The Competition Commission of India (CCI) chairperson Ashok Kumar Gupta explained a new bill proposing a price threshold of $250 million for M&A deals.
Global mergers and acquisitions are set to come under the scrutiny of the Competition Commission of India (CCI) if the parties meet a specified customer base in India. The antitrust regulator promises to specify and clarify all the definitions and criteria in the near future.
The bill reduces the time limit for approval of mergers and acquisitions from 210 to 150 days and introduces the deal value threshold as an additional criterion for compulsory notification of mergers and acquisitions to CCI. If the value of any transaction or “deal value”exceeds ₹2,000 crore, it would require filing before CCI, provided that the target has substantial business operations in India.
In new-age markets, factors such as users, data, growth and network effect have become means of gaining significant market position.
The introduction of the "deal value" criterion was recommended in the Competition Law Review Committee (CLRC) report in 2019. The report discussed that most acquisitions in digital markets derive value from data or some business innovation held by the target. The target may not have a huge asset base and may be offering products/services that are either free or generate insignificant turnover. This may be because the business model of companies in digital markets often does not generate significant revenue for a number of years, focusing initially on user growth. Thus, traditional measures of target’s asset size and turnover may not be sufficient to notify transactions in the digital ecosystem to CCI.
“We will frame regulations very carefully. The current merger regulation criteria based on assets and turnover are very clear, but it deals primarily with traditional markets. In new age markets, assets and turnover, as recorded in the financial statements, may not reflect the complete market strength of the target”,
Ashok Kumar Gupta said.
The chairperson stressed that it’s about entities having vast customer reach but with few assets in India, and in this regard mentioned the purchase of WhatsApp by Facebook (banned in Russia) in 2014, which at the time did not require approval from the regulator.
The regulations may define substantial business operations based on market-facing factors such as the number of users, number of contracts, aggregate amount of payment received, etc., in India. If companies do not have that kind of nexus in India, then they will not be covered under this provision.
Ashok Kumar Gupta added that the final version of the bill will emerge after intensive internal deliberations and public consultations.
“We would only want major transactions relevant to India to be notified and not be flooded by transactions not relevant to the Indian market. We are cognizant that benefits from any additional prescription should outweigh the regulatory burden. Public policy is always a balancing act. There will be public consultation on these regulations. We will start the consultation process once Parliament approves the bill”.
Source: The Hindu Business Line