In a major regulatory shift, transactions that have been signed but not finalised will also require approval from the Competition Commission of India (CCI) under the newly introduced deal value threshold (DVT) provisions.
According to the new framework, any transaction agreed upon (term sheet signed) before the enforcement date of September 10, 2024, must adhere to the DVT regulations even if partially finalised.
The CCI emphasised that while the provisions are applicable to pending transactions, no gun-jumping penalties will be imposed on the portions of deals that were consummated prior to the enforcement of the new rules.
This development marks a significant overhaul in the mergers and acquisition (M&A) landscape, impacting transactions across sectors, bringing an additional layer of scrutiny for businesses navigating complex deals. Companies with pending closings must ensure compliance to avoid regulatory hurdles under the revamped framework.
Under the new DVT regime, any merger or acquisition deal with a global transaction value exceeding ₹2,000 crore will be subject to CCI notification. Additionally, the target company must have ‘substantial business operations’ (SBO) in India.
The regulations define ‘deal value’ broadly, encompassing all types of value consideration — whether direct, indirect, cash, deferred payments, or otherwise.
The calculation will include payments for non-compete clauses, interconnected steps, transitional arrangements (up to two years post closing), options and securities, and open offer values. Additionally, any reasonably foreseeable event, as estimated by the acquirer’s board, must be included in the deal value calculation.
SBO criteria
A transaction will come under the DVT regime if the target has substantial business operations in India, with the quantum varying depending on the sector:
Digital services: If 10 per cent or more of the target’s global business or end users, or 10 per cent of global turnover comes from India, the DVT test applies.
Non-digital services: The target must have generated at least 10 per cent of global turnover or gross merchandise value (GMV) from India and have a turnover or GMV exceeding ₹500 crore from Indian operations.
The ‘small target or de minimis’ exemption will no longer apply if the DVT test is met. This represents a crucial departure from previous norms, where smaller deals could bypass CCI scrutiny.
Far-reaching implications
The DVT framework is expected to have significant ramifications for both domestic and multinational corporations, especially those engaged in large-scale mergers and acquisitions in India. The inclusion of pending transactions signed before September 10 but not yet closed means companies must urgently assess whether their deals fall within the new threshold and take immediate steps to comply with CCI notification and approval requirements.
“These new thresholds mark a substantial development in India’s competition law landscape, particularly in the context of rapidly growing sectors such as digital services, where global and Indian operations are tightly interconnected,” said a senior competition law expert. “With the revised regulations, the CCI is expanding its oversight to ensure fair competition, and companies will need to exercise diligence in structuring deals.”
Legal and compliance issues
As businesses adjust to the new DVT regime, legal experts are advising companies to closely examine the structure of their transactions, especially those that were signed but pending closure Given the broad interpretation of what constitutes ‘deal value,’ firms may need to reevaluate their merger strategies, financial assessments, and compliance processes to avoid delays and penalties.
“The retroactive application of the DVT to pending transactions introduces a new layer of complexity. Companies must move quickly to ensure compliance with the new CCI guidelines, especially for deals that were previously exempt under the de minimis threshold but now fall under the DVT criteria,” said a legal consultant specialising in M&A.
The introduction of DVT heralds a new era for Indian merger control, with increased scrutiny on high-value transactions and greater regulatory oversight. While the changes are aimed at fostering healthy competition, businesses will need to adapt swiftly. Over the next few months it will be seen how companies navigate these new rules and how the CCI enforces them, competition law experts said.
The central government’s intent is to ensure that large-scale M&As , especially those with a global footprint, are thoroughly examined for their impact on competition within the Indian market.
As the new regime takes hold, it is expected to bring enhanced transparency and accountability to India’s competition law enforcement, the experts said.