Under the GCR, transactions with no horizontal overlaps, vertical relationships, or complementary linkages between the acquirer group and the target (including their affiliates) did not have to undergo a waiting or review period and were allowed to receive a deemed approval immediately upon filing of a notice. Prior to filing a notice under GCR, notifying parties ordinarily do a pre-filing consultation (PFC) with officers of the CCI to confirm its availability.
In 2024, the CCI on an average took 57 calendar days (including clock stops) to approve non-GCR transactions. While the review timeline for non-GCR filings clearly continues to be significant, it is worth focusing on what has occurred with the GCR filings over the past five years. Since the introduction of the GCR, its usage increased in the first few years of its operation, but its use declined significantly in the past two years.
This piece explores the extent of this decline and examines the underlying loss of confidence driving the reduced adoption of the regime. Based on available data, we assert in this piece that due to reduced dependency on the PFC mechanism, the effectiveness of GCR framework is steadily shrinking.
Growth of the Green Channel Route
The first filing under GCR was made on October 3, 2019. From that date until the end of 2019, only 5 of 26 notified transactions (19.2%) used the GCR. In 2020, 16 of 91 filings (17.5%) were made under the GCR.
As confidence grew, the popularity of the route surged in 2021, where 25 of 91 filings (27.4%) were made under the GCR. In 2022, 24.5% merger notices were filed using the GCR and, between January and July 2023, 31.8% merger notices were filed using the GCR.
Up until mid-2023, it appeared that the CCI took a pragmatic approach towards the adoption of GCR, where the route was allowed even where marginal and minor overlaps existed between the parties. This is exemplified in a few cases.
- In one filing in 2021, as per the publicly available summary of the transaction, a vertical overlap existed between the target and an acquirer group entity. The summary clarified that the revenue generated by the target from such vertical overlap was negligible and constituted an insignificant portion of its total revenue.
- Similarly, in another filing in 2022, the public summary of the transaction noted that portfolio companies of the acquirer operated in the same segment as the target at the broader level while there were no overlaps at a narrow level. The summary also added that the combined market share of the relevant entities was too low to cause competitive concerns in the overlapping markets.
Based on information in the public domain, neither of these combinations were penalised by the CCI for incorrect usage of the GCR. Pertinently, until mid-2023, no penalty had been imposed by the CCI for the incorrect usage of the GCR.
Gradual Decline of GCR Regime after August 2023
On August 18, 2023, the CCI issued an order imposing a penalty of INR 5.5 million (~USD 65,000) on two global private equity (PE) investors for incorrectly availing of the GCR benefit in December 2022 for their acquisition of an Indian target (First GCR Order). Based on the submission made by the parties in their filing, the CCI found that the parties failed to map overlaps between the target and an entity within the acquirer group, which was an indirect subsidiary of one of the acquirer’s portfolio companies. While the overlap was minor and had no competitive impact, the CCI still penalised the parties owing to incorrect adoption of the benefit under GCR.
The First GCR Order, made public on August 24, 2023, had a significant impact. In the twelve months immediately preceding its publication (August 24, 2022–August 23, 2023), 27 of 88 filings (30.6%) used the GCR. However, in the twelve months immediately following the publication of the order (August 24, 2023 – September 3, 2024), only 20 of 129 filings (15.5%) were made under the GCR.
This was a substantial decline, and in terms of percentage of GCR usage, this period exhibited a lower use rate even compared against the usage of GCR in the first two years following its introduction.
Continued Poor Performance of the GCR Regime after September 2024
Following the First GCR Order, the CCI imposed a second penalty of INR 1 million (~USD 12,000) on an Indian PE investor for misusing the GCR in April 2023 for its acquisition of shares in an Indian target (Second GCR Order). Based on the submissions in the GCR filing, the CCI found that the parties failed to map overlaps between the target and a portfolio company of the acquirer group including failing to note an ad-hoc supply arrangement between them which was initiated during the COVID-19 pandemic. Despite the nature of supply arrangement and the minimal competitive impact through such vertical overlap / complementary linkage, a penalty was imposed.
Similar to the impact of the First GCR Order, the GCR usage continued to remain low after the Second GCR Order was made public on September 3, 2024. Between September 4, 2024 and December 31, 2024, only 10 of 46 filings (21.7%) utilised the GCR, comparable to the initial years of the GCR regime.
Conclusion
The adverse impact of the First GCR Order and the Second GCR Order on the GCR regime is evident from the declining usage numbers. However, understanding the reasons behind this decline is crucial.
While notices under GCR are approved immediately upon filing, they are almost always preceded by PFCs. PFCs are non-binding consultations where notifying parties present the facts of their case as well as the overlaps analysis undertaken to the CCI’s case teams for an informal view on the availability of the GCR benefit.
Crucially, in the Second GCR Order, the CCI has explicitly stated that views expressed during PFCs are without prejudice to the formal assessment of a filing made under GCR. This clarification has likely led stakeholders feeling less confident about the GCR regime due to formal recognition by the CCI that the CCI can take a view which is contrary to the view provided during the PFCs. Essentially, it is possible that a green light during the PFC process does not guarantee against subsequent proceedings or even a penalty after the formal filing.
Financial sponsors, the primary beneficiaries of the GCR, often face challenges while mapping overlaps due to their complex web of direct / indirect portfolio companies and assessing them based on Materiality Thresholds. It is possible that some financial sponsors’ portfolio companies may have minor overlaps with targets, even if such overlaps have no real competitive impact.
If the CCI continues to take a rigid stance on the availability of GCR without implementing a reliable and robust PFC process to address and clarify ambiguities in overlaps between the parties, the scope and application of the GCR is likely to diminish further.
Unfortunately, this will be a significant loss to the practical and visionary purpose that supported the GCR’s introduction: to further India’s ‘Ease of Doing Business’ approach.
The Threshold Briefs serve as a platform for various perspectives. The opinions and viewpoints expressed in this article are solely those of the authors. Such opinions and viewpoints do not necessarily reflect the opinions or viewpoints of – nor are they endorsed by – the Section, the M&A Committee, or the compilers or editors of this publication.
