The ministry of corporate affairs (MCA) has relaxed the exemption limits for notifying mergers and acquisitions (M&As) to the Competition Commission of India. In the new regime, companies are not required to notify the regulator if the acquired company has assets (including subsidiaries) of less than Rs 450 crore and turnover below Rs 1,250 crore. Previously, the thresholds were Rs 350 crore for assets and Rs 1,000 crore for turnover.
Experts said that the revision of the thresholds for combinations is to make CCI focus on deals where the impact on the competition landscape is substantial. “With the increase in the number of high-value deals, the ministry wants to take the burden away from CCI to scrunitise bigger M&As in detail,” said Rohit Jain, Managing Partner, Singhania & Co.
However, revising the exemption limits upwards has its own challenges. For instance, a large number of start-ups don’t have assets or revenues in their initial years to qualify for CCI inspections at the time of their acquisitions. But they do add immense value for the acquiring companies post the deal, and could have implications for competition in the relevant markets.
For instance, when Facebook acquired WhatsApp in 2014, the deal didn’t come under the CCI’s purview because WhatsApp didn’t breach the thresholds. Later, the deal caused a great deal of discomfort amongst regulators across the world, including CCI, who couldn’t interfere in it despite the deal having a far-reaching consequence on the instant messaging market.
In fact, a May 2020 report by OECD said by providing exemptions, the competition regulators are giving a rise to “killer acquisitions” wherein the acquiring firm’s strategy is to discontinue the development of the targets’ innovation projects and pre-empt future competition.
“In the early stages of their development, these targets tend to have low turnover as their business models concentrate on creating a large user base, collecting significant amounts of data or carrying out research and development before seeking to monetise their services or generate revenue by selling their products. The result is that such acquisitions may not come to the attention of competition authorities that focus upon turnover despite the potential for them to have anti-competitive effects, either as killer acquisitions, or as nascent potential competitor acquisitions,” OCED report said.