Mergers and acquisition deals valued over ₹2,000 crore will be reviewed by the Competition Commission of India (CCI) if the target company has substantial business operations in India.
The Competition Commission of India (CCI) has notified this deal value threshold (DVT) criterion in the competition rules as it looks to bring more merger and acquisition deals involving digital companies and start-ups under its purview.
“Previously, the thresholds for regulatory approval were based on asset or turnover values, with higher limits such as ₹2,500 crore in assets or ₹7,500 crore in turnover for individual enterprises,” Prithiviraj Senthil Nathan, partner, King Stubb & Kasiva, advocates and attorneys, said.
“The new threshold specifically requires approval from the Competition Commission of India (CCI) for transactions exceeding ₹2,000 crore if the target entity has substantial business operations in India. The industry is concerned about increased scrutiny due to the new threshold,” he said.
To determine if a deal has substantial business operations in India, the CCI has established three criteria: the number of users, subscribers, customers, or visitors; gross merchandise value; and turnover.
If any of these metrics exceed 10 per cent of global figures in the preceding 12 months, the transaction is subject to CCI review.
“The new DVT is expected to significantly impact Deal Street. It will broaden the range of transactions subject to CCI scrutiny, potentially increasing compliance costs and extending transaction timelines.
“Companies will face higher fees for CCI applications and may experience longer deal closures due to the additional approval process. Enhanced regulatory oversight could lead to more rigorous assessments, influencing how transactions are structured and executed,” Nathan said.
Ravisekhar Nair, partner at Economic Laws Practice, said “there has been no ‘lowering’ of any threshold. Over the years, regulators around the world, including the CCI, were unable to review deals that did not meet the traditional ‘size of parties’ test but had the ability to impact market conditions.”
“In simple terms, the DVT, while broadly worded, aims to primarily target deals in the technology space where traditional thresholds were not met (thus not requiring a CCI approval) but where the anticompetitive impact of such deals were considered to be very likely given the pace of growth associated with technology markets.”
DVT marks a significant departure from the traditional asset-or turnover-based thresholds, which often failed to capture high-value deals in sectors such as technology, where market valuations can far exceed tangible assets.
Pranjal Prateek, partner at Khaitan & Co, said the new criterion will lead to the review of more deals.
Legal experts have welcomed the DVT as a necessary tool to address the challenges posed by rapid technological advancements. "The DVT is a valuable addition to the regulator's toolkit," said Avaantika Kakkar, Partner (Head — Competition Law) at Cyril Amarchand Mangaldas. "It will help capture deals that might otherwise have escaped scrutiny."
However, the introduction of the DVT is also expected to increase the workload for the CCI. "There will be a need for massive capacity enhancement at the CCI," noted Nisha Kaur Uberoi, Partner & Chair, Competition Law, JSA Advocates & Solicitors. "The lower thresholds and the deal value threshold will lead to a significant spike in notified transactions."
With inputs from Calcutta Bureau
