CCI's latest merger overhaul may push deal timelines, increase filings

The amendments bring welcome changes like shorter assessment timelines and CCI hearings, but experts believe they may hinder ongoing deals and increase workload

The latest combination regulations have brought within their purview a deal value threshold (DVT) and criteria for substantial business operations in India in what experts have termed the “single largest overhaul of the Indian merger control regime”.

Combination regulations refer to merger or amalgamation among enterprises, or acquisition of control, shares, voting rights or assets of one enterprise by another.
 

The amendments usher in welcome changes for the industry, including shorter timelines for assessment of combinations and availability of hearings before the Competition Commission of India (CCI) on request during the merger review process. However, many experts believe it may pose a hurdle to ongoing deals and increase the CCI’s workload.
 

“The Combination Regulations have clarified that the amended provisions would apply to ongoing deals which are to be consummated, wholly or partly, after September 10, 2024. This would impact long-stop dates for transactions where definitive documents have been signed but closing is yet to occur,” says Nisha Uberoi, Partner & Chair-Competition Law, JSA Advocates & Solicitors.

CCI’s workload
 

The introduction of the DVT, which is sector-agnostic, a lower threshold of ‘control’, and a narrower scope of minority acquisition exemptions is likely to result in a significant spike in the number of transactions notifiable to the CCI. Experts say these changes will also require massive capacity enhancement at the antitrust watchdog.
 

 According to the new regulations notified by the CCI on 10 September, any transaction where the “deal value” exceeds Rs 2,000 crore would be notifiable for the CCI’s approval, provided that the target entity has “substantial business operations” in India. To determine the value of the deal, the CCI will look at all forms of consideration, including share swaps, non-compete fees, call options, and earn-outs for a period of two years prior to the transaction.
 

Previously, the CCI would consider only assets and turnover as the criteria for requirement of approvals. By bringing the DVT within the ambit of the Competition Act, the government has tried to capture mergers that may otherwise evade scrutiny under traditional asset- or turnover-based thresholds.
 

This would help the CCI capture the potential impact of acquisitions of small but competitively significant companies, regardless of their current financial metrics, particularly in the tech space. With the introduction of the DVT, India joins the US, Germany, Austria, and South Korea, whose merger control regimes include a value of transaction test with a local nexus requirement.

Digital deals
 

According to experts, the immediate impact of this notification will be felt on deals in the digital sector, pharmaceuticals, power, and commodities – which earlier could avail of the target exemption but will now need to notify.
 

 “The transition provisions could have been more happily worded to allow some time for parties to plan transaction closing. This will be a setback to some transactions because they would need to prepare a filing and present it for approval to the CCI and obviously did not factor this into deal timelines,” says Avaantika Kakkar, Partner and Head-Competition Law, at Cyril Amarchand Mangaldas.
 

In March this year, the CCI revised the de minimis thresholds — the minimum value for which CCI approval is required for mergers — from Rs 350 crore to Rs 450 crore for assets, and from Rs 1,000 crore to Rs 1,250 crore for turnover. Though the de minimis exemption limit has now been raised by the CCI, if the DVT is crossed, the de minimis target exemption becomes unavailable.
 

The regulations also redefine “control” to include “material influence”, broaden the scope of exempted combinations, and establish more stringent criteria for exemptions under the ordinary course of business.
 

Competition lawyers say the exemption rules and the DVT are practically a new regime, but there will be a few months of settling in, and clarity will build with precedents at the CCI. They say the exemption rules may result in the CCI focusing on the most relevant transactions, although it is likely that more transactions will have to be notified to the CCI.
 

Oversight with ease
 

The rationale for introducing more nuanced exemptions seems to be to balance regulatory oversight with the need to facilitate ease of doing business.
 

“By providing clearer rules on exemptions, the CCI aims to ensure that only transactions with a significant competitive impact are reviewed, while those with minimal impact can proceed without undue regulatory burden. This nuanced approach helps focus regulatory efforts on substantial transactions and aligns with international best practices,” says Prithiviraj Senthil Nathan, Partner, at King Stubb & Kasiva, Advocates and Attorneys.
 

As more transactions become notifiable, the CCI will need to streamline its processes to handle the higher volume of filings efficiently, which could be challenging for an understaffed CCI to manage effectively.
 

“It is critical for the CCI to take a pragmatic approach and not be overly conservative, as a conservative view would result in too many filings, which would significantly burden the CCI’s resources,” says Shweta Shroff Chopra, Partner, at Shardul Amarchand Mangaldas & Co.
 

Shroff suggests it would be helpful for the CCI to update its FAQs to provide guidance on issues such as the assessment of a “digital service”, what constitutes interconnected transactions for calculating the total deal value in transactions where funding is secured in different stages, or how changes in control should be evaluated for the applicability of the exemptions, among other things.
 

“As more transactions become notifiable, the CCI will need to streamline its processes to handle the higher volume of filings efficiently, which could be challenging for an understaffed Commission to manage effectively,” she adds.

NEW THRESHOLD
 

Entities with substantial business operations in India need CCI approval for M&As. What constitutes this?
 

(a) For digital services providers, number of business users or end users in India being 10% or more of global number

(b) Gross merchandise value for the period of 12 months preceding the relevant date in India is 10% of 

global or above Rs 500 cr

(c) Turnover during the preceding financial year in India is above Rs 500 cr or 10% of global figure
 

Deal Value Threshold: If a deal crosses Rs 2,000 crore mark, it would need CCI approval, unlike before when only value of assets and turnover was taken into account 
 

Timelines for merger review by CCI reduced from 210 days to 150
 

The regulations introduce the ability to pull-and-refile a notification in first phase