MCA raises mergers and acquisitions thresholds for merger regulation

The Ministry of Corporate Affairs (MCA) has announced an increase in the threshold limits for mergers and acquisitions (M&As), which will require approval from the Competition Commission of India (CCI).

The adjustment raises the asset and turnover thresholds for companies, aiming to simplify the regulatory process and promote ease of doing business. Under the new regulations, transactions involving companies with assets up to Rs 450 crore or turnover up to Rs 1,250 crore are exempt from seeking prior CCI approval.

The impact on startups and small businesses

This regulatory shift is expected to significantly benefit startups and smaller enterprises. By raising the threshold for CCI approval, the MCA aims to facilitate smoother and more efficient M&A activities among early-stage companies, which often fall below the new asset and turnover limits.

The move could provide a much-needed boost to the Indian startup ecosystem, which has seen a decline in M&A deals in recent years.

Legal experts weigh in

Legal professionals have provided insights into the implications of the new thresholds. According to Venkatesh, Managing Partner at SKV Law Offices, and Avaantika Kakkar, Partner at Cyril Amarchand Mangaldas, the revised limits are a response to the evolving market dynamics and the need to accommodate the increasing value of transactions. The exemption criteria are based on the consolidated financials of the target enterprise for the preceding financial year, ensuring that the valuation includes intangible assets like brand value and intellectual property rights.

A two-year window of opportunity

The exemption from CCI approval under the new thresholds is not indefinite. It is set to last for two years from the date of publication in the official gazette. This temporary relief period is designed to stimulate M&A activity among startups and small businesses, potentially leading to a more vibrant and dynamic market landscape.

Anticipating the effects on M&A trends

The MCA's decision comes at a critical time for the Indian economy, with the startup sector experiencing a slowdown in funding and M&A deals. However, with major central banks, including the US Federal Reserve, expected to cut interest rates in 2024, there is optimism that M&A activity will pick up towards the end of the year. Additionally, this regulatory update aligns with broader efforts to revamp competition laws in India, particularly with an eye on regulating Big Tech companies in the digital economy.