The competition watchdog’s proposed changes to merger laws would hurt Australia tech companies and lead to entrepreneurs relocating overseas, according to AirTree Ventures co-founder Daniel Petre.
The ACCC’s final report on digital platforms, released publicly on Friday, included a recommendation that it be more strongly considered whether an acquisition was involving a potential competitor, and how much data was being acquired in the process.
The ACCC said this protection was needed to prevent tech giants like Google and Facebook using strategic acquisitions to entrench their market dominance and stifle competition.
A similar recommendation was included in the preliminary report and led to criticisms from Microsoft, DIGI, StartupAus and REA Group, among others.
The recommended legislative changes would require that the “likelihood that the acquisition would result in the removal from the market of a potential competitor” be considered by the watchdog, along with the “nature and significance of assets, including data and technology, being acquired directly or through the body corporate”.
But Mr Petre, a former Innovation and Science Australia board member, says this is the part where the ACCC report “lost the plot”.
He said the government needs to be “very, very careful” when considering any changes to M&A laws.
“Most of the money made by entrepreneurs in the US is from selling their companies to global players like GE, Google and Facebook – the founders and everyone else takes their money and then they go and do it again,” Mr Petre told InnovationAus.com.
“But if now you’re saying that under Australian laws, local companies won’t be able to participate in that, all you’re doing is having entrepreneurs around the world with a chance to monetise their investment and recycle it but not giving Australian entrepreneurs that right.
“Be very careful about how you play this and understand this has been the lay of the land for decades.”
Speaking at the Australian Financial Review’s Innovation Summit on Monday, Google Australia head Melanie Silva said the changes to merger laws would lead entrepreneurs to move overseas.
Ms Silva said that many local companies have an end goal of selling to a bigger player, and that “anything that stifles that is going to be problematic”.
Mr Petre said he is also concerned that the law changes could lead to companies moving offshore.
“If Australian entrepreneurs are locked out of selling or exiting their companies to global players then of course they will leave,” he said.
In its final report, the ACCC said the changes are needed to prevent the tech giants from using strategic acquisitions to squash competition.
“Strategic acquisitions appear to have performed an important role in entrenching Google’s position in search and search advertising. Through a series of acquisitions, Google has obtained further advantages of scope and reduced competition,” the report said.
“Numerous strategic acquisitions by Facebook are also likely to have increased Facebook’s advantages of scope and entrenched its market power,” it said.
While the ACCC can already take into account these factors, the changes make it “clearer that these factors should be taken into account in assessing whether an acquisition has the effect or likely effect of substantially lessening competition”.
The ACCC also wants large digital platforms to agree to a protocol to notify the watchdog of any potential acquisition that may impact competition in Australia with enough time for an inquiry to be conducted.
But the proposal shows a lack of understanding of how the tech industry functions, Mr Petre said.
“The problem with the ACCC report is it is well structured in many areas, but then completely out to lunch in a few areas. We need to be careful about how we think about this, and I think the lack of understanding is concerning,” he said.
“They need to understand that this is a different world we’re in, and understand how this world operates and what we’re solving. Nuance has been lost.”
The ACCC acknowledged some of these concerns in the final report but mostly rejected them.
“The ACCC does not consider that this additional merger factor would result in false positives, or a chilling effect on competition. The ACCC already considers the likelihood of a merger or acquisition reducing competition in a market, both current and potential,” it said.
“As such, this merger factor will put into legislation, and emphasise the importance of, something that is already considered in merger analysis by the ACCC, to merger parties, the Courts and Tribunals.”
The federal government will now conduct a 12-week consultation process before announcing its response to the report by the end of the year.