Big M&As of digital businesses likely to come under CCI ambit soon

Big mergers and acquisitions (M&As) of digital businesses may soon require the Competition Commission of India’s (CCI’s) approval. The antitrust regulator is working on new rules that will mandate deals above a threshold to seek its nod.

At the moment, companies in the process of M&A must seek the CCI’s approval with relation to asset size and turnover, as defined in the Competition Act. It plans to introduce “deal size” or “deal value” as an additional criterion to bring M&As in the digital space within its purview.

Several important deals in the digital space, like the Facebook-WhatsApp merger, have escaped CCI scrutiny due to current regulations.
 

“The deliberations are underway to bring combinations of digital firms within the ambit of merger review. The regulator is examining global practices in this regard and may soon finalise the terms and thresholds of the parameter,” said a person privy to the discussion.

This could be done through amendments to the Competition Act, which is expected to be tabled in the upcoming parliament session.

Sources say the deal value threshold could be at par with that in developed jurisdictions.

For instance, Germany and Austria adopted alternative transaction-value thresholds in 2017, requiring the notification of acquisition of targets with significant activities in those countries by large companies, even if the targets generate no revenue there. In Germany, the new review powers extend to deals with a global value over euro 400 million and, for Austria, those with a global value over euro 200 million.

More than 50 countries have the discretion to conduct competition reviews of mergers below mandatory notification thresholds, and the European Commission, European Union member states, the UK and others use this authority more frequently.

“This is among critical issues for the regulator as highly valued targets in the digital sector may not have a significant asset base or generate a significant turnover. Instead, their valuations come from access to large customer bases and data/intellectual property,” said Vaibhav Choukse, partner & head of practice, competition law, at JSA.

The new rule will be in line with a draft Bill proposed by the Ministry of Corporate Affairs in February 2020, based on the recommendations by the Competition Law Review Committee (CLRC).

“The new threshold would likely be accompanied by a local nexus test as well to ensure that M&As that may not actually impact competition in India or have minimal nexus to India are not required to be notified to the CCI,” said Akshayy S Nanda, partner, competition and data privacy practice, Saraf and Partners.

It may be mentioned here that the ministry had constituted the CLRC in October 2018 to recommend changes to India’s competition law regime, given the changing business environment and to bring it in line with global best practices.

The regulator feels that many deals in the digital space have comprised companies that have not started monetising their products or services and don't have any significant assets, so it is important to have additional parameters to vet such deals.

Expanding mandate 
 

•    M&As in digital space escape CCI scrutiny 
 

•    Existing assets and turnover criteria inadequate for such deals 
 

•    Introducing 'deal size' norm could bring many digital M&As under CCI purview 
 

•    Threshold of deal value could be at par with other developed jurisdictions
 

•    New criteria would restrict digital firms' dominance & anti-competitive conduct