Digital Biz M&As With Critical Consumer Base And User Data To Face CCI Scrutiny

The level of consumer base and user data is going to determine if mergers of digital businesses will come under the Competition Commission of India (CCI) ambit. 

These parameters will determine ‘significant business operations’ in India, CCI chief Ashok Kumar Gupta said, as per a Business Standard report. 

CCI Chief Gupta is of the view that the local nexus criteria for the purpose of the deal value threshold should be based on factors that affect valuations of an entity in new-age markets. 

“These criteria would largely be based on market-facing factors such as the number of users, the number of contracts, the aggregate amount of payment received, etc. of the target that are not completely reflected in assets and turnover as recorded in the financial statements,” he said as quoted in the report.

However, following consultations and through deliberations, regulations related to digital M&As would be finalised.

With the local nexus criterion, M&A transactions where the target exclusively operated abroad or had limited business operations in India would be excluded, Gupta added.

The Competition (Amendment) Bill, which was introduced in the monsoon session of the parliament, has been referred to the Jayant Sinha-led Standing Committee of Finance for review. 

To examine the Bill and give its report, the panel has been given a timeline of three months. 

Under the Bill, a minimum deal value of INR 2,000 Cr has been proposed as a criterion for notification to CCI. 

Currently, the companies in the process of M&A have to seek CCI approval in regards to deal size and turnover.

“Entities operating a successful business model in newage business command significant valuation, yet have insignificant assets and no or insignificant turnover recorded in their financial statements,” CCI Chief noted while explaining the necessity of additional criteria such as deal value.

According to him, the INR 2,000 Cr threshold is in line with the global jurisdictions like Germany and Austria.

There have been 1,100 mergers and acquisition (M&A) deals in the Indian startup ecosystem since 2015, as per Inc42’s ‘The State of Indian Startup Ecosystem Report, 2022’.While the first half of 2022 has already witnessed 175 deals, the report predicts the number to reach 1200 by the end of the year.