With the outbreak of COVID-19, the Australian Government moved quickly to prevent foreign investors from rushing to acquire Australian businesses, by introducing a temporary zero-dollar screening threshold for any foreign acquisitions of an Australian business. The government has now proposed that from 1 January 2021, these changes will become permanent in investments in sensitive national security businesses while all other foreign investments will revert to pre-COVID thresholds.
Changes to the FIRB Regulations
The Foreign Investment Review Board (FIRB) previously did not have to review transactions under $1 billion for those countries with a Free Trade Agreement with Australia, or $275 million for all other countries. With this threshold now lowered to zero, the statutory review period has been increased from 30 days to up to 6 months for all applications.
These changes present a real challenge to urgent transactions and acts as a deterrent foreign investors who are looking to purchase Australian companies in the normal course of business.
Is Foreign Investment Still Allowed?
Foreign investment is still possible; however the low threshold and new review period means deals will take a significantly longer time to complete. Applications to the FIRB will need to be submitted as soon as possible to minimise time spent waiting for approval. There is also added pressure on the foreign investor’s due diligence process, with care needing to be taken to ensure the deal will be approved by the FIRB.
Opportunities for Local Acquisitions
This change in regulation has brought one notable positive – Australian businesses are now at the front of the que when it comes to local M&A opportunities. The new FIRB rules do not apply to Australian companies or private equity groups. Local buyers are currently enjoying less competition from foreign buyers and from a deal certainty perspective, they become a more attractive and speedy option.
Exemptions
These changes do not apply to foreign government investors or foreign investors who wish to acquire an interest in Australian media businesses, residential land, mining and production and vacant commercial land. Pre-COVID this threshold was at $0 and was not adjusted with the outbreak of the pandemic. Proportionate ownership thresholds also remain unaffected, with a private owned foreign investor acquiring less than 20% in a non-land rich entity or less than 10% in a land rich entity not needing to seek FIRB approval.
The changes to the FIRB threshold are to remain in place while the affects of COVID-19 persist. The proposed 1 January return to normal levels still remains subject to the volatile nature of the pandemic. Australian investors have a guaranteed window in which they will have significantly less competition and should be actively seeking M&A opportunities. At Quinn M&A our expert team have the knowledge and experience to help you find M&A opportunities and guide you through the regulatory process. Our practitioners have experience in conducting local and international transactions and are available for a free initial consult to discuss your requirements. Call 1300 784 667 to find out more.
