On Sunday night, the Treasurer announced further measures to curb panic buying. Not dunny paper this time, but the temporary FIRB changes aimed at the metaphorical queue at our borders of foreign investors, keen to buy up Australian companies. Right now, they are cheap (thank you Australian dollar) and potentially distressed (thank you Coronavirus).

The FIRB customer notice was typically hard to understand, so here is our concise summary:

  • The following investments (not an exhaustive list), no matter the value, require approval of FIRB:
    • an acquisition of shares or units that represents 20% or more of an Australian company or unit trust,
    • an interest in land; or
    • a direct interest in an agribusiness.
  • The timeframe for review of new and existing applications by FIRB has been extended from 30 days up to 6 months.
  • Transactions already underway but not yet completed, that were previously exempt due to the dollar value involved, will now need to seek FIRB approval.

These temporary measures will have flow-on effects, particularly for M&A transactions:

  1. Where multiple bidders are vying for a business, an Australian seller may prefer an Australian buyer (even for a lower bid price) for certainty and speed.
  2. Sellers negotiating with a foreign bidder may need to be prepared for a far longer precompletion period if the deal is conditional on FIRB approval being granted. It's likely that provisions in a sale agreement governing pre-completion conduct of the business will be more heavily negotiated – with the buyer naturally wanting to limit what a seller can do with the business in that time and a seller typically wanting to have as few constraints as possible.
  3. Similarly, material adverse change termination rights will be more heavily negotiated – with a seller wanting to ensure that in a COVID climate a buyer's termination rights are limited as much as possible while waiting for FIRB approval.
  4. The Government has said it will be prioritising urgent applications for investments that protect and support Australian businesses. It's likely that the FIRB will favour transactions that are structured to keep the target business operating and, most importantly, keep Australians in their jobs.

The Government has been clear that this is not an investment freeze. Investment, both foreign and local, will be key to getting Australia's economy up and running again once the COVID-19 crisis has passed, so let's hope that the measures don't stall the Australian market's ability to attract foreign dollars altogether.

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