A significant amendment to the Competition Act, 2002 (Act) introducing the “deal value threshold” (DVT) was notified along with the revamped CCI (Combination) Regulations, 2024 (Combination Regulations) on September 10.
The DVT, a twin criteria threshold test, requires a transaction to be mandatorily notified to the Competition Commission of India (CCI) for its approval if the “value of the deal” exceeds ₹2,000 crore (about $240 million) and if the target entity has a “significant” Indian presence. The newly enforced “deal value” metric supplements existing asset and turnover based thresholds to capture transactions that were previously not notifiable but nonetheless likely had a significant impact on competition. For assessing notifiability under DVT, the Combination Regulations set out (i) the manner of calculation of the transaction ‘value’; and (ii) the criteria to assess “substance” of a target’s Indian presence.
‘Value’ of a transaction
Determining notifiability of transactions would require parties to navigate and closely assess ‘value’ of transactions that have both been signed (but not consummated) before enforcement of the DVT provision and transactions that are currently in the execution pipeline.
The scope of ‘value’ has been widely defined and will include considerations paid for each interconnected step of a transaction, incidental arrangements etc.
The explanations for calculating ‘value’ also envisage scenarios where ‘value’ of a transaction might not be clearly captured in transaction documents. For these situations, the assessment of a company’s board is put upfront.
In a scenario where a board of directors’ approval of a transaction does not set out a ‘best estimate’ for a future outcome specified in the transaction documents, the maximum amount payable would be taken as the consideration. Where ‘value’ cannot be determined with certainty, the transaction may be deemed to have crossed the ₹2,000 crore threshold.
While these explanations offer limited guidance (including a rather simple FAQ issued by the CCI), transacting parties will now need to carefully weigh the implications of the changed regulatory landscape.
Where is the ‘substance’?
In addition to transaction value, ‘substance’ of a target’s business in India would also be assessed based on user-based thresholds (only in the case of target entities providing ‘digital services’) and additionally on gross merchandise or turnover values (for target entities across all sectors, including digital services).
The framing of this criteria will very likely result in increased notifiability of transactions particularly in the digital sector.
Secondly, for target entities providing digital services, gross merchandise or turnover values in India must be 10 per cent or more of global values. However, for target entities in all other sectors, gross merchandise value and turnover thresholds must not only be 10 per cent or more of global values but also cross an ₹500 crore benchmark — an added criteria not applicable for digital services entities.
The idea of having a merger control regime based on “deal value” alone irrespective of the size of the parties is highly contested. While such thresholds have been adopted in certain jurisdictions, India has jumped on to the bandwagon of going after “killer acquisitions”.
Interestingly, the DVT, which should ideally have been a sector agnostic threshold, appears to have singled out “digital markets” by lowering the threshold bar for them. The DVT and Combination Regulations together have clearly armed the merger control regime with a wider reach to examine a larger number of potential transactions especially in the digital services sectors.
Another aspect that will require deliberation is to analyze whether the introduction of the DVT will add another regulatory layer that dampens the government’s advocated concept of “ease of business”.
Aayushi is Principal Associate and Ketki Senior Associate, Economic Laws Practice