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The Competition Commission of India (CCI) is poised for a significant increase in merger filings due to the introduction of a new deal value threshold (DVT) for mergers and acquisitions (M&As). This recent regulation, announced by the Ministry of Corporate Affairs (MCA), mandates that transactions exceeding Rs 2,000 crore must be notified to the CCI for approval, adding to the existing criteria based on the merging entities' turnover and asset size. This DVT rule applies to target companies that have 'substantial business operations' in India.
Experts predict a surge in merger filings as a result of this new threshold. Anshuman Sakle, partner at Khaitan & Co., believes that the number of transactions requiring CCI approval will undoubtedly rise. Naval Chopra, partner at Shardul Amarchand Mangaldas, shares this sentiment, highlighting the revisions in exemptions as a major contributor to the anticipated increase. These revisions mean that target exemptions, previously applicable to deals involving target assets under Rs 450 crore or with a turnover below Rs 1,250 crore, will no longer apply if the deal value surpasses Rs 2,000 crore.
The immediate implementation of the new norms presents a significant challenge. Chopra underscores the lack of grandfathering, meaning that any ongoing transactions, even those nearing completion, must be re-evaluated to ensure compliance with the new regulations. This is particularly problematic due to standstill obligations that prevent companies from proceeding with integration or payment before CCI approval. Experts also raise concerns about the revised exemption list, which now includes ordinary course of business (OCB) and acquisitions solely for investment purposes. The CCI's previous definition of OCB, limited to revenue transactions driven by short-term price movements, has been narrowed to encompass only acquisitions of shares or voting rights by underwriters, stockbrokers, and mutual funds. This move has drawn criticism from lawyers who advocate for a more liberal approach.
Another area of ambiguity lies in the CCI's definition of 'substantial business operations in India' (SBOI) for digital services entities. The regulations broadly define digital services as anything provided over the internet, a categorization that encompasses a vast majority of businesses, including a considerable number of small and medium-sized enterprises (SMEs). This wide-ranging definition raises concerns about the scope of digital services and the potential implications for businesses operating online.
The new DVT rule has the potential to significantly impact the M&A landscape in India. While the intention is to enhance scrutiny of large transactions and ensure fair competition, the implementation process and areas of ambiguity require careful consideration. The CCI will play a crucial role in interpreting and applying these regulations, and its decisions will have a ripple effect on businesses operating in India. It remains to be seen how the new norms will ultimately shape the merger and acquisition landscape, but the implications are far-reaching and demand careful attention from all stakeholders.
Source: Merger filings with CCI to rise by 30% due to new norm