Opinion: Proposed M&A shake-up threatens more than monopolies
The rushed proposal to reform Australia’s mergers and acquisitions laws, announced earlier this month, has given Rampersand co-founder Paul Naphtali cause for concern. Here’s why.
Australia has always had an uneasy relationship with success and failure. Too much success and you’re a tall poppy, which is only marginally better than being a loser, which can render your persona non grata. Thankfully that culture is starting to evolve and we are in a position where we appropriately celebrate our unicorns, none more so of course than Canva.
However, that can leave us with a very binary view of success (and conversely failure), which, to bastardise George Orwell’s Animal Farm, goes something like “unicorn good, non-unicorn bad”. Of course, we should seek and celebrate the massive success that being a unicorn represents, but having that singular, narrow definition as the only success metric is dangerous.
Many of the OG venture capital funds in Australia are going whole of life, meaning they are reaching the end of their 10-year terms and are needing to decide what to do with the assets left in the fund. Usually, this involves seeking liquidity of some variety, either through secondary sales, like we recently saw with Canva, or through trade sales or IPOs.
More often than not, these crystalising events happen at a sub-unicorn level. Does that mean they are a failure? Absolutely not. They may not have achieved the astronomical returns that VCs classically aim for, but they are often a relatively massive success for the parties involved.
A founder who owns 30% of a $100 million sale just earned generational wealth and can go on to launch their next enterprise. Employees, hopefully also earned a decent payday, and can use this learning experience to accelerate their ideas and careers. And investors have the benefit of liquidity and the confidence to reinvest again and again in the ecosystem.
These ‘mid-market’ exits are a critical element of a mature ecosystem, with talent, capital and energy freed up to go again. Like we saw recently with Sam Kroonenburg, founder of A Cloud Guru which sold in 2021, going again as founder of AI-advertising platform Cuttable (yes, A Cloud Guru was a unicorn, but you get the point).
Merger reforms could stifle innovation, economic growth
One of the reasons I am so bullish on the next decade in Australia is because of this recycling of talent and it’s why the rushed proposal to reform the mergers and acquisitions laws in Australia, announced earlier this month, gave me cause for concern.
The new mandatory notification regime could see every single merger or company acquisition subject to an undefined period of scrutiny by the Australian Competition and Consumer Commission (ACCC). These opaque rules, with vague references to the potential for exceptions, are intended to avoid further monopolistic behaviours amongst Australian corporates (a noble and much-needed objective) but they risk dampening acquisition activity in Australia, at precisely the time the industry should be encouraging more activity.
By imposing excessive scrutiny on mergers and acquisitions, the government risks stifling the very activity that drives innovation and economic growth. This is particularly damaging at a time when we should be encouraging domestic investment and consolidation.
Fast-tracked, piecemeal regulations that start with good intent can have unintended consequences for other parts of the economy. If we look at countries that do innovation well (like the US, UK and Israel), they have a comprehensive approach to supporting startups.
Their approach includes tax incentives for investment, skilled migration and visa options, and a whole range of other things that encourage people and businesses to build up the ecosystem. The corporate sector also has a huge role to play in other markets, such as a customer, investor, and potential acquirer.
At Rampersand, we’ve been investing in Australian startups for 10 years, and in the past five years, more than 90% of buying interest has come from overseas — mainly the US, but also the UK, Europe and Asia. This means most of our innovative creations are heading offshore.
While there is nothing wrong with Aussie companies being bought by international ones, we need a balanced approach that supports both unicorns and mid-market successes. This includes streamlining the merger approval process, providing tax incentives for investment, and creating a welcoming environment for talent to build and grow here.
Australia has a unique opportunity to foster a vibrant and competitive business landscape. By implementing policies that support both our burgeoning tech startups and established mid-market companies, we can create an ecosystem where innovation thrives and economic growth is sustained.
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