Investor activity and economics in Australia
It appears to be another great year for overseas investment in Australian businesses. We are continuing to see a lot of overseas investor activity, including in the transport, shipping and logistics sectors. Against the US Dollar, the Australian Dollar (valued, at the time of writing, at 0.69 USD) continues to decline and many overseas businesses and their advisors will be looking at Australian businesses with increasing interest.
Significantly, our technology driven businesses, many of which are found in the logistics sector, are maturing and related expertise in Australia is highly regarded.
In particular, we are seeing active levels of acquisition and investment in:
- logistics, freight forwarding and customs broking sectors, as many smaller business owners seek to realise their accumulated goodwill and/or as operators seek to consolidate and leverage technology platforms on a greater scale
- transport infrastructure sector, in large part on the back of the substantial and sustained investment by Australian governments at all levels in significant infrastructure projects.
Finally, we are aware of a number of mooted acquisition and investment prospects within the regional shipping sector, as part of a second wave of consolidation in the mid and lower-level operators.
Acquiring or investing in assets or shares in, or providing unsecured convertible loans to, private Australian companies and businesses is very similar to other common law countries and can be done here quickly and efficiently.
Acquisitions of private Australian company shares and businesses are generally documented primarily by a Share Purchase Agreement or Asset Purchase Agreement, together with specific transfer documents for the relevant share and assets. Often, we can adapt agreements drafted in overseas markets at low cost for use in the Australian market. However, we also have a number of Australian templates which are drafted specifically for our market.
The usual Australian position on warranties and indemnities sits somewhere between typical approaches in the United States and the United Kingdom, but our market understands and can accommodate these approaches. We also use a lot of Warranty & Indemnity Insurance in Australia.
Investments in private Australian companies are frequently documented by Subscription Agreements (including with conditions, warranties and termination rights) and Convertible Loan Agreements (including with usual loan terms, investor rights and share conversion mechanisms).
The affairs of Australian companies and their shareholders are typically managed by Shareholders Agreements (if there are two or more shareholders) and Constitutions. Our Constitutions are similar to Articles of Association (as used in the UK) and reflect or streamline the default requirements of our Corporations Act. These Constitutions often set out the rights of different classes of shares including ordinary shares, redeemable and non-redeemable preference shares and non-voting shares (including shares arising from the conversion of unsecured loans or bonds).
We can tailor Shareholders Agreements specifically to investors’ requirements which often include express rights in connection with the composition of boards, significant decision making, funding, transfers of shares, loans and exits as well as the provision of information to investors. We also take care to ensure that they work well in conjunction with share and option plans.
Limited foreign investment and merger restrictions
In general, proposals to acquire an interest of 20 per cent or more in any business valued at over $266 million (or the higher threshold of $1,154 million for investors from Chile, China, Japan, Korea, Singapore, New Zealand, Mexico and the United States except in sensitive sectors like transport) require prior approval (these amounts are also regularly increased) by the Federal Government. In addition, all “foreign government investors” require approval to acquire an interest in an Australian entity or business (or to start a new Australian business) regardless of the value of the investment (i.e. a $0 threshold). We can prepare and submit the relevant applications for overseas investors, including foreign government investors, quickly and efficiently.
In Australia, business acquisitions or investments are prohibited if they would have the effect (or be likely to have the effect) of substantially lessening competition in a market.
If you consider that a proposed business acquisition or investment may have the effect, or be likely to have the effect, of substantially lessening competition in an Australian market, then we can advise you on the best way to proceed. This is particularly relevant in the shipping and stevedoring sectors, the former of which is coming out of a sustained period of rationalisation and the latter of which is relatively concentrated and the subject of ongoing competition monitoring and a sustained media storm relating to market power to impose landside surcharges.