Global deals worth more than ₹2,000 crore under CCI lens from Tuesday

New Delhi: The Competition Commission of India (CCI) notified on Monday that global mergers and acquisitions (M&As) involving digital entities where the deal value is more than ₹2,000 crore and including companies with substantial operations in India will require its approval, effective from Tuesday, even if they do not otherwise meet the asset and sales criteria for seeking its clearance.

The CCI’s move effectively creates a new class of global M&As that require its approval in India. This is part of its efforts to cover transactions involving digital economy firms, which have high valuations and have the ability to influence markets, but do not meet the traditional merger regulation threshold involving asset and sales.

This new merger regulation based on deal value was introduced in law by way of an amendment to the Competition Act in April 2023, it but has been notified now.

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For perspective, the global acquisition of WhatsApp by Meta Platforms Inc. (formerly Facebook Inc.) in 2014 for $19 billion had not come under the CCI’s merger regulation in spite of the market reach of the firms in India because the transaction did not meet the threshold of assets and turnover in India.

“The newly notified merger control amendments herald the single largest overhaul of the Indian merger control regime—the introduction of the deal value threshold of ₹2,000 crore for companies with substantial business operations in India,” said Nisha Kaur Uberoi, partner and chair, competition law, at JSA Advocates & Solicitors.

“It brings the CCI on par with global regulators like the US, Germany and Austria. However, the devil will lie in the details—the enabling regulations and the need for CCI to enhance capacity to keep up their efficient track record of clearing mergers and acquisitions will be key to ensure that ease of doing business remains unimpacted,” Uberoi added.

Policymakers believe that in the initial years of business, digital firms focus on growing customer size, giving them access to large volumes of data and valuation. Still, transactions involving them remain out of the competition watchdog’s scrutiny. Reduction in the number of players in the market is a key criterion that regulators keep in mind while assessing possible adverse impact of a deal on competition.

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The sales- and asset-based thresholds for merger regulation were originally set in the Competition Act of 2002, and were revised later in view of inflation. After the latest changes, the thresholds are now 150% more than the levels prescribed in the 2002 Act.

In 2016, the thresholds were revised to take into account transactions between businesses with combined assets of ₹2,000 crore or ₹6,000 crore turnover in India. They were revised in March this year, making transactions between businesses with combined assets of ₹2,500 crore or turnover of ₹7,500 crore requiring CCI approval.

In the case of businesses with a cross-border presence, the threshold now is aggregate assets of $1.25 billion assets, out of which at least ₹1,250 crore should be in India, or $3.75 billion in turnover for all the parties in the transaction together, out of which ₹3,750 crore should be from India.

However, these thresholds do not apply to digital firms as they may not meet have the physical assets and the turnover to meet the CCI’s criteria.

Rahul Rai, a partner at law firm Axiom5 Law Chambers Llp, said the legislative changes introduced in April 2023 to the competition law have now resulted in significant changes to merger regulations.

To simplify the filing process, the ministry has also notified a list of transactions that are exempt from reporting obligations under the Competition Act. The new exempted transactions rules provide clear and concise guidance, resolving the often-confusing interpretation of prior exemptions. “These amendments clearly reflect the government’s resolve to increase the ease of doing business in India,” said Rai.