as recessionary fears abound.
Meanwhile, Australia is gearing up for its own federal elections in May 2025, and economists currently predict that interest rate cuts of around one percentage point (in aggregate) are likely over the next 12 months, with the first cut predicted in May.
So, what for M&A in the balance of 2025?
Predictions
Trade Instability
In terms of the political forces shaping Australian M&A, Australia’s federal elections have already been trumped by US tariff announcements.1 We are at the start of the biggest reworking of international trade relations in over a century. With only 5% of our goods exports going to the United States, and (so far) the lowest levels of reciprocal US tariffs applied to Australia, the direct impacts to Australia’s economy are likely to be far outweighed by the indirect effects of the tariffs applied to China and other trading partners. Capital flows, including direct investment, must shift in anticipation of and in response to these changes, but forecasting the impacts on different sectors and businesses (and their effect on valuations) will remain complex for some time, weighing heavily on M&A activity until winners and losers start to emerge.
Foreign Investment
With a weak dollar and a stable political and regulatory environment, Australia will continue to be an attractive destination for inbound investment, not least in the energy transition, technology and resources sectors. Rising defence expenditure around the globe, and AUKUS, remain tailwinds for Australian defence sector investment. We expect further increases in Japanese inbound investment driven by their own domestic pressures. However, a report prepared by KPMG and the University of Sydney2 pours cold water on a further strengthening of interest from Chinese investors, despite the 43% year-on-year increase in 2024, citing Foreign Investment Review Board (FIRB) restrictions on critical minerals and, more generally, a move toward greater investment in Southeast Asia and Belt and Road Initiative countries.
FIRB
Last year, FIRB made welcome headway in shortening its response times for straightforward decisions. The recent updates to FIRB’s tax guidance and the new submissions portal are likely to require front-loading of the provision of tax information by applicants, which should further support a shortening of average approval times. These changes are welcome, as is the introduction of a refund/credit scheme for filing fees in an unsuccessful competitive bid. Whilst these changes will not affect the volume of M&A, they may well facilitate an increase in the speed of execution of auction processes.
Regulatory Changes
Whilst we do not expect the outcome of federal elections to be a key driver of M&A activity in 2025 overall, the slowing of FIRB approvals during caretaker mode and the potential backlog post-election will lead some inbound deal timetables to lengthen in the short term, especially if there is a change in government. In Q2, we expect Australia’s move to a mandatory and suspensory merger clearance regime will have the opposite effect. Even as full details of the new merger regime continue to be revealed, we expect some activity will be brought forward to avoid falling under the new regime at the start of 2026.
Larger Deals
Although surveys report an increase in total transaction value in 2024, they also show there were fewer transactions overall. After the rush of transaction activity in 2021 and 2022, and the proximity to the end of post-pandemic stimulus, it is perhaps too easy to characterise the current environment as one of caution. However, market perception is still that deals are taking longer to execute, with early engagement turning frequently into protracted courtship and translating into longer and more thorough due diligence processes. This favours a concentration on deals with larger cheque sizes, a trend mirrored in Australian venture capital (VC) investing in 2024 and which we see set to continue in 2025.
PE
Globally, PE deal volumes surged in 2024, with Mergermarket reporting PE acquisitions and exits exceeding US$25.3 billion and US$18.9 billion, respectively. There remains an avalanche of committed capital to deploy and a maturity wall of capital tied up in older funds to return. It is these fundamentals that are expected to drive sponsor deal activity, in spite of the ongoing global sell-off in equities. PitchBook’s Q1 results for Oceania PE bear this out. Corporates looking to refocus away from noncore operations or requiring cashflow will continue to find healthy competition for carve outs among PE buyers, and an increase on the relatively low value of PE take-privates in Australia in 2024 is predicted. Family-owned companies with succession issues are also expected to provide opportunities for PE buyers. Nevertheless, we expect more secondary transactions, including continuation funds, will be required to grease the cogs in these circumstances.
VC Exits
The rising prevalence of partial exits via secondary sales is shown neatly in the State of Australian Startup Funding 2024 report.3 Whilst those surveyed still rate a trade sale as their most likely exit, secondaries were next and IPOs were considered the least likely. The report notes 59% of surveyed Series B or later founders said they had sold shares to secondary buyers, and 23% of investors said they sold secondaries in 2024. Following the success of secondaries like that of Canva and Employment Hero, secondaries will continue to provide much-needed liquidity to founders and fund investors alike. There is also a recognition of the value of such transactions in advance of an IPO, because they bring in new investors who may be expected to stay invested longer post-float. With valuations settling following their retreat from pandemic highs, PE acquisitions of Australian venture-backed companies rose in 2024 especially from overseas buyers. With the launch of more local growth funds targeting these assets, we expect that trend to increase.
Footnotes
1. President Trump Announces “Reciprocal” Tariffs Beginning 5 April 2025 | HUB | K&L Gates2. Chinese investment in Australia shifts from acquisitions to greenfield – KPMG Australia3. State of Australian Startup Funding 2024 | Insights
What’s It Worth? Valuing a Business for Sale
If you’re thinking of buying or selling something (anything), it’s important to know the value of that thing. Whether a piece of art, a shirt, a house, or a business.
Perhaps the best definition of the value of a thing is that the thing is worth what a buyer is willing to pay and what a seller is willing to receive for that thing. That’s a tautology, however.
Valuing a business is useful, if not necessary, in a variety of circumstances. Some examples include when a business is seeking a bank loan, when a business’s owners are divorcing (either figuratively or literally), and when a business is getting ready to be acquired (or, from the perspective of the would-be acquirer, when it is a potential target).
This article is intended as a brief introduction to the subject.
It’s important to note that valuation is not a one-size-fits-all process; different methods provide different insights, and the choice of method depends on the specific circumstances and purpose of the valuation. As Megan Becwar, principal at Dispute Economics, puts it, failing to match the intended purpose of the valuation with the correct valuation method for that purpose will likely result in an incorrect (or irrelevant) conclusion of value.
Importance of Accurate Business Valuation
An accurate valuation of a business in the context of a potential M&A transaction is important to a seller because overpricing can lead to a business lingering on the market while underpricing means the owner leaving money on the table. Moreover, a well-substantiated valuation can withstand scrutiny during negotiations, audits, and legal proceedings.
Methods of Business Valuation
There are several approaches to business valuation, each with its own set of methodologies and assumptions. The three primary methods are:
Income Approach: This method is based on the principle that the value of an asset is the present value of its expected future economic benefits. Discounted Cash Flow (DCF) Analysis is a common technique under the Income Approach. It estimates the present value of expected future earnings. This approach is particularly useful for businesses with stable and predictable cash flows.
Market Approach: The Market Approach compares the business to similar companies that have been sold, using industry multiples such as the Price-to-Earnings (P/E) ratio or Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) multiples. It relies on the principle of substitution, suggesting that a prudent buyer would not pay more for a business than the cost of acquiring a similar one. This approach is most effective in active markets with ample comparable transactions.
Asset-Based Approach: This method values the business based on its tangible and intangible assets, subtracting liabilities. It considers the net asset value, essentially calculating the difference between total assets and total liabilities. This approach is often used for companies with substantial tangible assets or those facing liquidation, as intangible assets must be separately valued.
Understanding the nuances between intrinsic and relative valuations is important.
Intrinsic valuation is based on widely accepted academic methods, but assumptions can be manipulated.
Relative valuation, on the other hand, depends on actual market dynamics.
John Levitske of HKA Global notes that these distinctions underscore the importance of both selecting the appropriate valuation method and being mindful of the assumptions underpinning each approach.
Legal Considerations in Business Valuation
Legal factors play a pivotal role in business valuation, influencing both the valuation process and the final assessed value. Key legal considerations include:
Fair Market Value vs. Fair Value: Understanding the distinction between these terms is crucial. Fair Market Value (FMV) represents the price at which a property would change hands between a willing buyer and a willing seller, with neither under compulsion and both having reasonable knowledge of relevant facts. Fair Value, however, is a legal standard often used in shareholder disputes and may not consider discounts for lack of control or marketability. Richard Claywell, Certified Public Accountant, explains that fair market value assumes a hypothetical buyer and seller, while an actual transaction involves real-world negotiations, synergies, and motivations.
Minority Discounts and Control Premiums: A minority interest in a company may be less valuable due to the lack of control over business decisions, leading to a minority discount. Conversely, a controlling interest may command a premium. The application of these adjustments depends on the specific circumstances and the standard of value being used.
Buy-Sell Agreements: Buy-Sell Agreements outline the terms under which a business owner’s interest can be sold or transferred, often specifying the valuation method to be used. Properly drafted buy-sell agreements can prevent disputes and provide clarity during ownership transitions.
Legal Structure and Compliance: The legal structure of a business (i.e., sole proprietorship, partnership, corporation) affects its valuation due to differing tax implications, liability issues, and regulatory requirements. Ensuring compliance with all applicable laws and regulations is vital, as legal issues can significantly diminish a company’s value.
Editors’ Note: Legal structure is also significant for estate planning purposes. See Estate Planning for the Business Owner Series, Part 3: Examples of Business Transfers and Valuations by Andrew Haas of Blank Rome LLP to read more about this.
Financial Considerations in Business Valuation
Financial factors are at the core of business valuation, providing quantitative measures of a company’s performance and potential. Tom Walsh of Brody Wilkinson PC emphasizes the role of due diligence, noting that a buyer will scrutinize everything, from vendor contracts to customer concentration risks.
Key financial considerations include:
Financial Performance: Strong revenue, profitability, and growth prospects enhance value. Analyzing historical financial statements provides insights into the company’s earnings stability and operational efficiency. Potential buyers often scrutinize metrics such as gross margin, operating margin, and net profit margin to assess financial health.
Cash Flow Management: Cash flow is the lifeblood of any business, and its management directly impacts valuation. Buyers focus on free cash flow (FCF) as an indicator of a company’s ability to generate profits and sustain operations. Effective cash flow management can significantly enhance a company’s attractiveness to buyers.
Debt and Liabilities: The level of debt and financial obligations influence business valuation. A company with high debt levels may be considered riskier, potentially leading to a lower valuation. Conversely, a well-managed capital structure with manageable liabilities can enhance valuation by demonstrating financial stability.
Industry and Market Conditions: The external economic environment, industry trends, and market demand play crucial roles in determining business value. A company operating in a high-growth sector may command a higher valuation than one in a declining industry. Investors often look at comparable market transactions to gauge valuation expectations.
Conclusion
By understanding different valuation methods, preparing in advance, and seeking expert guidance, business owners can maximize their company’s worth and ensure a successful transaction. Whether you’re planning to sell now or years down the road, starting the valuation process early is one of the smartest business moves you can make.
To learn more about this topic, view What’s it Worth? Valuing a Business for Sale. The quoted remarks referenced in this article were made either during this webinar or shortly thereafter during post-webinar interviews with the panelists. Readers may also be interested to read other articles about valuation.
This article was originally published on here.
©2025. DailyDACTM, LLC d/b/a/ Financial PoiseTM. This article is subject to the disclaimers found here.
Buying Assets in Bankruptcy: Opportunities, Risks, and Strategies
Introduction
Acquiring assets from a bankrupt company presents unique opportunities for investors, business owners, and legal professionals. Understanding the intricacies of a Section 363 sale process, the role of a stalking horse bidder, and the dynamics of bankruptcy sales is crucial for navigating these complex transactions successfully.
What Makes Bankruptcy Asset Sales Unique?
Section 363 of the US Bankruptcy Code allows a debtor (the company or person in bankruptcy) to sell assets outside the ordinary course of business, typically through a court-approved auction process. This mechanism enables the sale of assets “free and clear” of existing liens, claims, and encumbrances, providing buyers with a clean title.
The section 363 sale process is a public auction. The debtor must market the assets and sell them through a court-approved auction process.
This process benefits buyers by offering:
Expedited Transactions: Bankruptcy courts often prioritize swift asset sales to maximize value and reduce administrative expenses.
Transparency: The auction process’s public nature ensures that all interested parties have access to information, promoting fair competition.
Legal Protections: Court approval of the sale minimizes the risk of future disputes over asset ownership.
However, potential buyers must conduct thorough due diligence to understand the specific terms and any possible exceptions that might affect the sale.
Benefits of Buying Assets in Bankruptcy
Purchasing assets through a bankruptcy sale can offer several advantages:
Discounted Asset Prices: Assets are often sold at reduced prices due to the distressed nature of the sale.
Acquisition Free of Liens: Buyers can acquire assets free and clear of most prior claims. James Sullivan, partner at Seyfarth Shaw, notes that assets bought out of bankruptcy are often priced lower than when purchased through a typical M&A transaction and are acquired free and clear of virtually all liens, claims, and interests burdening the assets.
Court-Supervised Process: The involvement of the bankruptcy court provides a structured environment, reducing the risk of undisclosed liabilities.
Opportunity for Strategic Expansion: Buyers can acquire valuable assets, intellectual property, or business units that align with their strategic goals.
The Role of the Stalking Horse Bidder
A stalking horse bidder is an initial bidder chosen by the debtor to set the baseline bid for the assets. This arrangement establishes a minimum price, encouraging other potential buyers to participate in the auction. The stalking horse bidder often negotiates certain protections, such as break-up fees, to compensate for the risks associated with being the initial bidder.
Often in section 363 sales, there will be an initial ‘stalking horse’ bidder that will perform the initial due diligence on the assets to be sold and enter into an asset purchase agreement with the debtor for the sale of the property, subject to the possibility of higher and better offers being accepted at the auction.
Break-up fees are payments made to the stalking horse bidder if another bidder wins the auction. These fees compensate the initial bidder for the time and resources invested in setting the floor price. The debtor and the stalking horse bidder negotiate these bid procedures and may seek and receive input from others, including secured creditors. Richard Corbi of Corbi Law notes that a bidder might not win the assets despite all their upfront effort if the auction gets competitive.
The Auction Process & Competitive Bidding
The auction process in a bankruptcy sale is designed to maximize the value of the debtor’s assets. Key steps include:
Bid Procedures Approval: The debtor proposes bidding procedures, which must be approved by the bankruptcy court. These procedures outline the requirements for potential bidders and the rules governing the auction.
Marketing the Assets: The debtor markets the assets to attract potential buyers, providing necessary information to facilitate due diligence.
Submission of Qualified Bids: Interested parties submit bids that comply with the approved procedures by a specified deadline.
Auction Conducted: If multiple qualified bids are received, an auction is held where bidders can increase their offers competitively.
Selection of Winning Bid: The debtor, in consultation with creditors and subject to court approval, selects the highest and best offer, considering factors beyond just the purchase price.
Court Approval: A sale hearing is conducted where the court reviews the process and approves the sale to the winning bidder.
Closing the Sale: Following court approval, the transaction is finalized, and the assets are transferred to the buyer.
It’s important to note that the ‘highest and best’ offer isn’t solely determined by the monetary value. Cliff Katz explains that other considerations include the ability to close promptly, contingencies, and the impact on stakeholders.
Risks and Challenges of Bankruptcy Sales
While bankruptcy asset purchases offer attractive opportunities, they come with inherent risks:
Due Diligence Constraints: The expedited nature of bankruptcy sales can limit the time available for thorough due diligence.
Potential for Overbidding: Competitive auctions may drive prices higher than anticipated, potentially reducing the expected value proposition.
Regulatory Approvals: Certain transactions may require approvals from regulatory bodies, which can introduce delays or complications.
Successor Liability Concerns: Although assets are sold free and clear, certain liabilities, such as environmental obligations or union contracts, may transfer to the buyer under specific circumstances.
Financing Challenges: Securing financing for distressed assets can be more complex, requiring lenders to be familiar with bankruptcy processes.
Jonathan Friedland explains that potential buyers of distressed companies often have the ability to influence whether the target company files bankruptcy at all, “Bankruptcy is just one tool among many that are available to a financially distressed company, and many transactions happen in the context of an Article 9 sale, a receivership sale, or an assignment for the benefit of creditors.” Friedland notes that “these other venues each have their relative pros and cons as compared to purchase through bankruptcy.” Editors’ Note: for more information on business bankruptcy alternatives, read Buying Operating Assets from a Distressed Seller and Dealing with Corporate Distress 18: Buying & Selling Distressed Businesses.
Private Sales in Bankruptcy
Not all bankruptcy asset sales involve public auctions. In some cases, a debtor may pursue a private sale, negotiating directly with a buyer without a competitive bidding process. This approach can be advantageous when:
Time Is of the Essence: Private sales can be faster, avoiding the time-consuming auction process.
Limited Market Interest: If the pool of potential buyers is small, a private sale may be more practical.
Confidentiality Concerns: Private negotiations can keep sensitive information out of the public domain.
However, private sales still require court approval, and the debtor must demonstrate that the sale serves the best interests of the estate and its creditors.
Special Considerations for Foreign Buyers
Foreign investors interested in acquiring US assets through bankruptcy should be aware of additional considerations:
Regulatory Compliance: Transactions may be subject to review by the Committee on Foreign Investment in the United States (CFIUS), especially if they involve sensitive industries.
Currency Exchange Risks: Fluctuations in exchange rates can impact the overall cost of the investment.
Legal Representation: Engaging US-based legal counsel is essential to navigate the complexities of the US bankruptcy system.
Tax Implications: Understanding the tax consequences in both the US and the investor’s home country is crucial for effective planning.
Conclusion: Is a Bankruptcy Purchase Right for You?
Acquiring assets through bankruptcy can be a strategic move, offering access to valuable assets at potentially discounted prices. However, it’s essential to approach such opportunities with a clear understanding of the process, associated risks, and legal implications. Engaging experienced legal and financial advisors is crucial to navigating the complexities of bankruptcy.
To learn more about this topic, view Advanced Bankruptcy Transactions / Purchasing Assets in Bankruptcy. The quoted remarks referenced in this article were made either during this webinar or shortly thereafter during post-webinar interviews with the panelists. Readers may also be interested in reading other articles about purchasing distressed assets.
This article was originally published here.
©2025. DailyDACTM, LLC. This article is subject to the disclaimers found here.
Washington State Enacts Antitrust Pre-Merger Notification Act
What Happened: On April 4, 2025, Washington was the first state to enact the Uniform Antitrust Pre-Merger Notification Act (the Act). The Act requires certain parties with a nexus to the state that make a Hart-Scott-Rodino (HSR) filing to also submit the filing to the state’s attorney general (AG).
The Bottom Line: Adoption of the Act requires direct notice of large transactions to the state AG’s office. The Act also promotes sharing of the information submitted among states that have enacted the Act. As more states pass their own versions of the Act, state involvement in the review of such transactions may increase. Recently, some state AGs have taken a more active role in merger enforcement, including filing their own state court cases separately from the federal antitrust agencies. Certain state AGs have also said they stand ready to fill in gaps, if the federal agencies under President Trump become more lenient on antitrust enforcement.
The Full Story: Washington’s law requires a person making a Hart-Scott-Rodino (HSR) filing that (a) has its principal place of business in the state; (b) has annual net sales of 20 percent of the HSR threshold (adjusted annually, currently $126.4 million) of the goods or services involved in the transaction in the state; or (c) is a healthcare provider conducting business in the state, to also submit the HSR filing and attachments to the state AG’s office. The statute requires notice only, does not require payment of a filing fee and does not include additional enforcement powers or impose a waiting period on the transaction before the parties can close (as under HSR). Nor does the statute require both parties to submit their HSR filings to the state AG, as they must under HSR to the Federal Trade Commission (FTC) and Antitrust Division of the Department of Justice (DOJ). The statute authorizes a civil penalty of $10,000 per day of noncompliance. The statute contains confidentiality measures, including exempting the information submitted from the state FOIA law. In certain merger investigations where state AGs join their federal enforcer counterparts (FTC or DOJ), state AGs will request waivers from the merging parties to allow for the federal enforcers to share material obtained from the merging parties (including their HSR filings) with state AG offices. Washington’s law is mandatory and obviates the need for the Washington AG to obtain a waiver to gain access to the HSR filing of a party with one of the above connections to the state.
Washington is the first state to enact the Uniform Antitrust Pre-Merger Notification Act (the “Act”), which was adopted last year by the Uniform Law Commission. Other states have introduced bills with versions of the Act, including California, Nevada, Utah, Colorado, West Virginia, and the District of Columbia. This is in addition to other state laws requiring pre-merger notification (baby HSRs) for certain transactions in the healthcare industry including in California, Colorado, Connecticut, Hawaii, Illinois, Indiana, Massachusetts, Minnesota, Nevada, New York, New Mexico, Oregon, Rhode Island, Vermont, and Washington.
Conclusion: As state-specific pre-merger notification regimes are adopted, state antitrust review of mergers is expected to become more active. During the first Trump administration, several blue state AGs challenged the T-Mobile/Sprint merger after DOJ and several red state AGs settled the case. Also, during the Trump 1.0, the California AG challenged Valero’s proposed acquisition of petroleum terminals from Plains All American Pipeline and obtained a settlement in the Cedars-Sinai/Huntington Memorial Hospital transaction after the FTC declined to take action. Under the Biden administration, the Washington AG and Colorado AG challenged the Kroger/Albertsons merger separately in state courts and chose not to join the FTC (and nine other state AG co-plaintiffs) in the FTC’s case brought in federal court. The New York AG just recently won its challenge of Intermountain Management’s acquisition of Toggenburg Mountain ski resort, a case brought under New York state antitrust law. AGs from Colorado, California, and Michigan have stated that they are committed to take independent enforcement action if warranted regardless of what their federal enforcer counterparts decide to do. Companies need to stay apprised of new state merger filing requirements, as well as increased state antitrust review of transactions. This is especially true for industries that are localized in nature such as healthcare and retail.
Closing Time: Hell, High Water, and Insights from the Delaware Chancery Court Decision in Desktop Metal v. Nano Dimension
Cross-border M&A deals frequently present unique issues and strategic closing considerations for transaction parties to navigate—including national security approvals. In a recent Delaware Chancery Court decision, these issues intersected when the court was forced to weigh national security-related approval conditions imposed by the Committee on Foreign Investment in the United States (“CFIUS”) against the buyer’s stringent contractual closing obligations.
On July 2, 2024, Nano Dimension, an Israeli company, agreed to acquire Desktop Metal, a U.S. company that makes industrial-use 3D printers which produce specialized parts for missile defense and nuclear-related applications. Unsurprisingly, closing the acquisition was contingent upon receiving CFIUS approval due to the sensitive nature of Desktop Metal’s operations. At the conclusion of its review period, CFIUS required Nano Dimension to enter into a national security agreement (“NSA”) outlining several post-closing operational restrictions imposed upon the parties, which Nano Dimension refused to accept as a result of new leadership that opposed the acquisition. Desktop Metal subsequently filed suit to force Nano Dimension to enter into the NSA to obtain CFIUS approval and consummate the acquisition, which the court granted.
Key Findings and Takeaways:
Hell-or-High-Water Provision: A pivotal aspect of the court’s decision was the interpretation of a “hell-or-high-water” clause in the transaction merger agreement. This clause required Nano Dimension to undertake all necessary actions—including agreeing to several enumerated conditions typically requested by CFIUS—to secure approval, subject to limited exceptions (i.e., a condition that would require Nano to relinquish control of 10% or more of its business). The court found that Nano Dimension breached this obligation through both its negotiating posture with CFIUS in relation to the NSA and by delaying the CFIUS approval process.
CFIUS Approval Strategy: Desktop Metal’s operations in critical technology sectors resulted in a complicated CFIUS approval process. The ruling emphasized that transaction parties should be aware of the potential for CFIUS to rely on NSAs impacting post-closing operations to address potential national security risks associated with foreign control.
Contractual Clarity Around CFIUS Obligations: The court’s decision illustrates the importance of clear contractual language detailing the relative obligations of the parties to obtain CFIUS approvals. We recommend that transaction parties carefully consider the implications of CFIUS approval language included in transaction documents:
For example, agreements should clearly delineate what conditions would be considered reasonable mitigation conditions that a potential buyer must accept (e.g., data security practices and auditing mechanisms) and those conditions that would not trigger an obligation to close (e.g., divestment of certain business lines or the use of proxy boards).
The use of clear language outlining stakeholder alignment, permissible negotiation strategies and timing considerations with respect to CFIUS approval also contribute to the likelihood of a better outcome with CFIUS.
The Nano Dimension and Desktop Metal ruling serves as a crucial reminder of the complexities involved in cross-border mergers subject to CFIUS approval and provides valuable insights for practitioners and transaction parties navigating the CFIUS process.
Seller Considerations When Negotiating a Letter of Intent
Negotiating and signing a Letter of Intent (LOI) is a key inflection point in the process of selling your business. Buyers and sellers both want the LOI to ensure a base level of understanding on certain key terms such as price, the structure of the deal, exclusivity, and confidentiality. However, sellers generally want, and should push for, additional details before agreeing to exclusively negotiate with a potential buyer. Below are some of the key items that sellers should ensure they have a full understanding of:
1. Strategic vs. Financial Buyer. Sellers should understand who the proposed acquirer is and what their motivations are for the potential acquisition. Generally speaking, a strategic buyer will focus on synergies between the businesses, gaining a competitive advantage, and/or expanding into new markets. Additionally, strategic buyers will usually offer a higher price than a financial buyer and will likely offer a deal where the purchase price is paid in cash and/or stock of the buyer. Financial buyers, on the other hand, will be more focused on the company’s financial metrics and are more likely to offer a deal that requires financing, includes an earnout, and requires the sellers to roll over a portion of their equity, offering the sellers a proverbial second bite at the apple in a subsequent sale.
2. Indemnity & Representations and Warranties Insurance. The LOI should detail the proposed terms for indemnification of the buyer by the sellers and if Representations and Warranties Insurance (RWI) will be used or not. The indemnification provisions should detail the time period in which claims can be made against the sellers, what the cap on the seller’s liability will be, what escrows will be required, what the deductible or tipping basket will be, and if any of the seller’s representations will be considered fundamental representations (which generally have a longer period of survival when claims can be made and are not subject to the general cap or deductible/tipping basket, meaning the sellers will be liable for the first dollar of any loss and usually have a higher cap on their potential liability with respect to such representations). The use of RWI typically greatly improves the seller’s indemnification package and reduces the amount of negotiation on the scope and substance of the seller representations given in the ultimate purchase agreement. For instance, RWI usually results in a much lower amount of exposure for the sellers (which generally equals one-half of the retention under the RWI policy or up to 0.5% of the total purchase price which is placed in a seller indemnity escrow).
3. Purchase Price Adjustments. In US M&A the standard is for businesses to be purchased on a cash-free, debt-free basis and delivered with a normalized level of working capital. It is common for LOIs to simply leave it there; however, sellers should evaluate if it is favorable to have a bespoke calculation of working capital (i.e. specifically including or excluding certain items) and/or separate credits or adjustments to the purchase price for other items such as tax assets. Additionally, sellers should evaluate if a working capital collar (i.e. a band surrounding the working capital target where no adjustment up or down is made) is appropriate to avoid nickel and diming in the ultimate working capital adjustment. Addressing these points at the LOI stage is more likely to yield a positive result for the sellers as the buyer is more likely to make concessions at this point in order to secure the deal and get the sellers to sign the LOI and agree to exclusivity.
4. Earnout Considerations. Generally speaking, sellers should resist the inclusion of an earnout and instead negotiate for additional upfront consideration as the inclusion of an earnout will greatly increase the costs of negotiating the deal and the likelihood of post-closing litigation. With that said, in some instances earnouts are a necessary tool to bridge valuation gaps and are often used by financial buyers to reduce the amount of cash needed to close the deal. In these instances, sellers should focus on negotiating clearly defined and objective earnout targets and robust protective covenants on how the buyer will operate the business post-closing. Failing to do so at this stage will likely result in targets that are easily manipulated and covenants that offer very little, if any, protection.
a) Target Type. Sellers should push for objective, easily measured metrics such as net sales, revenue, obtaining regulatory clearances or approvals and if possible avoid targets based upon EBITDA, complying with an integration plan or product development milestones tied to the buyer’s determination of a commercially viable product. To the extent an earnout is based on EBITDA, the parties should negotiate the definition of EBITDA tailored to the business being sold.
b) Protective Covenants. In negotiating an earnout, sellers should be mindful that the buyer will control the business following the closing and will strongly resist any restrictions on its ability to operate its new business in a way that it sees fit. As such, it is incumbent on the sellers to push for covenants that protect their interests in the earnout payments. These covenants can include requiring the buyer to operate the business to maximize the earnout payments (or use commercially reasonable efforts to do so), barring the buyer from diverting sales to affiliated companies, and provide for acceleration in the event the buyer sells the company. Additionally, the sellers should push for bespoke covenants that are tailored to the seller’s business and the metrics the earnout is tied to. For example, is a certain level of marketing or R&D spend necessary to achieve the earnout or is maintaining certain distribution and/or supply relationships necessary?
5. Rollover Considerations. It is very common for financial buyers to require the selling shareholders to roll over a portion (usually between 10 to 40%) of their proceeds in connection with the transaction. This serves two primary purposes, first, it reduces the amount of cash the buyer needs to come up with at the closing to fund the purchase price and second, it incentivizes the selling shareholders to continue supporting the business after the closing as they will be looking at another exit in 3 to 7 years at hopefully an increased valuation. In evaluating a rollover, sellers should understand if their business will be the platform business or an add-on to an existing business of the buyer. The sellers should also ensure they are comfortable with the following deal points of their investment in the buyer:
a) Type of Equity. Sellers should push for the equity they are rolling into to be treated pari passu with the equity held by the buyer. While some aggressive buyers may resist this and in some cases require such equity to be subject to vesting, at the end of the day the seller’s consideration (in the form of the rollover) is just as good as the buyer’s cash and should be treated the same and not be subject to forfeiture; however, the rolling sellers can expect their rollover equity to be subject to repurchase by the buyer in the event the rolling sellers are terminated for cause or breach restrictive covenants.
b) Minority Protections. While the scope of the protective covenants a rollover seller can obtain will largely be influenced by the size of their rollover and if they are a platform acquisition or an add-on to an existing portfolio company, at a minimum sellers should push for a bar on affiliate transactions, standard information rights, preemptive rights and tag along rights on the buyer’s ability to exit the platform.
c) Sources and Uses. It is important for sellers to understand how the buyer is financing the proposed acquisition and the size of the buyer’s transaction expenses (which necessarily increase the buyer’s equity check). This is especially true when the sellers are expecting to roll into a certain percentage of equity at the closing.
d) Management Fees. In choosing to go forward with a deal with a financial buyer that includes a rollover, sellers should understand what fees the buyer will charge the company after the closing and how that will impact their potential return on their rollover investment. While not every financial buyer charges fees to their portfolio companies, some do and in the aggregate these fees can be substantial. Examples of the types of fees charged can include, monitoring fees, transaction fees, management fees, and refinancing fees.
6. Exclusivity & Binding Provisions. As we mentioned above, the LOI should ensure a base level of understanding between the buyer and the sellers. It is not meant to lay out every aspect of the transaction and generally should be nonbinding. With that said, it is common for a few provisions of the LOI to be binding on the parties. These usually include what law will govern any disputes, what venue any dispute will be heard in, the confidentiality provision, and the exclusivity provision. In terms of exclusivity, sellers should generally be willing to agree to a certain period of time where it will only negotiate with the buyer (typically ranging from 30 to 45 days). Buyers will often try to build in automatic extensions to that exclusivity period to avoid having to obtain extensions while negotiating the definitive agreements. If the sellers agree to this, they should limit it to one automatic extension. This is because the sellers’ ultimate leverage in any negotiation is that the buyer may lose the deal and having the sellers tied up under exclusivity lessens the sellers’ negotiating position.
Opposition to Renewed COPA Application in Indiana Reveals FTC Leadership’s Views on Hospital Merger Enforcement
The Federal Trade Commission (FTC) recently submitted comments in opposition to a renewed application for a certificate of public advantage (COPA) that would, if granted, allow two hospitals in Indiana to merge despite potential antitrust concerns.
In its submission, the FTC suggested that it had no institutional bias against COPAs but routinely objects because of the price increases, declines in quality, and lower wages that the FTC argues result from most mergers subject to a COPA.
The FTC also said that it takes “failing-firm” defense arguments (i.e., the claim that one of the parties to the transaction will fail unless the merger is permitted) seriously and “never wants to see a valued hospital exit a community.” Furthermore, the FTC stated that it “has not challenged mergers with hospitals that are truly failing financially and cannot remain viable without the proposed acquisition.”
Nevertheless, the FTC noted the potential for cross-market harms as a reason to object to the Indiana hospitals’ COPA application. The FTC identified businesses with employees in counties not directly in the hospitals’ service areas who might be adversely affected by the transaction, the impact on the cost of health care for state employees, and the purported effect on patients insured by Medicare and Medicaid as reasons to object to the proposed application.
FAR on the Chopping Block: Potential Impacts on Protests
As those in the federal contracting community wait anxiously for rumored and hinted at changes to the Federal Acquisition Regulation (“FAR”), we are beginning to evaluate how certain of those changes might most impact our clients. In the first of a series engaging in some mild—or wild, depending on your outlook—speculation about these potential changes, we take a look at how the removal of certain FAR requirements might impact bid protests.
One of the cardinal rules of bid protests is that protests not alleging solicitation improprieties must be filed no later than 10 days after the basis of protest is known or should have been known. 4 C.F.R. § 21.2(b). There is a key exception, however—for procurements under which a debriefing is requested. If requested, a debriefing is required, and the initial protest cannot be filed before the debriefing date offered and must be filed no later than 10 days after the debriefing concludes. In other words, a protester’s timeliness clock does not start ticking until the debriefing concludes.
But what does it mean for a debriefing to be “required,” and does that requirement stem primarily or exclusively from the FAR or from statute? Our understanding is that the FAR re-write currently underway is intended to eliminate non-statutory FAR requirements, which means identifying a statutory basis for FAR clauses will be key to understanding the potential scope of any pending revisions. FAR 15.506 is perhaps the most commonly cited provision creating a “requirement” for agencies to offer debriefings in certain circumstances, but the requirement for a post-award debriefing in certain circumstances is actually established by 41 U.S.C. § 3704, which provides:
When a contract is awarded by the head of an executive agency on the basis of competitive proposals, an unsuccessful offeror, on written request received by the agency within 3 days after the date on which the unsuccessful offeror receives the notification of the contract award, shall be debriefed and furnished the basis for the selection decision and contract award.
Given their statutory origin, debriefings should continue even if removed from the FAR, meaning the Government Accountability Office (“GAO”) protest deadlines would likely remain unchanged for standalone contracts.
Notably, though, 41 U.S.C. § 3704 applies only to contracts. While FAR 16.505 extends the debriefing requirements of FAR 15.506 to procurements for orders under multiple award contracts where the value of the order exceeds six million dollars, there is no statutory requirement to provide debriefings for task order procurements, regardless of their size. Accordingly, if both FAR 15.506 and 16.505 were removed, protests of task orders would have to be filed no later than 10 days from when the basis of protests was known or should have been known, while protests for standalone contracts under FAR Part 15 would continue to be governed by the debriefing-triggered timeliness requirements.
GAO has repeatedly held that only a “procurement statute or regulation” can make a debriefing “required”; agency policy is insufficient. As a result, only Congress would be able to remedy the dichotomy between timeliness triggers for contracts and task orders created by the removal of FAR 16.505, unless the administration changed course on the regulation.
This dichotomy would also extend to the contents of debriefings, at least for civilian agencies. While FAR 15.506’s minimum requirements for the contents of debriefings mirror those outlined in 41 U.S.C. § 3704, FAR 16.505 has no statutory impetus. Accordingly, agencies would not be required to provide any information to offerors after award of a task order. It is unclear if the FAR rewrite project will extend to agency supplements, including the Defense Federal Acquisition Regulation Supplement (“DFARS”), but it’s worth noting that the enhanced debriefing procedures outlined in the DFARS were statutorily mandated by the 2018 National Defense Authorization Act and therefore may be required even if cut from the DFARS.
If—again, hypothetically—Section 16.505 was removed from the FAR, there could be a drastic reduction in the number of task order-related protests or in their likelihood of succeeding. Under the Federal Acquisition Streamlining Act (“FASA”), the Court of Federal Claims (“COFC”) lacks jurisdiction to hear protests challenging the issuance or award of a task order. And unlike at COFC, protesters at GAO are not entitled to the full evaluation record in response to their protest. Rather, GAO will require the production of documents related only to the specific protest grounds filed. Without a debriefing, task order protesters may struggle to identify sufficient bases of protest to receive portions of the record that reveal errors. This could reduce their likelihood of success and generally discourage task order protests.
Of course, debriefings aren’t the only things on the chopping block for FAR 2.0. Agency-level protests could disappear entirely. While GAO and COFC each have jurisdiction established by statute, agency protests have no such basis. The agency-level protest process was established by FAR 33.103 in a response to Executive Order 12979 issued by President Clinton in 1995. If FAR 33.103 did not survive into the next iteration of the regulations, protesters would have no option to raise their challenges with the procuring agency. Although agency protests may be at risk, GAO is both statutorily mandated and has its governing regulations located in a different section of the Code of Federal Regulations from the FAR—which would likely spare it from significant shakeup.
The Dealmaking Slowdown: A Time for Startups to Prepare
As the slowdown in dealmaking continues, both buyers and sellers are left to consider their options moving forward during this period of extreme uncertainty and market volatility. To put the current slowdown in perspective, EY had previously forecasted M&A activity to rise by 10% this year.[1] However, they recently adjusted that outlook, saying the M&A market entered a “watchful phase” in February of this year. Their data shows a downturn in the number and total value of deals of more than $100 million. The volume of those deals dropped by 5.9 percent YoY and 19.5 percent from just January of this year, and combined deal value also fell 53 percent YoY and 34 percent from January.
Whenever we see this kind of significant pause in dealmaking, buyers typically have the advantage, but not always. There are certain dynamics that can vary based on industry, the nature of the assets, and, of course, macroeconomic factors. Below, we look at the balance of power between buyers and sellers during a slowdown and how each side can best position themselves for success when conditions improve.
Who Has the Upper Hand?
Most of the time, the buyer is going to have the upper hand in this kind of situation. When there are fewer people willing to buy, those who are can often negotiate much more favorable terms. Buyers can also be highly selective, taking their time to conduct thorough due diligence on their targets and consider all options available. When the economy is in turmoil, it can also present an opportunity for buyers to target distressed or capital-constrained businesses.
While sellers are not usually in the driver’s seat when dealmaking is lagging, there are some opportunities for them to still have leverage. This is particularly true if they have an especially unique proposition or a high-performing and proven concept. There are also some areas that tend to be recession-proof or continue to grow despite contributing economic factors. Those startups who might have the best leverage are those who are not under pressure to sell as they can either wait until deal activity picks back up or negotiate more aggressively for more favorable terms.
What Can Sellers Do Now?
When it’s slow out there, sellers should make sure their fundamentals are solid. Focusing on cash flow and operational efficiencies can help to demonstrate a strong foundation to potential buyers, as well as looking at growth strategies that can move the business forward. It is also important for sellers to look at ways they can extend their runway. When mergers and acquisitions slow down, VC funding often follows suit. This means it is critical that startups ensure they have ample capital reserves to wait out the dealmaking doldrums until more favorable market conditions emerge.
Most importantly, sellers must remain consistently deal ready. The global economic and geopolitical factors that are contributing to this downturn are shifting rapidly, and that means that there could be an uptick in deal activity at any time as trade deals are struck, the markets stabilize, or conflicts and tensions are eased. While this will not happen overnight, founders should be ready to make a move when the timing and the buyer are right. Buyers will no doubt be using this time to do their diligence, so they are ready to move fast when conditions improve and look at the kinds of strategic investments that best fit their long-term goals. Founders would be wise to establish the kinds of connections today that will allow them to execute their exit plans once deals start flowing again.
[1] https://sgbonline.com/ey-ma-outlook-signals-cautious-us-deal-market/
Australian Mandatory Merger Clearance: Regime Details starting to Emerge – Government publishes Draft Determination, ACCC publishes Draft Guidelines
On 28 March 2025, the Australian Government (the Government) published its draft Determination providing the beginnings of detail about the acquisitions that are the subject of mandatory notification, some of the exceptions to notifications, the position regarding supermarket acquisitions and the draft notification forms.
On the same day, the Australian Competition and Consumer Commission (ACCC) published its draft merger process guidelines, following on from its earlier analytical, and transition guidelines.
This Insight is part of a series of publications designed to guide clients through the upcoming Australian mandatory merger clearance regime, as the details becomes available.
In Brief
Whilst this Insight focuses on the key definitions in the Government’s draft Determination, We will shortly publish additional articles focusing on the ACCC’s draft guidelines. The determination:
Confirms or defines the types of acquisitions that are the subject of the regime.
Clarifies that the test for whether an acquisition is to be notified is based on the turnover of the acquirer and the target – and no other measure.
It then clarifies that the relevant measure of turnover of each of the acquirer and the target is the current Goods and Services Tax (GST) Turnover of the relevant entity and connected entities (being associated entities and controlled entities).
As a practical matter, this means the following for parties seeking to enter into negotiations for mergers and acquisitions (M&A), including considering the broader meaning of “acquisition”, at an early stage of the proposed acquisition or deal:
The acquirer needs to, for the purposes of ACCC Notification, consider the turnover of itself and the target;
The acquirer needs to calculate the GST turnover for the 12 months up to the date of the signing (and notionally at the commencement of negotiations) of both itself, including connected companies, plus, the GST turnover of the target (and its connected entities in the case of acquisitions of shares), to seek to calculate the AU$200 million or the AU$500 million threshold;
The above calculation will also be relevant to the calculation of the AU$50 million or AU$10 million threshold; and
The acquirer needs to consider the market value of, or consideration for, all the shares or assets the subject of the transaction for assessment of the AU$250 million transaction value threshold.
The same assessment in respect of serial or creeping acquisitions is set out below.
It provides detail about exceptions from notification under the regime, namely acquisitions:
Of land in certain circumstances;
By liquidators/administrators etc;
In the context of succession; and
Of financial securities, exchange traded derivatives, in money lending situations and in trust circumstances.
Mandatory notifications in the case of acquisitions by Coles or Woolworths.
The information requirements in Notification Forms – short and long-form.
In More Detail
As previously mentioned, the Government recently released the exposure draft of the Competition and Consumer (Notification of Acquisitions) Determination 2025 (Determination) and related draft explanatory memorandum.
Additionally, on 28 March 2025, the ACCC published its draft merger process guidelines, building on its earlier draft analytic guidelines and transition guidelines.
As clients are focused on what amounts to a notifiable acquisition and if a transaction is notifiable, and what information is required to be provided to the ACCC, this insight focuses on the Determination. We will shortly publish a follow-up insight focusing on the process of interaction with the ACCC both informally and once a formal application is made.
What is an Acquisition
The Determination confirms that acquisitions are mandatorily notifiable in the following circumstances:
The acquisition is of shares in the capital of a body corporate or assets;
The shares or assets are “connected with Australia”;
The acquisition satisfies the combined acquirer/target turnover test on the contract date or the accumulated acquired shares or assets turnover tests (set out in more detail below); and
The acquisition is not covered by the exceptions.
We elaborate on these issues below, apart from confirming that the term “assets” is very broad, including:
Any kind of property;
Any legal or equitable interests in tangible assets such as options for land, leases etc;
Any legal or equitable right that is not property or intangible assets such as intellectual property, goodwill etc;
Any interest in an asset of a partnership, or an interest in a partnership that is not an interest in an asset of the partnership; and
Interests in unit trusts and managed investment schemes.
What is an Acquisition That is “Connected to Australia”
An acquisition is notifiable if it meets the thresholds (below) and it is an acquisition of shares or assets connected with Australia. This means in relation to:
A share: the share is in the capital of a body corporate that carries on business in Australia or intends to carry on business in Australia; or
An asset that is an interest in an entity: the entity carries on business in Australia or intends to carry on business in Australia.
How the Turnover Tests are Assessed
General or Economy Wide Turnover
The general or economy wide turnover test for mandatory notification is as follows:
The acquirer or acquirer group and target have a combined Australian turnover of at least AU$200 million; and either
The Australian turnover of the target is at least AU$50 million (for each of at least two of the merger parties); or
The global transaction value is at least AU$250 million.
The Determination has clarified how the turnover is to be calculated:
In relation to the acquirer or target turnover test, if the sum of all of the following is AU$200million or more:
The current GST turnover of each of the principal party or acquirer, together with each connected entity of the principal party;
Where the target acquisition is in shares of a body corporate, the current GST turnover of the body corporate and each connected entity of the body corporate; and
Where the target is an asset, the current GST turnover of the target attributable to the asset,
AND
In relation to the target, the acquired shares or assets turnover test is the sum of all of the following is AU$50 million or more:
Where the acquisition is in shares in a body corporate, the current GST turnover of the body corporate together with the current GST turnover of each connected of the body corporate; and
Where the acquisition is of an asset, the current GST turnover of the target to the acquisition to the extent that is attributable to the asset.
In relation to the above:
Connected entity meaning an associated entity as per section 50AAA of the Corporations Act, and any entity controlled by the principal party as per section 50AA of the Corporations Act; and
Current GST turnover (which is well understood by business given it is used by business to report the value of their taxable and GST free supplies) has the same meaning as section 188-15 of A New Tax System (Goods and Services Tax) Act.
In relation to the assessment of the AU$250 million transaction value, an acquisition will meet this threshold if the greater of the following is AU$250 million or more:
The sum of all market values of all of the shares and assets being acquired as part of the contract or arrangement; or
The consideration received or receivable for all of the shares and assets being acquired as part of the contract or arrangement.
As a practical matter, this means the following for parties seeking to enter into negotiations for M&A, including considering the broader meaning of “acquisition”, at an early stage of the proposed acquisition or deal:
The acquirer needs to, for the purposes of ACCC Notification, consider the turnover of itself and the target;
The acquirer needs to calculate the GST turnover for the 12 months up to the date of the signing (and notionally at the commencement of negotiations) of both itself, including connected companies, plus, the GST turnover of the target (and its connected entities in the case of acquisitions of shares), to seek to calculate the AU$200 million threshold;
The above calculation will also be relevant to the calculation of the AU$50 million threshold; and
The acquirer needs to consider the market value of, or consideration for, all the shares or assets the subject of the transaction.
Very Large Corporate Group Turnover
The very large corporate group turnover test for mandatory notification is as follows:
The acquirer or acquirer group (i.e. the principal acquirer party and each connected entity) have a combined Australian current GST turnover of at least AU$500 million; and
The Australian current GST turnover of the target (the same approach to the assessment being the same as above) is at least AU$10 million (for each of at least two of the merger parties).
The Assessment of Serial or Creeping Acquisition
An acquisition satisfies the AU$50 million or AU$10 million threshold for accumulated acquired shares or assets turnover test for notification if:
The acquisition is of shares or assets; and
The principal acquirer or each connected entity have acquired other shares or assets in the three years ending the date of entering into the agreement or arrangement; and
Both the current acquisition (of shares or assets) and the previous acquisition, related directly or indirectly to the carrying on of a business involving the supply or acquisition of the same or substitutable or otherwise competitive with each other (disregarding geographic factors or limitations); and
The acquisition of the previous shares or assets and the current shares or assets, if treated as a single acquisition would satisfy the AU$50 million or AU$10 million acquired shares or assets turnover test; unless
The current GST turnover of the target of the current acquisition (and as relevant connected entities) is less than AU$2 million.
Exceptions to the Requirement Make a Mandatory Notification
In addition to the exception to the requirement to notify in respect of acquisition of partial shareholdings that was included in the amending Act, the Determination sets out that acquirers are not required to notify in the following circumstances:
Certain Land Acquisitions
Land acquisitions made for the purposes of developing residential premises; and
Acquisitions by businesses primarily for engaging in buying, selling or leasing land, where the acquisition is for a purpose other than operating a commercial business on land (i.e. the exemption is for property development or operating a property development business rather than operating a commercial business on the premises).
Liquidation, Administration or Receivership
An acquisition by a person in the person’s capacity as an administrator, receiver, and manager, or liquidator (within the meaning of the Corporations Act).
Financial Securities
An acquisition that results from a rights issue, a dividend reinvestment and underwriting of fundraising or buybacks, or an issue of securities (as per the Corporations Act).
Money Lending and Financial Accommodation
An acquisition of shares or assets that is a security interest taken or acquired in the ordinary course of business of the person’s business of the provision of financial accommodation (as long as the person whose property is subject to the security interest is not an associate of the acquirer).
Nominees and Other Trustees
An acquisition of an asset, that is an interest in securities, by a person as a bare trustee, if a beneficiary under the trust has a relevant interest in the securities.
Exchange-Traded Derivatives
An acquisition of an asset in the form of exchange-traded derivative and if at the time, the derivative confers an equitable interest in a share or assets, the acquisition of that equitable interest.
Notification Requirements for Coles and Woolworths
The Determination requires Coles and Woolworths (major supermarkets) and connected entities to make a notification for any acquisition of shares or assets that results in:
Coles or Woolworths acquiring in whole or in part, a supermarket business (a supermarket business as defined in section 5 of the Competition and Consumer (Industry Codes – Food and Grocery) Regulation 2024; or
Coles or Woolworths acquiring a legal or equitable interest in land (in whole or in part), either existing land that has a building with a gross lettable area of 700sqm or if it does not have an existing building, the land is 1,400sqm,
UNLESS
The acquisition is not the extension or renewal of a lease for land upon which Coles or Woolworths was already operating a supermarket on the land.
Notification Forms – Information and Documentary Requirements
The Determination sets out the requirements for each of Short-Form Notifications (for acquisitions that were unlikely to raise competition concerns) and Long-Form Notifications (for acquisitions that required greater consideration of their effect on competition).
The Determination sets out in more detail the requirements and form of each of these notification forms, but in brief, the following are required (identifying the additional requirements for long-form application):
Documents
The final or most recent version of the transaction documents (including sale and purchase agreements, heads of agreement, offer documents/letters of intent and any other agreements between the transaction parties related to the acquisition);
For each party, the most recent audited financial statements and income statements that relate to the supply of goods or services most relevant to the competition analysis; and
An organisational chart to show structure of ownerships of each party and connected entities.
In addition, for Long-Form Applications, documents from each of the parties prepared for or received by the Board, Board Committee, or equivalent (possibly Executive or senior leadership team), or the shareholders meeting within the three years prior to the date of the notification regarding:
The rationale for the acquisition, including the business case for the acquisition or divestment;
The assessment of acquisition including the valuation of the target; and
Industry reports, market reports etc provided to the Board or equivalent within the previous three years describing competitive conditions, competitors, market shares and business plans (unrelated to the acquisition).
Information
The party names, contact details and law firms representing the parties;
An overview of:
The goods or services supplied (or acquired) by the parties, including brands, most relevant to the acquisition;
The transaction or transaction structure;
The rationale for the acquisition;
The consideration for the acquisition; and
If relevant, any foreign filings relevant to the transaction.
Tables for each of the parties setting out:
Connected entities in each of the previous three years; and
Acquisitions made by the parties (including connected entities in each of the last three years);
Details of the competitive effects of the acquisition, including:
The relevant goods and services and the geographic areas in which they are supplied;
The other key suppliers of the goods/services;
The markets that are affected and estimate of market shares (by volume, capacity or turnover in each of the previous three years); and
The contact details of the five closest competitors, five largest customers, five customers closest to the median spend of customers.
Additional Requirements for Long-Form Applications
Details regarding barriers to entry including:
The costs of entry or the infrastructure required to supply the relevant goods or services and time required to put these in place, as well as the extent of these costs that are sunk or not recoverable;
Other barriers such as access to inputs, intellectual property issues, legal and regulatory requirements, customer switching costs and time required to “win” contracts, and overall revenues to achieve minimum viable scale; and
The entry of new competitors, as well as the exits in the previous three years.
The long-form application requires significant additional information for different types of transactions – horizontal and vertical acquisitions etc.
Other relevant information, particularly:
Identifying any goodwill protection provisions and the reasons that these provisions are necessary to protect the goodwill of the purchaser.
The Government has foreshadowed additional Determination, with the Determination itself having “placeholders” regarding waiver applications and the Acquisition Register – which unfortunately will now not be progressed until after the Federal election.
We are happy to provide additional details on any of the above issues.
We will also shortly publish additional Insights focusing on the ACCC’s Guidelines.