 |
|
The Competition Commission of India (CCI) has implemented stricter regulations for private equity (PE) and venture capital (VC) driven deals, marking a shift towards greater antitrust scrutiny. This change, outlined in a recent circular, introduces a new 'deal value threshold' and broadens the definition of 'control' to encompass scenarios where funds may not hold board seats but have observer rights or access to commercially sensitive information. These adjustments effectively narrow the exemptions previously available to PE/VC funds, requiring more transactions to undergo CCI approval.
The CCI's rationale behind these changes stems from a growing concern regarding the potential for common ownership in competing enterprises to influence market dynamics. While observer positions are typically intended for monitoring investments, the CCI believes they could facilitate the sharing of sensitive information, impacting competition even without explicit collusion. This concern is further fueled by the CCI's observation that PE/VC investments often involve multiple funds holding stakes in various companies within the same or related sectors, potentially amplifying the risks of information sharing and collusion.
Beyond traditional PE/VC deals, the new regulations also target the digital technology sector. Recognizing that many technology companies are asset-light and often unprofitable, the CCI has introduced a new threshold based on enterprise value. Transactions exceeding Rs 2,000 crore in enterprise value will now require CCI approval. This move aims to encompass digital companies that may have evaded regulatory scrutiny due to their unique financial structures. The new regulations bring about an increased compliance burden for PE/VC funds, extending the deal timeline by approximately 50 days. The CCI retains the power to request amendments to deals based on potential anti-competitive concerns. While these changes present challenges for PE/VC investors, the government's concurrent efforts to ease PE/VC investment in India through various regulatory reforms suggest a balancing act between encouraging investment and maintaining a competitive market environment.
The impact of these new rules on PE/VC activity remains to be seen. It is likely to lead to more thorough due diligence and increased costs for funds seeking to invest in India. However, the CCI's proactive approach underscores the evolving landscape of antitrust regulation in the digital age, where the traditional focus on market share and price manipulation is being expanded to encompass the potential for information sharing and strategic alliances to impact competitive dynamics.
Source: PE, VC-driven deals to face enhanced competition scrutiny under new rules