In the latest news, India’s M&A scene faces a new hurdle.
Basically, a new antitrust rule put into place this week is set to up the ante when it comes to regulatory scrutiny of any India-related M&A.
M&A Rule Affecting Indian Economy
It is designed partly to prevent “killer acquisitions,”.
But in contrast, the so-called deal value threshold rule is creating its fair share of concern.
In addition to this this rule appears to have underscoring a regulatory dilemma between too much and too little intervention in the country.
Under this rule, deals that exceed 20 billion rupees ($240 million) in size, and where the target has a substantial business operation in India, will need approval from the Competition Commission of India effective this week.
This all started in response to a spate of tech acquisitions in the West (and some in India) viewed as having anti-competitive outcomes — such as when a giant incumbent buys a smaller rival just to quash or subsume its technology (so-called killer acquisitions) or deals that could result in an over-concentration of customer data or network ownership.
How Does This Affect?
The rule was first mooted six years ago.
Mostly these kinds of transactions often escaped India’s existing deal filing thresholds as they’re largely based on the revenue and asset size of the transacting parties.
So, only large companies and big deals ended up being targeted.
According to the partner at Delhi-headquartered law firm Shardul Amarchand Mangaldas, Naval Chopra, while the existing framework had its gaps, zeroing in on deal value threshold is not the best way to plug those.
He seems to be both skeptical of the new rule’s effectiveness and wary of its success.
Adding, “Not even gypsies with crystal balls can predict whether a small company being acquired by a large company will result in a killer acquisition.”
Basically, this will result in a greater regulatory scrutiny that could create hurdles for young companies that hope to be acquired in their early years to access funding and scale.
Chopr said, “It could have a chilling effect on innovation.”
India is not the only one alone in this situation as the policymakers in the US and the EU have also sought measures to more effectively challenge acquisitions of startups by large technology platforms.
It appears that this newly launched implicit “M&A tax” runs the risk of discouraging venture capital investment predicated on the ability of startups to monetize successful early innovations through sales to the bigger companies, as mentioned by Jonathan Barnett, a law professor at USC Gould School of Law in California,last year.
