Higher CCI exemption may encourage companies to pursue M&A route for growth: Experts

The increased asset and revenue thresholds described above are applicable for a period of 2 years

The government’s decision to raise the assets and revenue threshold for smaller business deals exempted from Competition Commission Of India (CCI) approval emphasises a strategic effort to encourage M&A activities while balancing regulatory oversight, experts said. With this, companies may be more inclined to pursue strategic acquisitions or mergers as part of their growth strategies.

The government on March 8 announced that it would raise the threshold for combination filing i.e. smaller business deals, including mergers and acquisitions, to happen without the prior approval of the Competition Commission Of India (CCI).

“The increased thresholds mean that smaller deals can happen without needing approval from the CCI. Companies may be more inclined to pursue strategic acquisitions or mergers as part of their growth strategies. This adjustment is anticipated to streamline the regulatory process for smaller scale acquisitions and mergers, making them more accessible and feasible for businesses operating within these parameters,” Rachit Sharma, Deputy General Manager, Taxmann told Moneycontrol.

Combinations involving asset values up to Rs 450 crore and turnovers of Rs 1,250 crore are now exempted from seeking prior approval of CCI. There is a substantial increase from the previous thresholds of Rs 350 crore for assets and Rs 1,000 crore for turnover.

"This is a welcome move as stakeholders in the Indian M&A ecosystem have been looking forward to revised target exemption thresholds for a long time now. The increased thresholds will increase the number of M&A transactions exempted from a CCI notification requirement. The revised thresholds also pave the way for the deal value thresholds, which could see the light of the day soon,” Aparna Mehra, Partner, Shardul Amarchand Mangaldas & Co., told Moneycontrol.

These thresholds, which have been increased after a period of almost eight years, will further facilitate the ease of doing business in India and positively impact both timelines and costs of transacting parties, Mehra opined.

“With the growth in the Indian landscape, it is important for regulatory limits to keep pace. This is a positive development from the CCI, recognising that size and scale of businesses have moved and deals have to be larger to affect competition.  While arguably, the limits could be much larger, different sectors may end up with different outcomes. Hence, smaller steps to fine tune this makes sense.  Overall, directionally a good move,” Vishal Agarwal, Partner, Grant Thornton Bharat, told Moneycontrol.

The increased exemption is welcome news for parties with comparatively lower asset value or turnover, as they typically pose a reduced risk of negatively impacting competition in the market. This will also ease the heavy caseload for the CCI and reduce its regulatory burden.

“The increased thresholds bring a positive change to India’s merger control regime as with the increased thresholds, it is anticipated that there will be a decrease in the number of cases necessitating review by the CCI, thereby potentially expediting the review processes,” Vaibhav Choukse, Partner and Head of Practice, JSA Advocates & Solicitors, told Moneycontrol.

The increased asset and revenue thresholds described above are applicable for a period of two years, with effect from March 7, 2024.

“Over the years, the government has increased the small target exemption thresholds as well as the thresholds for the parties and group tests with the increase in inflation, etc. This is in line with the practice world over where the relevant thresholds are amended periodically. The increase in thresholds will definitely benefit business as a number of transactions should be able to close without the requirement of a CCI approval,” Anshuman Sakle, Partner, Khaitan & Co, told Moneycontrol.