Technology industry players have slammed the federal government’s proposed changes to merger laws, arguing they could “kill off the start-up sector” by suffocating acquisitions of firms that fuel investments into new ventures.

Under the proposed changes, acquisitions above a certain monetary and market share threshold must be reported to the Australian Competition and Consumer Commission, which will then review the deal in 15 or 30 days.

If the watchdog has an issue with a deal, it will have another 90 days to determine if it lessens competition or entrenches market power.

The ACCC will also consider all deals done by the target or acquirer in the previous three years when deciding whether to approve or block mergers.

Veteran venture capitalist Daniel Petre said setting the threshold for mandatory notification too low would be “cumbersome and not useful”.

“It is super important to remember that the majority of returns for investors in the sector and the majority of exits for start-ups in the US is through acquisition by larger entities,” Mr Petre said.

“If you stop this you will kill off the start-up sector.”

While the threshold is still to be determined through a consultation process, Anthony Bekker, a lawyer specialising in the technology sector, said thresholds proposed last year were very low.

Mr Bekker, the Asia-Pacific managing director of BizTech Lawyers, said the ACCC reviews and the proposal to charge $50,000 to $100,000 per review would further dampen deal appetite.

“Further, time kills deals. Thirty days is a long time to wait,” he said. “This only benefits lawyers and those future employees of the ACCC who will need to be hired to move all that paper.”

The industry is also fearful the ACCC’s new powers to block deals that will entrench market power will limit the ability of smaller firms to sell themselves to tech giants. For venture capital-backed firms, these exits create returns for investors that are often ploughed back into the start-up ecosystem.

Could have opposite effect

Co-founder and chief executive of Honey Insurance, Richard Joffe, said the proposed changes represented “an overstep” by the government and might have the opposite outcome of protecting consumers.

“Oligopolies can provide consumers with cheaper prices through economies of scale, just as easily as they can abuse that power by reducing competitive options,” Mr Joffe said.

“Ultimately, companies should be treated like individuals whereby they are ‘innocent until proven guilty’. Standing in the way of market consolidation is a dangerous slippery slope that is more of an art than a science despite our best intentions’.”

Tom Smalley, investment director at VC fund Skalata, said the changes would make M&A harder – in particular for smaller bolt-on acquisitions – which would negatively impact Australia’s start-up sector.

“These clean, liquid exits are necessary to recycle capital back through the system to fund the next generation of start-ups.”

“Australian start-ups increasingly rely on M&A for exits because of the ASX’s poor track record with tech IPOs and the bar for listing in the US being very high.”

Rajeev Gupta of Alium Capital Management said many small- to mid-size local technology companies relied on being bought as they often developed features that are valuable but do not scale to become a standalone business.

“We absolutely do not want an Adobe-Figma-type situation where the regulators in the US and EU rejected the deal [for Adobe to acquire another design software firm, Figma], though most operators believe that would have been good from a product and customer standpoint,” Mr Gupta said.

Tech Council of Australia acting chief executive Ryan Black welcomed the decision to reject the ACCC’s proposal to reverse the onus of proof for mergers, putting greater burden on merger parties. The industry group would continue working through consultation.