The Competition Commission of India’s (CCI) approval threshold for mergers and acquisitions has been raised by the Ministry of Corporate Affairs (MCA).
The MCA announced in a notification that the rupee exchange rate and wholesale price index would be used to determine the threshold value, which has been increased by 150%. This was seen as a move towards improving the “ease of doing business” by the ministry. The MCA stated in a separate announcement that a merger or acquisition would not require CCI permission if the acquisition target has an asset value of less than INR 450 crore or a turnover of less than INR 1,250 crore. The previous criterion was INR 1,000 crore for turnover and INR 350 crore for asset valuation. Two years would pass after the date of publication in the official gazette, after which the exemption would be in effect.
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According to Section 5 of the Competition Act, any acquisition of one or more businesses, as well as any merger or amalgamation of businesses that exceeds a certain threshold, qualify as “combines” for the purposes of the Act and need approval from the antitrust authorities.
As many early-stage firms have assets and turnover below the threshold restrictions, the move is anticipated to facilitate M&A activity in the startup space.
The most recent development coincides with the Centre’s ongoing efforts to update the nation’s competition rules, particularly with a focus on controlling Big Tech in the face of growing digitalization. The CCI has also established a new body to recommend legislation for the digital economy as part of these initiatives.
Regulatory authorization is required for companies with international activities if their combined assets exceed $1.25 billion (at least ₹ 1,250 crore in India), as opposed to $1 billion (with ₹ 1,000 crore in India) previously. The thresholds for turnover were increased by 25% from the previous levels to $3.75 billion globally and ₹3,750 crore in India.
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In contrast to the previous criteria of ₹8,000 crore and ₹24,000 crore, two domestic organisations interested in an M&A deal will now need to obtain the CCI’s permission if their combined assets and turnover exceed ₹10,000 crore and ₹30,000 crore, respectively.
The total asset and turnover limitations for two foreign groups operating in India have been raised to $5 billion (with at least ₹1,250 crore in India) and $15 billion (with ₹3,750 crore in India), respectively. These are 25% higher than the previous restrictions.
Shardul Amarchand Mangaldas & Co. partner Shweta Shroff Chopra stated: “The revisions mark a shift towards a more business-friendly India.” According to Chopra, higher thresholds will “facilitate smoother M&A processes, making transactions more efficient by reducing the regulatory hurdles.”.
The MCA described the changes as a move towards increased “ease of doing business” in a statement.
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Unnati Agrawal, partner at Induslaw, commented: “This development may ease the regulatory burden on certain ongoing transactions as they may now avail of the benefit of the revised de minimis thresholds and be exempt from the requirement of obtaining prior approval of the CCI.”
Another notification states that an acquisition target would not require CCI approval if its assets are less than ₹450 crore or if its annual turnover is less than ₹1,250 crore. The previous thresholds were ₹1,000 crore for turnover and ₹350 crore for assets. This two-year relief is provided. Periodically, criteria are raised to reflect shifts in the exchange rate and the wholesale price index. In 2016, the most recent changes were implemented.
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