Under the Commerce Act, an acquisition that would have, or would be likely to have, the effect of substantially lessening competition in a market is prohibited. Commerce Commission clearance is voluntary — and the voluntariness is where businesses get into difficulty.
Why voluntary does not mean optional
Not seeking clearance does not make a problematic acquisition lawful. It means you have proceeded without certainty.
The Commission can investigate a completed acquisition, and the remedies available include divestment — being required to sell what you bought, frequently at a worse price than you paid, having already integrated it.
For a transaction with genuine competition issues, that outcome is considerably worse than the cost and delay of clearance.
When to think about it
The question is whether the acquisition substantially lessens competition in a market. Practical indicators that it warrants advice:
- You are acquiring a direct competitor.
- The market has few significant players, which in New Zealand is common.
- The combined business would have a high share of a definable market.
- Barriers to entry are high, so a new competitor could not easily replace the one being removed.
- The target is a disruptive or maverick competitor whose removal changes market behaviour more than its share suggests.
- You are making a series of small acquisitions that cumulatively consolidate a sector.
That last one matters more under a strengthened regime. Individually small transactions that add up to consolidation — the creeping acquisition pattern — have been a focus of reform.
Market definition drives the answer
The analysis turns on how the market is defined, in both product and geographic terms. A business that looks dominant in a narrow definition may look modest in a broader one, and vice versa.
In New Zealand, geographic definition frequently does the heavy lifting. A business with a small national share can have a very high share in a region where it is the only supplier, and regional markets are real markets for competition purposes.
The process
Clearance applications require substantial information about the parties, the markets, competitors, customers and the rationale for the transaction. The Commission consults market participants — competitors, customers and suppliers — which means the transaction becomes known.
That consultation is worth planning for. Customers and staff learning about a transaction through a Commission enquiry rather than from you is a poor way to manage it.
Timeframes vary with complexity. Build them into the transaction with conditions and realistic dates rather than optimistic ones.
Gun-jumping
A separate and under-appreciated risk. Acting as though a merger has completed before clearance — or before completion — can itself breach competition law.
Conduct to avoid between signing and completion:
- Sharing competitively sensitive information — pricing, customer lists, margins, strategy — without appropriate protections.
- Coordinating pricing or commercial strategy.
- Integrating operations or systems.
- The acquirer directing the target’s day-to-day commercial decisions.
Clean team arrangements, where a limited group receives sensitive information under restrictions, are the standard way of managing integration planning without the risk.
Document the rationale
A transaction with genuine efficiency justifications — scale, capability, expanding into an adjacent market — is assessed differently from one whose principal effect is removing a competitor.
Internal documents matter. Board papers and emails describing the transaction as eliminating competitive pressure are discoverable and unhelpful, regardless of what the formal application says. Say what you mean in internal documents, and mean something defensible.
Beyond competition law
Where an overseas person is acquiring, the overseas investment regime may require consent for sensitive land or significant business assets above a threshold. The definition of overseas person catches New Zealand-incorporated companies with sufficient offshore ownership or control, which surprises people.
Consent takes time and acquiring without it is unlawful, so it needs to be established before an agreement rather than during due diligence.
The Commerce Commission publishes merger guidelines, clearance processes and past decisions free at comcom.govt.nz. Past decisions are the most useful guide to how market definition and competitive effects are actually assessed.
General information only, not legal advice. Take competition advice early on any acquisition of a competitor.
