CCI in action: India’s M&A regime gets a regulatory shakeup

M&A norms, CCI
The Competition Commission of India has introduced sweeping changes to the Competition Act, seeking to better regulate M&As.

The Competition Commission of India has introduced crucial changes to the Competition Act, expanding the scope of mergers and acquisitions that require its approval. Under the revised regulations, companies with a turnover of more than Rs 500 crore, or those generating over 10% of their global turnover in India, will now be considered as having substantial business operations in India and must seek CCI approval for mergers.

Additionally, any transaction with a deal value exceeding Rs 2,000 crore will require notification to the CCI. This deal value will be calculated by considering all aspects over the two years preceding the transaction. In the case of digital services, the number of end users in India will be a critical factor in determining “substantial business operations.” The Ministry of Corporate Affairs has announced that these changes will take effect on September 10.

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CCI pushes for stricter M&A norms

The push to impose stricter regulations on M&As was initiated in 2022, acknowledging the significant growth of the Indian market and the shift in business operations over the last decade. This shift has created a greater need for regulatory certainty and a trust-based environment.

Prior to these revisions, the CCI based its M&A approval requirements solely on asset size and turnover. Under the new framework, if the CCI cannot ascertain deal value, mandatory notification is required if the target company has substantial business operations in India. The changes aim to capture a wider range of transactions, removing the de minimis target-based exemption when the deal value threshold is met.

These revisions are particularly relevant in the digital era, where mergers often involve sharing big data and raise privacy concerns. Many companies being acquired may have minimal assets or turnover, but significant value in terms of data, technology, or market information. As such, a definite threshold is necessary.

For instance, Facebook’s acquisition of WhatsApp did not require regulatory approval under traditional standards. The introduction of a deal value threshold will help the CCI scrutinise digital sector transactions more effectively.

By adopting a deal value threshold (DVT), India is aligning its regulations with countries like the United States, Germany, Austria, and South Korea. Industry experts believe this represents the largest overhaul of India’s merger control regime, bringing the CCI on par with global regulators.

However, the new rules may disrupt ongoing deals and increase the compliance burden for businesses. Deal timelines will likely be affected, and parties involved in transactions must act swiftly to avoid legal violations and penalties. Companies will need to reassess any transactions signed or approved before September 10 that have not yet been finalised. The revisions require careful evaluation of the implications for ongoing or proposed deals, including any connected transactions.

The CCI has also shortened its review timeline and adjusted exemptions, which may impact the approval process. The overall review period has been reduced from 210 to 150 days, and if no preliminary assessment is made within 30 days, deals are automatically approved. The initial review period has been shortened to 20 calendar days under the new regulations.

India’s rapid economic growth, expanding middle class, and status as a technology and innovation hub make it an attractive destination for foreign investors. Inbound M&As, particularly from the US and Europe, have been growing, with a focus on financial services, technology, and manufacturing. However, to fully leverage this interest, the government must ensure robust regulatory enforcement. The latest changes to the Competition Act are a step in this direction.

While these revisions are commendable, much will depend on the CCI’s capacity to implement them effectively. The regulator will need to enhance its capabilities to maintain its track record of efficiently clearing M&A deals. This will be crucial to ensure that ease of doing business is not compromised by the new regulations.