India’s Competition Law Update: The Deal Value Threshold and its Implications for M&A

Deal Value Threshold: An Overview

Under the Revised Competition Law, the CCI now mandates prior notification for combinations (as defined in the Competition Act) that meet the following conditions:

• The transaction value exceeds INR 20 billion (approximately USD 240 million); and
• The target enterprise has a “substantial business operations in India”

This introduces a deal value threshold—an additional criteria alongside the previously existing tests based on the size of the parties’ assets and revenues both within India and worldwide. Where the transaction satisfies the above parameters, such transaction will require prior approval of the CCI, regardless of the size of the target enterprise in India.

Substantial Business Operations in India

For the deal value threshold to apply, the target company must have “substantial business operations in India” (“SBOI”). The CCI defines SBOI based on whether the target enterprise is engaged in digital services or other services:

• For a business engaged in digital services※1, the SBOI test is met if: (a) The number of its business users or end users in India is 10% or more of its global number of such users; or (b) Its gross market value (GMV) for 12 months preceding the relevant date※2 in India is 10% or more of its total global GMV; or (c) Its turnover during the preceding financial year in India is 10% or more of its global turnover.
• For a business engaged in non-digital services, the SBOI test is met if: (a) Its GMV for 12 months preceding the relevant date in India is 10% or more of its total global GMV and more than INR 5 billion; or (b) Its turnover during the preceding financial year in India is 10% or more of its global turnover and more than INR 5 billion.

What is Included in Transaction Value?

The Revised Competition Law clarifies that the “value of transaction” includes every valuable consideration, whether direct or indirect, immediate or deferred, cash or otherwise, and includes:

• Consideration for any covenant, undertaking, obligations or restrictions imposed on seller or any other person, if such consideration is agreed separately
• Consideration for all inter-connected steps and transactions
• Consideration payable during two years from the date on which the transaction would come into effect for arrangement(s) entered into as a part of the transaction or incidental thereto including technology assistance, licensing of intellectual property rights, usage rights of any product, service or facility, supply of raw materials or finished goods, branding and marketing
• Consideration for call option and shares to be acquired assuming full exercise of such option
• Consideration payable, as per best estimates, based on the future outcome specified under the transaction documents

More importantly, if the value of transaction cannot be established with reasonable certainty, by the board of directors or any other relevant approving authority of the person obligated to file notification to the CCI, the value of the transaction may be considered as exceeding the deal value threshold.

Exemption for Small Mergers: De Minimis Rule

Under the previous regulatory framework, a de minimis exemption allowed certain small combinations (where the target enterprises’ assets in India were under INR 450 crore or its revenue in India was below INR 1,250 crore) to be exempted from prior approval of the CCI. However, with the introduction of the deal value threshold, the de minimis exemption does not apply if the transaction satisfies the conditions of the deal value threshold.

Conclusion – Key Implications for M&A Transactions

The introduction of the deal value threshold marks a significant shift in how large-scale M&As will be assessed, bringing several key considerations for businesses to address:

• Advance Notification Requirements: Combinations that meet the new deal value threshold must submit a prior notification to the CCI. The transaction cannot be completed until the CCI has granted approval.
• Impact on Digital Services and Global Transactions: Companies, particularly in the digital sector or operating in multiple jurisdictions, must now carefully assess whether their business operations in India qualify as substantial and meet the SBOI test under the Revised Competition Law.
• Increased Scrutiny for High-Value Transactions: The CCI’s ability to review high-value transactions, including those that might not have triggered scrutiny under traditional asset- or revenue-based tests, signals a shift towards a more comprehensive competition review process, particularly for large or complex international deals.
• Strategic Planning for M&A Deals: Companies, especially those with significant operations in India or those planning cross-border deals, must be ready to revise their strategies and timelines to ensure compliance with the Revised Competition Law.