It seemed like a savvy deal at the time.
In November 2019, the Sydney-headquartered ASX-listed Objective Corporation bought Feilding-based Master Business Systems for $5.4 million.
While a relatively small-potatoes deal, it gave Objective the chance to corner a small but specialised market: the software that councils use for managing building consents.
The pair did not seek the Commerce Commission's okay.
Competition law expert Andy Matthews says there's nothing wrong with that, in itself.
"We have a voluntary pre-merger clearance regime," he says.
Any deal - from major merger like the mooted Sky TV-Vodafone hookup to one in the single-digit millions - can in fact go ahead without keeping the Commission in the loop with a courtesy letter, or formally applying for clearance.
But snubbing the regulator carries the risk it will commence legal action after the fact, or try to block your deal from happening in the first place by filing an interim injunction.
That's what happened in the Objective-MBS case. In May 2020, the ComCom said it was investigating the deal under section 47 of the Commerce Act - the provision that says an acquisition can be prohibited if it is likely to lessen competition.
On January 21 this year the ComCom said it had filed High Court proceedings against Objective for contravening section 47.
"The commission alleges Objective's acquisition of MBS in 2019 substantially lessened competition in the New Zealand market for the supply of software to building consent authorities for the digitisation of building consent processes," the regulator said in a statement.
The case, which has yet to be scheduled, will be a brief set-piece; a penalty hearing after Objective agreed to settle.
A breach of Section 47 carries a penalty of up to $5m.
The ComCom would not say what penalty it was seeking - or answer other questions, including whether its investigation was sparked by a complaint from one of Objective's competitors or a council. It said it could not do so while the case was before the court.
Objective executive Chris Britton also said he could not comment while the case is before the court.
But in a January 21 ASX filing, his company does reveal it has agreed to pay a $1.54m penalty for a contravention of section 47 (that is not detailed).
Beyond pricing, the ComCom also investigated the likelihood the Objective takeover of MBS would lead to "lowering the quality of either its products or associated services".
Objective addresses this point indirectly in its ASX filing, which said it is adding personnel in NZ and upgrading a key product.
"The majority of New Zealand's councils use Objective's building consent solutions and we are actively hiring to add to our 42 employees at the Objective Centre of Excellence in Palmerston North, where we are developing world-leading products that will continue to be exported globally," it said.
A new cloud-based consenting system called Objective Build will be rolled out this year, it said, "in close consultation with a working group of over 150 building industry participants including councils, home builders, architects, engineers and building product manufactures".
Objective Corporation founder Tony Walls - who holds a 66 per cent stake in the firm - became a billionaire in 2021 as his company's shares boomed.
While MBS was a modest acquisition, Objective's 2020 annual report stated that "the building consent processing solution developed by MBS added a number of new customers in FY2020, including Kāinga Ora [Housing NZ]".
Objective's shares were recently trading at A$14.52 for a market cap of A$1.46 billion.
Watchdog gets bitier
"Since it made it a priority in 2018, the commission has become far more active in monitoring and investigating mergers," Matthews says.
"In some cases this leads to nothing - other than a potentially expensive and concerning investigation. In others, parties will divest before or after proceedings are filed. But that may not be the parties' preferred option."
He notes that Objective is not the first company to be dinged with a penalty after choosing to pursue a merger without clearance. There have been two others:
In 2019, the High Court ordered First Gas Limited to pay $3.4m after it admitted engaging in anti-competitive conduct when acquiring the Bay of Plenty gas distribution assets of GasNet.
And back in 2007 the Court of Appeal upheld a $1.1m High Court penalty imposed by NZ Bus (then owned by Infratil) over its attempted purchase of Mana Coach Services - which the regulator challenged because it said it would reduce bus service competition around Wellington.
At the time, then Commerce Commission chairwoman Paula Rebstock said the case was important for the credibility of the voluntary clearance regime.
"There have been a number of other [cases] where proceedings have been issued by the commission but it was settled," Matthews adds.
"For example, proceedings were issued against Wilson Parking which were ultimately settled."
In 2016, the carpark operator bought the 659-bay Capital carpark in the Wellington CBD without seeking clearance. After customer complaints sparked a Commerce Commission investigation, Wilson agreed to divest its leases on three central Wellington carpark facilities, which accounted for some 850 bays.
Wilson also agreed to pay $500,000 in costs.
The moral of the story: Although the clearance regime is voluntary, your best bet is to keep the regulator in the loop.
"If you look at where the commission has issued proceedings, it seems to have had a relatively high level of success," Matthews says.