A Big Deal: Merger And Acquisition (M&A) Regulatory Framework

India’s merger and acquisition (M&A) regulatory framework has undergone a major transformation. The amendments announced in September 2024, largely resulting from the Competition (Amendment) Act of 2023, are poised to reshape the corporate merger landscape both domestically and internationally.

The amendments announced in merger and acquisition (M&A) regulatory framework in September 2024, are poised to reshape the corporate merger landscape both domestically and internationally. These updates introduce several positive enhancements to the regulatory environment, improving the ease of doing business, establishing cross-border compliance requirements, enforcing stricter oversight, clarifying deal value thresholds, and enabling faster decision-making processes.

Under the new regulations, mergers and acquisitions valued over ₹2,000 crore must be reported to the Competition Commission of India (CCI) if the target company has “substantial business operations” in India. This is defined as having an Indian turnover or gross merchandise value (GMV) exceeding ₹500 crore, or at least 10% of the global figures in these metrics. The goal of this initiative is to enhance transparency and accountability in high-value transactions, ensuring that significant deals are subject to regulatory review to prevent anti-competitive practices. By setting the threshold at ₹2,000 crore, the rules are expected to exclude smaller transactions, potentially facilitating faster consolidation for greater efficiency. This move also aims to strengthen the CCI’s oversight of mergers and acquisitions in the digital sector. The merger review timeline by the CCI has been shortened. Previously, the CCI had 30 working days to form a prima facie view on a notified transaction; this has now been cut to 30 calendar days.

Overall Review Period Decreased

Moreover, the overall review period has been decreased from 210 to 150 calendar days. The revised regulations have broadened the definition of “control” to encompass the “ability to exercise material influence” over the management, affairs, or strategic commercial decisions of another enterprise or group. This change is expected to subject more mergers and acquisitions to stricter scrutiny and enable more effective regulation by the CCI. Although the Act does not define ‘material influence,’ the CCI’s order in the UltraTech Cement case characterizes it as “the lowest level of control.” This implies that material influence includes various factors that enable an enterprise to affect the affairs and management of another, such as shareholding, special rights, the status and expertise of individuals or enterprises, board representation, and structural or financial arrangements.

Acquisitions of less than 25% of shares or voting rights that do not lead to a change in control are now exempt from pre-merger notification requirements. This new framework is designed to enhance the ease of doing business. Although it may simplify some unsolicited acquisitions, certain conditions remain, including restrictions on exercising voting rights until regulatory approvals are secured.

Exemption For Intra-Group Transactions Unchanged

The exemption for intra-group transactions remains unchanged; however, mergers and acquisitions within the same group are exempt only if they do not result in a change of control. This ensures that intra-group restructuring for operational efficiency does not compromise market competition. Additionally, parties involved in open market transactions will now be exempt from the “standstill obligation.” Pending CCI approval, they can acquire shares from multiple sellers through transactions on a regulated stock exchange or via an ‘open offer,’ subject to specified conditions.

The filing fee for Form I has been raised from ₹20 lakhs to ₹30 lakhs, while the fee for Form II has increased from ₹65 lakhs to ₹90 lakhs. To ensure compliance with its orders, the CCI now has the authority to appoint monitoring agencies. These agencies may include accounting firms, management consultancies, chartered accountants, company secretaries, or cost accountants. The appointed agency will be responsible for notifying the CCI of any instances of non-implementation or non-compliance with its orders.

What’s the deal with the ‘deal value threshold’?

There are concerns that the new deal value threshold (DVT) norm could affect the ease of doing business. The DVT establishes a dual criteria threshold test, mandating that any transaction be notified to the CCI for approval if it meets two conditions: first, the ‘value of the deal’ must exceed ₹2,000 crore, and second, the target entity must have a ‘significant’ presence in India.

This new ‘deal value’ metric is designed to complement the existing asset and turnover-based thresholds, aiming to capture transactions that were previously not required to be notified but could still significantly impact competition in the market. By doing so, it ensures greater regulatory oversight on high-value deals that might otherwise slip through the cracks.

To assess whether a transaction needs to be notified under the DVT, the Combination Regulations provide specific guidelines. These include (i) a method for calculating the transaction’s ‘value,’ and (ii) criteria for evaluating the ‘substance’ of the target’s Indian presence. This structured approach aims to provide clarity and ensure that relevant transactions undergo the necessary regulatory scrutiny to maintain fair competition in the marketplace.

Determining Notifiability of Transactions

Determining the notifiability of transactions under the DVT requires parties to carefully evaluate the ‘value’ of both signed but not yet consummated transactions before the DVT’s enforcement, as well as those currently in the execution pipeline. The term ‘value’ has been broadly defined, encompassing not only the direct consideration paid but also various interconnected aspects of a transaction, including incidental arrangements and any additional financial commitments. This comprehensive definition is intended to capture the full economic implications of a deal. The guidelines for calculating “value” also address situations where the transaction’s worth may not be clearly outlined in the transaction documents.

In such cases, the assessment of the company’s board of directors is prioritized. If the board’s approval of a transaction does not provide a ‘best estimate’ for a future outcome, as specified in the documents, the maximum payable amount will be considered as the transaction’s value. Furthermore, if the ‘value’ cannot be determined with certainty, the transaction may be presumed to exceed the ₹2,000 crore threshold, necessitating mandatory notification to the CCI. While these explanations provide some clarity, including a straightforward FAQ issued by the CCI, they still offer limited guidance for navigating this new regulatory framework. Consequently, parties engaged in transactions will need to meticulously evaluate the implications of these changes. This includes reassessing their strategies and ensuring compliance with the evolving regulatory landscape, as failing to do so could result in significant consequences. Overall, the new DVT provision compels a more rigorous examination of transaction values and their implications for notifiability under the Competition Act.

In addition to assessing transaction value, the ‘substance’ of a target’s business in India will be evaluated based on user-based thresholds specifically for entities providing digital services. Additionally, gross merchandise value or turnover values will be considered for target entities across all sectors, including digital services. This approach is likely to lead to an increase in the notifiability of transactions, particularly in the digital sector. For target entities offering digital services, the requirement is that their gross merchandise value or turnover in India must be at least 10% of their global figures. However, for entities in other sectors, this requirement is more stringent: not only must their gross merchandise value and turnover be 10% or more of global values, but they must also exceed a ₹500 crore benchmark—an added criterion not applicable to digital service providers. The adoption of a merger control regime based solely on ‘deal value’, irrespective of the parties’ size, is a contentious topic.

While similar thresholds exist in certain jurisdictions, India has increasingly focused on addressing ‘killer acquisitions’—transactions that could stifle competition. Interestingly, the DVT, which ideally should have been a sector-agnostic threshold, appears to specifically target ‘digital markets’ by lowering the threshold for them.

Together, the DVT and Combination Regulations significantly enhance the merger control regime’s capacity to scrutinize a broader array of potential transactions, particularly within the digital services sector. Another critical consideration is whether the introduction of the DVT will create an additional regulatory layer that could undermine the government’s advocacy for improving the ‘ease of doing business.’ As companies navigate these new requirements, there may be concerns that the added complexity could hinder rather than facilitate business operations.

Provides Greater Clarity

To conclude, while the amendments may add new layers of compliance for businesses, they also provide greater clarity, helping India maintain its appeal as a destination for both domestic and international investments. As the global economy continues to evolve, India’s proactive regulatory measures will play a vital role in shaping the M&A landscape both locally and globally. For businesses, these new rules bring challenges, responsibilities, and opportunities. Success will depend on understanding the intricacies of the regulations, ensuring voluntary compliance, and leveraging the efficiencies associated with expedited reviews and clearly defined exemptions.