Understanding Deal Value Threshold Under Competition Amendment Act 2023

The Deal Value Threshold (DVT), introduced as part of the Competition Amendment Act 2023, marks a significant change in how mergers and acquisitions (M&A) will be scrutinised in India. This provision, which came into effect on 10 September, is expected to transform the regulatory landscape for M&A, particularly in sectors like digital and technology, where traditional rules have struggled to keep pace.

What Is The Deal Value Threshold (DVT)?
The DVT provision targets M&A where the deal value exceeds Rs 2,000 crore and where the target company has significant business operations within India. The goal is to catch deals that may have escaped scrutiny under the previous asset or turnover-based limits. This is particularly relevant for sectors like digital and technology, where a company’s assets may be minimal, but its market influence could be immense.

This new rule is designed to fill a critical gap. Traditionally, M&A in India has been assessed based on the assets or turnover of the involved companies. However, several deals in the digital sector, where issues like big data and privacy are central, have bypassed scrutiny because their asset or turnover values were too low. The Ministry of Corporate Affairs (MCA) hopes this new threshold will ensure such transactions do not slip through the cracks.

“The deal value threshold is now live. All deals with a deal consideration of over INR 2000 crore and where the target entity has substantial business operations in India will need to evaluate the reportability of their transaction to the Competition Commission of India. The existing de minimis (asset and turnover thresholds) and deal value threshold (DVT) are mutually exclusive,” said Anisha Chand, Partner at Khaitan & Co.

Why Was This Provision Introduced?
The Competition Commission of India (CCI), which oversees mergers to ensure they do not harm competition, had previously faced challenges in evaluating certain digital sector transactions. These companies often hold vast amounts of data and influence but report low asset or turnover figures, allowing them to bypass traditional thresholds. The introduction of the DVT provision is a direct response to this gap, ensuring that transactions with a high deal value, regardless of their asset or turnover size, will be reviewed by the CCI.

“The much-anticipated Deal Value threshold is effective from 10 September 2024 and now all transactions valued over INR 2,000 crore and with targets having substantial business operations in India mandatorily require an approval from the CCI. The CCI is expected to release its amended Combination Regulations shortly,” Anshuman Sakle, Partner at Khaitan & Co, highlighted the broader impact of the DVT.

He further added that this will increase the number of transactions requiring CCI approval, and the regulator may need to enhance its capacity at its merger control division.

Key Features Of The Deal Value Threshold
Applies To M&A With A Deal Value Exceeding Rs 2,000 crore: If a transaction crosses this threshold and the target company has substantial business operations in India, it will require CCI approval.

Target Company’s Business Operations: While the DVT is deal value-focused, it only applies if the target company has a significant presence in India. This was a refinement made following recommendations from a parliamentary panel.

New Regulations And Fee Structure
With the DVT provision coming into force, the CCI has also introduced additional regulations to govern how these deals will be assessed. The Competition Commission of India (Combinations) Regulations, 2024, clarify how deal values will be calculated and the associated filing fees.

Calculating Deal Value: The total transaction value will include all forms of valuable consideration, whether it is immediate or deferred, direct or indirect. This includes payments for intellectual property rights, covenants, and other obligations.

Fees For Filing: The new regulations specify that companies will need to pay fees based on the type of filing they make.

Form I Filings: For M&A with lower combined market shares, the fee is set at Rs 30 lakh.

Form II Filings: If the parties have a combined market share of over 15 per cent or individual market shares of over 25 per cent, they must file under Form II, with a fee of Rs 90 lakh.

Safe Harbour For Smaller Deals
While the DVT provision increases scrutiny on large deals, the new amendments also provide some relief for smaller transactions. Under the Competition (Minimum Value of Assets or Turnover) Rules, companies with assets below Rs 450 crore or a turnover below Rs 1,250 crore are exempt from seeking CCI approval. This "safe harbour" rule is designed to reduce the regulatory burden on smaller M&A that are unlikely to raise competition concerns.

A Global Approach
The introduction of the DVT provision brings India’s competition regulation in line with those of global regulators, such as in the US and Germany, where deal value thresholds have been implemented to address similar concerns in the digital and technology sectors. By focusing on deal value, rather than just assets or turnover, India is moving towards a more holistic approach to competition regulation.

The DVT under the Competition Amendment Act 2023 represents a significant shift in India’s approach to regulating M&A. It eyes to ensure that large transactions, particularly in the digital and technology sectors, are scrutinised to prevent anti-competitive practices, even if their asset or turnover values are low. As the new rules come into force, CCI is aiming to maintain a level playing field, ensuring that no deal, no matter how big or small, escapes oversight if it poses a threat to competition in India.