THE new M&A approvals regime that was put in place last January carries with it eye-watering filing fees of such magnitude that the national dealer body believes will stand in the way of many dealer acquisitions.

According to a report by BDO Australia prepared for the Australian Automotive Dealer Association and presented to the Treasury (see previous articles) the costs of the regime “are disproportionate”.

BDO Australia said in its report that an initial application for a waiver seeking exemption from ACCC scrutiny of the deal (that it will not lessen competition in the market) costs $8300 in filing fees plus substantial legal preparation costs. 

If the ACCC raises a red flag and the approval goes to the next step (described as Phase 1) the fees rise by an additional $56,800.  If it goes to Phase 2, depending on the value of the deal it will cost an additional fee of between $475,000 and $1,595,000. The fee for a Public Benefits Phase is $401,000

BDO said that these fee had the potential make a buy-sell deal unviable “but where the target is selling due to poor financial performance and a lack of available capital, these costs represent a material and potentially deal-breaking impost” especially when the legal and other professional fees generated by the process are added to the cost. 

BDO said in the report that it has “observed instances of legal  costs running to more than the cost of the notification fee itself”.

It said the filing fees combined with significant legal and other advisory costs “represent a disproportionate and potentially deal-prohibitive impost on regional and small operator transactions, where enterprise values may be as low as $2 million to $5 million”.

BDO said the fees would have “a cooling effect on viable transactions”.

It added that the new notification regime does not merely impose costs on transactions that proceed, it will deter transactions from being pursued at all. 

It said that the following effects are anticipated:

• Deal fatigue and withdrawal: For a small family seller who has agreed a price with a buyer, the revelation that the transaction cannot proceed for five to twelve weeks, during which the deal is publicly disclosed on the ACCC register, creates conditions for renegotiation or buyer withdrawal.
• Buyers in competitive markets may lose interest or identify alternative opportunities during the waiting period.
• Price impact on sellers: The cost of ACCC compliance falls primarily on the acquirer (who must file and pay fees) but this is commercially priced into the deal thus reducing the effective consideration received by the seller. For a family exiting a business they have built over decades, this is a real and inequitable outcome.
• Franchise surrender as an unintended outcome: If no viable acquirer is prepared to absorb the regulatory cost and delay, the selling dealer may have no option but to return the franchise to the OEM. The OEM will then seek to appoint a new dealer. This will create a gap in customer access and service during the transition period that may last twelve months or more.
• Constraint on necessary transitions: This report has set out that the Australian automotive industry is at a watershed moment. Operators who cannot achieve scale, diversification and operational efficiency will exit. The new regime risks constraining the very transactions (small-to- mid-tier acquisitions) that would allow that rationalisation to occur in an orderly, consumer-friendly manner.