Any restrictions on tech companies getting acquired would be bad news for the venture capital investors that back them, and Square Peg Capital co-founder Paul Bassat said Mr Sims’ ideas misunderstood the nature of M&A in the tech sector.
He said the tech market was inherently global in its construct and that when large tech companies made acquisitions, it was almost never about increasing their market share in a specific geographic market. He said competition law should strike a balance between protecting consumers and ensuring that markets could operate freely.
“In Australia, we have struck a good balance between these competing interests and there doesn’t appear to be a sound argument for a significant tightening of competition laws as a broad proposition,” Mr Bassat said.
“The specific policy idea of targeting certain technology platform businesses is dreadful policy. Creating rules that arbitrarily target an individual company, or a small subset of companies, is a bad precedent and creates concerns of sovereign risk for companies investing in Australia.”
He said being acquired was by far the most common way for a successful start-up to create a good return for the founders, employees and shareholders. In an increasingly vibrant global tech marketplace, he said he feared big tech companies would simply avoid Australia as a market to make acquisitions if the rules were perceived as being too restrictive.
Matt Berriman felt the extent of Google’s power when its decision to ban his Unlockd app from its services effectively killed his company on the brink of an initial public offering. He is now in the business of seeking Australian tech companies for acquisition via a big-money US-based SPAC, and said Mr Sims’ proposals were way off the mark.
If you look at Apple, Facebook and Google, they don’t acquire any early or mid-stage businesses any more That was 10 years ago.
— Matt Berriman
He said Mr Frydenberg had been right to be hesitant in supporting “archaic” views of business regulation, and that the new proposals failed to understand how the tech industry operated.
“Rod continues to pretend to take on big tech but is pushing regulations that actually don’t move the needle nor help emerging businesses,” Mr Berriman said.
“The news bargaining code was great, but that was political to appease media companies that give him his platform and was self-serving to government wanting re-election next year, not regulation to assist the wider market.
“If you look at Apple, Facebook and Google, they don’t acquire any early or mid-stage businesses any more, that was 10 years ago. Now they either kill them like Unlockd, or copy them like Instagram copying Snapchat. Rod’s living in 2010 when he first started as chair of the ACCC.”
Carthona Capital partner Dean Dorrell said everyone in business was well aware of the danger of big tech giants suffocating competition, but he feared overreach in the proposed rule changes.
He believed the government should “get out of the way” and reduce interference in the economy for all but the most blatant and extreme cases of concern.
Devil in the detail
“The devil will be in the detail, but every merger in some way reduces competition – and usually that’s for very good reasons and is a crucial principle of capitalism working to rationalise the most efficient use of resources,” Mr Dorrell said.
“I think one should also be very wary of regulators given powers that can be applied in a sweeping and undefined manner. Thresholds and rules should be clearly set out and only enacted after being debated in a democratic way.”
AirTree Ventures partner James Cameron said he understood that competition regulators all over the world were in a tough spot because tech companies and markets moved so fast.
However, he said the relatively glacial pace of regulators meant they were playing catch-up and often showed they were “decades behind” when it came to thinking about the competition impacts of big tech.
“We should welcome the ACCC looking to update laws, but the real challenge is avoiding the sort of regulatory overreach that has the perverse consequence of actually lessening competition,” Mr Cameron said.
“Based on what I’ve seen [of the ACCC proposals], there is a real risk that these new rules have a huge negative impact on the exit opportunities for Aussie start-ups, and hence their ability to grow and raise finance.
“If the tech sector was classified as its own industry, it would be the third-largest contributor to GDP in Australia. So if the ACCC slows down the pace of these start-ups emerging from Australia, the whole country loses out big time. ”
Company founders were also left unimpressed by the suggestion that more hurdles could be placed in the way of them realising a return on their endeavours through a sale.
One founder, who requested anonymity because of discussions taking place with a US tech company about a potential acquisition, said the proposed laws would make local companies less appealing for global tech firms to acquire.
He said a caveat to his criticism would be if the threshold to trigger a review was sufficiently high as not to lead to a review of smaller start-ups and tech companies that were relying on exits to large overseas companies.
“It is already hard enough to get in the queue and wait for the FIRB [Foreign Investment Review Board] to approve a foreign company buying an Australian tech company, so adding ACCC scrutiny as well would be a significant turn-off,” he said.
Nigel Fellowes-Freeman, founder and CEO of recently funded fintech start-up Kanopi, said tech company acquisitions should not be curtailed as they could increase market competition in the longer term.
He said the likely result of tightened M&A rules would be Australian companies relocating overseas when the possibility of an acquisition became apparent.
“Exits actually create more start-ups because they bring a financial return to the founders who use that capital to start new companies, and inspire confidence from investors, which leads to further funding opportunities,” Mr Fellowes-Freeman said.
“We need this to happen in Australia for the full impact of these exits to be realised.”
Sam Pratt, CEO of geospatial construction management software firm Render, said regulators were not equipped to determine if a proposed deal was an “acquire to kill” acquisition, where a buyout was performed simply to eliminate a rival.
“Acquirers themselves don’t know until post-transaction and in many cases, talent is the primary driver and objective,” he said.
“By eliminating judicial checks and balances, this proposed change risks slowing the pace of innovation and high-value job creation at a critical moment in our economy’s development.”
But Mr Sims said it was important to have rules that reflected the outsized power of the big platforms and rejected the idea that any changes would stop Australian tech companies from getting acquired, or put them at a disadvantage compared with companies from other countries.
“This is not going to mean that we will be stopping all of the acquisitions … I think people just exaggerate the effect of these things,” he said.
“It won’t affect Afterpay getting bought out by Mr Twitter, and Europe, the UK, Japan, Korea, Germany have all either got or are moving towards laws [like this].
“We’re not the leader here. Don’t get me wrong, we’re not the laggard either, but there are laws under consideration including in the US that are also going to deal with these issues.”