Transaction Value Threshold Hits and Misses

India recently introduced a new metric – the transaction value threshold (DVT) – for antitrust purposes, marking a significant change in the way mergers and acquisitions (M&A) are scrutinised.

Traditionally, India’s competition system has focused on asset- and turnover-based thresholds to filter out transactions that will require prior approval from the antitrust regulator. However, high-value transactions in sectors such as digital technology and pharmaceuticals often do not meet such traditional thresholds but can have a significant impact on the market. DVT was introduced to address these market-changing consequences.

A unique aspect of DVT is that unlike conventional financial metrics, this test takes into account the value of the transaction itself, potentially capturing transactions involving companies with minimal domestic revenues but significant market impact. This development is in line with global trends and reflects India’s proactive stance in adapting its antitrust laws to contemporary market realities.

Comparison with deep vein thrombosis in Germany and Austria

India’s DVT stands out compared to similar regimes in Germany and Austria. In 2017, both countries introduced their own transaction value thresholds, targeting high-value transactions that escape scrutiny due to low turnover. The German law was amended to include a DVT that applies to mergers exceeding EUR 400 million, provided the target company has “significant business operations.” Austria introduced a similar threshold of EUR 200 million. However, both laws do not prescribe clear tests for “significant business operations,” making the law somewhat ambiguous and difficult to apply in practice.

In contrast, DVT in India provides a more comprehensive approach to defining significant business operations. The Competition Commission of India (CCI) has provided precise and objective tests for assessing significant business operations. This clarity provides greater predictability for companies navigating M&A reviews.

Under Indian law, the DVT Act applies to transactions whose value exceeds Rs 2,000 crore (approximately USD 239.52 million) and the target company has “substantial business operations in India” (SBOI).

While the DVT is designed as a sector-neutral test, its bias towards checking technology transactions is obvious. For example, the DVT has special provisions for assessing SBOI for companies that provide services over the internet (digital service providers). Under this, a digital service provider will be considered to have SBOI if it has 10% of its global users or customers, 10% of its gross market value (GMV) or 10% of its turnover in India.

Interestingly, the additional requirement of gross market value (GMV) and turnover in India of at least Rs 500 crore (approximately USD 59.88 million) – which is necessary for non-DSP companies to enter into an SBOI agreement – ​​does not apply to DSPs.

In this regard, with a particular focus on the technology industry, DVT has the potential to capture “killer M&As.” These are acquisitions in which the target companies may not generate significant revenues in the growth phase but have the potential to attract huge valuations due to user data, network effects, or strategic potential. This phenomenon is particularly prevalent in the technology industry, where acquisitions such as Facebook’s purchase of WhatsApp or Google’s acquisition of YouTube would likely not be subject to traditional scrutiny despite having a profound impact on global markets.

DVT Loopholes for Infrastructure and Life Sciences Contracts

While India’s new DVT regime is a step forward in addressing the likely adverse impacts of high-value transactions, it does not yet cover significant acquisitions in non-digital sectors, particularly infrastructure and life sciences.

These sectors often have high valuations associated with tangible assets such as manufacturing plants, research and development (R&D) facilities, pipeline inventions, patents that have not yet been commercialized, and so on. These assets may not yet be generating revenues, but they still represent significant market power.

As such, a transaction involving the acquisition of key assets that have not been commercialized may escape antitrust scrutiny because it does not exceed the revenue threshold of INR 5 billion. For example, a pharmaceutical company may acquire a large portfolio of non-commercialized patents, resulting in a transaction that has a significant valuation due to the strategic importance of the patents.

Similarly, an infrastructure transaction involving the acquisition of power plants, ports and other key infrastructure can have a significant impact on market dynamics and yet may go unnoticed by the CCI.

India is the latest country to experiment with DVT, hoping to capture important, market-changing deals. While the approach seems to be effectively targeting M&A deals in the technology sector, significant deals in other industries may still evade scrutiny.

To address this gap, India could consider including an asset-based criterion in its DVT, especially in sectors where valuations are driven by long-term investments in infrastructure or R&D. This adjustment would better reflect the realities of industries that rely on large capex and extended project timelines, ensuring that all high-impact transactions are subject to appropriate antitrust scrutiny.

(Anisha Chand is a Partner and Tanveer Verma is a Principal Associate at Khaitan & Co. The views expressed are personal.)