There will be prolonged scrutiny procedures for many Indian deals because of the DVT
By Apratim Sarkar | October 19,2023
Mergers and Acquisitions (M&A) deal closures will face delays due to the Competition Commission of India’s (CCI) new regulation introducing a Deal Value Threshold (DVT), according to top global accounting firms.
CCI’s scrutiny procedure will hamper business activity because large deals will now take months, according to a senior associate at PWC, who spoke to The Bottomline on the condition of anonymity.
The new DVT, introduced in the Competition (Amendment) Act, 2023 sets a new minimum threshold at Rs. 2,000 crore for the value of a deal, beyond which the companies require CCI approval. Previously, only transactions exceeding specified threshold limits based on the value of assets or turnover of the parties involved faced scrutiny by the CCI.
PwC suggested increasing the DVT to Rs. 5,000 crore from Rs. 2,000 crore in response to the CCI’s consultation paper on new draft regulations.
“A new DVT will impact domestic and foreign deals,” said Sameer Maniar, executive director of tax at Deloitte.
“It is nearly impossible for CCI to implement 100% of this regulation,” said Maniar, expecting a delay in the period of acquisition even after a reduction in approval timeline to 150 days from 210 days.
Several countries, including the UK and the US, have introduced DVTs after Facebook acquired WhatsApp in 2014, which escaped antitrust scrutiny due to its free app status and undervalued balance sheet.
A similar law in the UK empowers its competition regulator to audit deals worth more than $ 124 million, approximately Rs. 1032 crore. The US too raised its deal value threshold early this year to $ 111 million, ( Rs. 920 crore).
Both regulations aim to exempt smaller deals from regulatory scrutiny, enabling US and UK watchdogs to concentrate on high-value transactions.
“The implementation of DVT could span 5 to 6 months, particularly with impending elections. The government is keen on finalizing it before the elections to underscore transparency in deal-making,” stated Vedant Gupta, Senior Manager of M&A at Ernst & Young.
Many Indian mergers and acquisitions are valued over the new DVT ,Gupta said. Most of the deals in India take place above the threshold value, he added.
The possible delay in completing deals could further slow M&A activity.
From January to September this year, 750 deals were closed. This marks a 15% reduction compared to the 937 deals recorded during the same period last year, according to Bloomberg’s compiled data.
The M&A business is experiencing a slowdown due to economic challenges in the “Western economy”, a partner at KPMG said. Companies allocate additional revenue towards strengthening their core operations and spend less on mergers or acquisitions, dragging M&A activity down, he added.
“Complicated M&A deals may get clearance only in three to four months if CCI takes it seriously,” said an M&A partner at KPMG Global.