The Ministry of Corporate Affairs (MCA) may introduce specific provisions in the draft Digital Competition Bill to ensure deals involving “killer acquisitions” in digital markets comes within the purview of prior CCI approval.
Several stakeholders, in their feedback on the existing draft Digital Competition Bill, have urged the MCA to cover this situation, noting that the current draft is silent on this front, official sources said.
“Killer acquisitions” refer to a strategic practice where a dominant company acquires a smaller, often innovative competitor, with the primary intent of stifling potential competition rather than integrating the acquired company’s products or services into its own portfolio.
The term gained prominence in discussions around anti trust laws and competition policy, particularly in industries like technology and pharmaceuticals where innovation is rapid and market entry barriers are high.
In “killer acquisitions”, the acquiring company typically purchases a startup or a smaller firm that has developed or is developing a product that could eventually compete with the acquirer’s own offerings. Instead of fostering the acquired company’s product, the acquirer may choose to discontinue its development, limit its market reach, or shelve it entirely. This prevents the product from ever reaching the market or gaining significant market share, “killing” the competition before it can become a threat.
Traditional anti-trust analysis focuses on the effects of mergers and acquisitions on existing market competition, but killer acquisitions present a more subtle threat, economy watchers said. This is why countries are proposing to require more rigorous reporting and review of acquisitions by dominant firms, even when the target company is small or has limited market presence, they added.
DEAL VALUE THRESHOLD
Meanwhile, even as MCA contemplates specific provision on “killer acquisitions” in Digital Competition Bill, it is yet to notify the much awaited “deal value threshold” provision enshrined in the Competition (amendment) Act 2023.
More than 16 months have passed since the enactment, but MCA has dithered the implementation of the “deal value threshold” provision, economy watchers said.
The dithering in notification has helped large corporate houses such as Adani Group to do creeping acquisitions or buy smaller sized companies (like Penna cement acquisition) without having to come under prior CCI approval , say critics. The ‘DVT’ provision in Competition (amendment) Act applies to all sectors.
MCA has been dithering on ‘Deal Value Threshold’ amid tech giants pushback, sources said.
The “deal value threshold” (DVT) refers to a criterion used to determine whether a merger or acquisition must be notified CCI for review and approval.
This threshold is typically based on the total value of the transaction, rather than the turnover or market share of the involved companies. It aims to capture significant deals that might otherwise evade scrutiny under traditional “asset” or turnover-based thresholds, especially in sectors where market valuations can be very high despite lower “book value” or revenues, such as digital and tech industries.
Put Simply, DVTs require transactions above a certain deal value to be notified to the CCI, regardless of the asset or turnover of the companies involved.
This aims to capture high-value transactions in the digital and other sectors, where companies including startups might have high valuations due to data or intellectual property but low traditional financial metrics.