Urvi Pathak
(Research Fellow, Vidhi Centre for Legal Policy)
The Indian tech M&A space has remained hot in the first half of 2024, witnessing several big-ticket deals exceeding USD 1 billion valuations. As digital mergers boom, antitrust regulators globally have intensified scrutiny on the potential anti-competitive impacts of these transactions.
A telling example is the clearance to Facebook’s (later rechristened as ‘Meta’) $20 billion acquisitions of Instagram and WhatsApp between 2012-2014, which critics argue signalled the unchecked rise of Big Tech. Meta is now under fire with fresh allegations in a lawsuit first opened in 2020 by the US antitrust agency for allegedly abusing monopoly power by acquiring competitors, and withholding critical information to obtain merger approval. If the antitrust regulator is successful, a possible outcome could be the unwinding of the mergers, forcing Meta to divest Instagram and WhatsApp.
India has been cognisant of the shifting undercurrents in global digital merger review. The Competition Law Review Committee recognised the need for new tools to assess digital mergers, recommending the introduction of the concept of ‘Deal Value Threshold’ (DVT). The 53rd Parliamentary Standing Committee report (2022) also identified M&A as an anti-competitive practice employed by Big Tech giants.
In response, India incorporated the DVT into the Competition Act, 2002 through an amendment in 2023. The MCA notified the DVT provisions on 9 September 2024, followed by the Competition Commission of India (CCI) issuing the corresponding CCI (Combinations) Regulations, 2024 (Combinations Regulations) a day later, marking the beginning of a new chapter in Indian merger review jurisprudence.
Need for a ‘Deal Value Threshold’ in Digital Merger Review
The core challenge in digital mergers lies in the tools used by competition/antitrust regulators to determine the true ‘value’ of a merger. Traditionally, well-established metrics of ‘asset’ and ‘turnover’ were used to assess whether a merger required regulatory approval and whether it posed potential anti-competitive effects on the market.
However, digital enterprises do not fit neatly into these traditional frameworks. Their ‘true value’ often lies in massive data collecting, access to vast user bases and sophisticated technologies. Moreover, Big Tech frequently engages in ‘killer acquisitions’, buying high-value startups that fall below the ‘notifiable’ thresholds for merger review.
The DVT addresses this gap in merger review by assessing the ‘valuation of a transaction’ identified by merging parties, rather than relying on the traditional metrics of asset and turnover. The DVT framework is a two-limb test: (i) transactions exceeding a global deal value of INR 2000 crore (approx. $240 million), and (ii) having ‘substantial business operations in India’ (SBOI), must seek clearance from CCI.
Here, the INR 2000 crore threshold effectively acts as a ‘proxy’ for market dominance, capturing the financial heft of the merging entities, while the SBOI requirement establishes an ‘India nexus’ to ensure that only mergers impacting Indian markets are subject to CCI scrutiny.
Potential Challenges in Implementing DVT
The detailed procedure for calculating DVT and SBOI has been delineated in the Combinations Regulations. The Combinations Regulations provide a broad range of ‘considerations’ to determine whether the INR 2000 threshold is met. However, the clinching point in DVT assessments is that if the value of a transaction cannot be established with reasonable certainty, it will be ‘deemed’ to exceed the INR 2000 crore benchmark. This ‘deeming’ provision may lead parties to adopt a more cautious approach while reporting transactions, potentially increasing the CCI’s caseload.
Next, the Combinations Regulations provide that the SBOI requirement is satisfied if the target enterprise meets any of three conditions: (i) 10% of its global business or end users in digital services are in India, or (ii) 10% of its global merchandise value in the 12 months prior to the merger is in India, or (iii) 10% of its global turnover from all products and services is in India.
Two key issues leap out from the SBOI requirement: first, the CCI has not clarified whether it will confine its assessment of the 10% user threshold to ‘active’ users, even though digital services often have a considerable proportion of users that remain inactive or dormant. Second, the concept of ‘gross merchandise value’, initially introduced in CCI’s e-commerce market study, is unique to India and lacks global consensus owing to the variations in its definitions, formulae etc. The precise scope of this concept will likely evolve only through CCI’s implementational practice in coming years.
Finally, in a surprising move, the final Combinations Regulations omit the provision on ‘pre-filing consultation’ (PFC), which had been part of the draft circulated by the CCI earlier for stakeholder consultation. PFC is an informal guidance mechanism, allowing parties to seek clarifications from the CCI on merger filings. Given the novel approaches to digital merger review under DVT and SBOI, a formalised PFC process would have immensely benefited parties.
Way Forward
Till date, CCI has maintained an impeccable record in merger review, having never blocked a transaction. This success is largely attributable to the clear and predictable traditional metrics of asset and turnover, along with the PFC mechanism, which collectively provide merging parties with ample guidance in navigating merger approvals.
The anti-competitive harms in digital markets undoubtedly justify the need for new tools for evaluating the value of a transaction. However, the introduction of novel methodologies for calculating DVT and SBOI, coupled with the lack of a formalised PFC process, raises new uncertainties for digital mergers. The success of the new regime will hinge on the CCI providing further regulatory guidance and creating certainty through its practice to ensure that ease of doing business remains unhindered.
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