The Australian Competition and Consumer Commission (ACCC) has highlighted concerns with MYOB's proposed acquisition of Reckon's Accountant Group for AU$180 million, fearing the former might gain a market monopoly as a result.
The ACCC's preliminary view is that the proposed acquisition is likely to substantially lessen competition in the supply of practice software to medium and large accounting firms, the ACCC's Statement of Issues [PDF] explains.
"The ACCC understands that medium to large accounting firms require more sophisticated features from practice software, reflecting larger sizes, more complex structures and processes, and more diverse needs of their clients," the ACCC wrote.
"Market feedback indicates that for those firms, the MYOB AE and Reckon APS products are generally considered to be the only options available.
"Market feedback indicates that practice software products from other suppliers are mainly designed for smaller accounting firms and do not provide many of the more sophisticated features generally required by medium to large firms."
Additionally, ACCC Commissioner Roger Featherston said that if MYOB has a monopoly on such software, it would substantially lessen competition.
"We think there's a significant risk for customers that prices will increase and service levels will decrease," he added.
"There are other suppliers of this software, but market feedback suggests those products are less sophisticated, and that they are unlikely to be able to develop the more advanced functionality for several years at least."
Featherston also highlighted that the ACCC had identified several barriers to expansion for other competitors, including the time and cost to develop better functionality, switching costs for accounting firms, and a "cautious approach from the industry towards changing to untested suppliers".
Where smaller firms are concerned, the ACCC said it currently does not consider it likely that the proposed acquisition will substantially lessen competition in the supply of practice software, saying there are several desktop and cloud-based alternatives available to them.
"The ACCC understands that many accounting firms recommend accounting software to their small-to-medium enterprise (SME) clients and the proposed acquisition would give MYOB access to a large number of accounting firms that are using Reckon products," the ACCC continued.
However, at this stage, the ACCC does not consider it likely that the proposed acquisition will substantially lessen competition in the supply of accounting software to SMEs, citing similar context to that for smaller-sized businesses.
"We understand that the extension by the ACCC is a standard part of their assessment process, and we will continue to work with each of the regulators to enable them to complete their due diligence and provide an outcome," MYOB CEO Tim Reed told shareholders in a statement issued to the ASX on Thursday.
Similarly, Reckon told its shareholders that it has been working closely with MYOB to assist the ACCC.
For the 2017 fiscal year, MYOB reported AU$60.7 million in after-tax profit, a 16.3 percent increase over its 2016 figure.
Revenue for the 12 months to December 31, 2017 was AU$416.5 million, while underlying earnings before interest, taxation, depreciation, and amortisation (EBITDA) totalled AU$190 million.
For the same period, Reckon reported AU$2.2 million in after-tax profit, on revenue of AU$48.9 million.
The ACCC anticipates making a final decision by May 30, 2018, and is calling for submissions on the matter from interested parties.
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