Definition
To simplify the concept, transactions between smaller parties, potentially with the lower asset and turnover value in the modern digital or high-innovation markets, have the ability to impact competition, but in certain cases, escape scrutiny by the CCI due to the de minimis exemption. To ensure such transactions do not escape the scrutiny of the CCI, deal value thresholds have been introduced.1
The notification will attempt to scrutinise the deals which have a value exceeding INR 20 billion, and the target enterprise has ‘substantial business operations in India’ as stated under Clause 6(b) of the Competition (Amendment) Act, 2023, where it added Section 5(d) to the 2002 Act, with the threshold earlier stated to be INR 2000 crore.2
Commentary
Deal value threshold has been introduced mainly due to increasing M&A activity in the digital sector. It was introduced to address combinations that could have an AAEC despite falling under the de minimis exemption.3
The current digital market is driven by research and innovation; many businesses would not generate significant revenue for several years. But it also creates barriers to entry into the digital space.4 These barriers of entry are taken advantage of by The Big Five (Google, Apple, Meta, Amazon, and Microsoft), who adopt a “copy-acquire-kill” strategy5 where small upcoming competitors are acquired by them before being killed to prevent other players from accessing them. This acquisition is undertaken when the upcoming competitor is at the nascent stage, having insufficient revenue, thus making the combination insufficient to be brought under the CCI’s radar.6 However, there are some of the concerns which are highlighted as follows:
1. Access to Barriers
According to the intent of the Competition Act, entry barriers are obstacles to entrance or expansion in a certain market caused by legislative restrictions, high capital requirements, and other reasons. However, the adverse effect of such a data-driven digital market is the development of significant entry barriers that compromise market integrity and to preserve their dominance, big data companies may be compelled to engage in activity that amounts to exclusionary behaviour and the construction of artificial barriers, negatively harming both consumers and prospective competitors.7
2. Value of Transaction
The onus is now on the CCI to quickly define what constitutes “value of transaction” now that the amendment bill has been passed. Multiple challenges could arise in calculating the value of a transaction, such as determining how to account for payments that are conditional on the occurrence of particular events, such as earnouts, post-closing adjustments, etc.8 Another issue arises if there are numerous investors in an investment round, that could come up is whether the value should be determined for each investor separately or for the entire round.9 Since there is no set standard for determining local nexus in cross-border mergers, the breakdown of transaction value for a given region is more complicated.
3. Inability to Cover Digital Market Participants
Digital markets can be understood as “an undertaking operating in two (or multi)sided markets, which uses the Internet to enable interactions between two or more distinct but interdependent groups of users to generate value for at least one of the groups.”10 The majority of companies in this market offer their services for free, showing that there may still be a gap in enforcement due to parties in this sector not having significant assets or turnover.11 As a result, digital marketplaces remain a place where competition is most susceptible. Deal value threshold, in particular, is insufficient for protecting digital markets since it is based on conventional ideas that don’t apply to them and is also unable to recognise transactions that aren’t based on monetary considerations.
4. Uncertainty in the Situation of Multiple Purchasers
It’s not clear whether, in the case of multiple purchasers, it’s the consideration paid by a single purchaser or the aggregate consideration from all purchasers involved in the transaction that should be considered. This lack of clarity may unintentionally subject large funding rounds involving multiple private equity investors to competition assessment.12
Shweta Shroff Chopra, CCI Revised Deal Value Threshold Regulations Explained, <https://www.amsshardul.com/insight/cci-revised-deal-value-threshold-regulations-explained/>.↩︎
Clause 6(B) of the Competition (Amendment) Act, 2023 (No. 9 of 2003).↩︎
S. Girimaji, The Future Cost of Deal Valuation Notifications, India Business Law J, <https://law.asia/deal-valuation-notifications/>.↩︎
S. Aggarwal, Merger Thresholds under the Draft Competition (Amendment) Bill, 2020: A Digital Perspective, IndiaCorpLaw, <https://indiacorplaw.in/2022/04/merger-thresholds-under-the-draft-competition-amendment-bill-2020-a-digital-perspective.html>.↩︎
Ibid.↩︎
Ibid.↩︎
A. Srivastava & A. Yadav, Regulating Combinations in Platform Markets: An Indian Perspective, 3 Compet. Comm. India J. Competition Law & Pol. 21–53 (2022). doi:10.54425/ccijoclp.v3.91.↩︎
A. Chaudhury, Changes to the Merger Control Regime in India—Competition Law Update, <https://www.argus-p.com/papers-publications/thought-paper/changes-to-the-merger-control-regime-in-india-competition-law-update/>.↩︎
Ibid.↩︎
United Nations Conference on Trade and Development, Competition Issues in the Digital Economy (Eighteenth Session TD/B/C.I/CLP/54, July 2019) Para 3, <https://unctad.org/system/files/official-document/ciclpd54_en.pdf>.↩︎
Introduction of Alternative Merger Control Thresholds – Is It the Way Forward?, AZB Partners, <https://www.azbpartners.com/bank/introduction-of-alternative-merger-control-thresholds-is-it-the-way-forward/> (accessed 12 August 2023).↩︎
Utkarsh Sahu, Revaluing Transactions: Navigating the Competition Law Terrain with Deal Value Threshold, <https://articles.manupatra.com/article-details/Revaluing-Transactions-Navigating-the-Competition-law-Terrain-with-Deal-Value-Threshold>.↩︎