Mergers and acquisitions (M&A) are an important mode of business expansion and consolidation in a dynamic and competitive market. However, they also pose potential risks to competition and consumer welfare, as they may result in the creation or strengthening of dominant market positions, abuse of market power, or coordination among competitors. To safeguard against these risks, the Competition Commission of India (CCI), the country’s antitrust regulator, is empowered to meticulously scrutinize and sanction M&A transactions surpassing specific thresholds. Notably, a recent development pertains to the CCI’s introduction of an augmented deal value threshold.
New thresholds
According to two notifications issued by the Ministry of Corporate Affairs (MCA) on March 10, 2024, the new thresholds are as follows:
- For the jurisdictional thresholds, which trigger the mandatory filing of a combination notice to the CCI, the MCA has increased the asset and turnover values by 150% from the previous levels. The new values are:
- For enterprises: Rs 3,000 crore for assets or Rs 9,000 crore for turnover in India; or $1 billion for assets or $3 billion for turnover worldwide, including at least Rs 1,000 crore for assets or Rs 3,000 crore for turnover in India.
- For groups: Rs 12,000 crore for assets or Rs 36,000 crore for turnover in India; or $4 billion for assets or $12 billion for turnover worldwide, including at least Rs 1,000 crore for assets or Rs 3,000 crore for turnover in India.
The increase in the jurisdictional thresholds is based on the changes in the wholesale price index since 2016, when the last revision was made. The aim is to adjust the thresholds to reflect the current market realities and inflationary trends.
- For the de-minimis or small target exemption, which grants an absolute exemption to transactions where the target entity has a low asset or turnover value in India, the MCA has raised the values from Rs 350 crore to Rs 450 crore for assets and from Rs 1,000 crore to Rs 1,250 crore for turnover.
The increase in the de-minimis exemption is intended to exclude transactions that have a negligible impact on competition in India from the CCI’s purview. This would reduce the regulatory burden on small and medium enterprises and startups that are often involved in such transactions.
- For the deal value threshold (DVT), which was introduced by the Competition (Amendment) Act, 2023 as a new criterion for transactions that have a significant impact on the Indian market, the MCA has fixed the value at Rs 2,000 crore. The DVT applies when the target entity has substantial business operations in India, which is defined as having at least 10% of its global users, gross merchandise value or turnover attributed to India.
The introduction of the DVT is a novel and innovative feature of India’s merger control regime. It is designed to capture transactions that may not meet the asset/turnover-based thresholds but may still have a considerable effect on competition in India. This is especially relevant for digital markets, where companies may have low assets or revenues but high valuations and market shares.
Implications
The revision of the thresholds is expected to have several implications for M&A transactions in India, such as:
- Reducing the number of transactions that require CCI approval, thereby saving time and cost for businesses and allowing them to focus on their core activities.
- Streamlining the CCI’s workload and enabling it to focus on transactions that have a significant impact on competition in India.
- Aligning India’s merger control regime with international best practices and norms, such as those followed by the European Union and the United States.
- Enhancing India’s attractiveness as an investment destination and facilitating business growth and innovation.
Conclusion
The government’s decision to raise the bar for M&A vetting by the CCI is a welcome step that reflects its commitment to ease of doing business in India. The new thresholds are likely to benefit both businesses and consumers by fostering a competitive and efficient market environment.
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