
The Ministry of Corporate Affairs (MCA) is exploring provisions in the proposed Digital Competition Bill, 2024, to regulate 'killer acquisitions' under the Competition Commission of India (CCI). This initiative seeks to establish India as a leader in tackling global regulatory challenges. The proposal advocates for a new legal framework to address the complexities of the digital market, shifting from a traditional ex-post approach to a proactive ex-ante strategy that anticipates potential abuses before they happen.
What is a killer acquisition?
A killer acquisition refers to the strategic practice adopted by firms dominating their relevant sectors, to acquire smaller, innovative firms with the intention to ‘kill' the latter's product rather than imbibe it within their portfolio.
Rationale Behind Killer Acquisitions
1. Lack of Incentive for Innovation
Dominant firms are often reluctant to invest in product innovation due to the high costs and uncertain returns of research and development (R&D). Instead, they tend to acquire smaller, innovative companies to eliminate potential competition that could disrupt their existing profits.
2. Circumventing Regulatory Scrutiny
Acquisitions by dominant firms often fall below regulatory thresholds for asset value or turnover, enabling them to avoid anti-trust scrutiny. This is particularly common in the digital market, where startups usually have low turnovers and minimal assets.
3. Impact on Startups and Consumers
Startups focus on user growth and goodwill rather than immediate profits, keeping their turnover low and making them vulnerable to acquisition without regulatory oversight. This practice harms consumers by stifling innovation and reducing market competition.
Case Example: UberEats India and Zomato
A notable example is Zomato's acquisition of UberEats India in January 2020. UberEats, operating at a significant loss, did not meet the turnover threshold for regulatory review, allowing Zomato to absorb the market share without CCI intervention, ultimately leading to reduced competition and innovation.
Overview of Regulatory Thresholds
Current Regulatory Framework
Acquisitions in India are governed by Sections 5 and 6 of the Competition Act, 2002 and fall under the jurisdiction of the Competition Commission of India (CCI). Transactions that meet or exceed the thresholds prescribed under Section 5(a) must be mandatorily notified to the CCI for review. The CCI evaluates whether the proposed transaction could result in an Appreciable Adverse Effect on Competition (AAEOC) within the relevant market. Where such concerns are identified, the CCI may either prohibit the transaction or direct necessary modifications to address the competitive impact. The prescribed thresholds, based on asset value or turnover, have been revised upward by 150% to focus regulatory oversight on substantial acquisitions.

Challenges and Opportunities Ahead
Legislative and Practical Challenges
The Competition Commission of India (CCI) faces legislative and practical challenges in addressing killer acquisitions. These include the absence of specific legal provisions and the difficulty of predicting a startup's potential to become a significant competitor in dynamic markets. Evaluating hypothetical scenarios (counterfactuals) to assess a startup's future impact adds complexity to the analysis, requiring consideration of multiple possible outcomes beyond current market conditions.
Enhancing Regulation of Killer Acquisitions
Utilizing Qualitative Evidence
The CCI can improve its regulation of killer acquisitions by incorporating qualitative evidence that aligns with the expected harm test. This includes:
Internal Document Analysis: Examining internal documents from involved parties and neutral sources, along with conducting dawn raids, can provide insights into the intentions of acquirers, especially when their dominance is challenged by innovative startups.
Quantitative Analysis: Conducting a thorough analysis of the transaction’s price components can reveal whether the acquirer is paying a premium to suppress future competition, helping to understand the rationale behind the acquisition.
Scrutinizing Claimed Synergies: The CCI should verify the claimed synergies from the acquisition to ensure they are legitimate and not just a facade for anti-competitive motives. Lack of post-acquisition plans for the acquired startup’s innovations can indicate the acquirer’s true intentions.
Whistleblower Protections: Formulating policies to protect and incentivize whistleblowers can uncover insider information about anti-competitive practices within acquisitions.
Difference Between Harmful and Beneficial Acquisitions
While some acquisitions foster beneficial synergies, others—termed "killer acquisitions"—seek to eliminate competition, posing risks to economic growth and consumer welfare. The consolidation of power by major firms like Google and Facebook raises significant concerns about market competition. Thus, not all acquisitions should be deemed harmful, but scrutiny is necessary to prevent anti-competitive outcomes.
This will abandon the 'traditional' ex-post approach i.e., intervening after the abuse has already taken place, and adopting the more 'proactive' and 'futuristic' approach towards competition regulation thereby, venturing down a rabbit hole of probabilities and counterfactuals which significantly increases the complexity of this endeavor.
How We Assist You?
At DUGAIN ADVISORS LLP, we offer specialized guidance to help businesses navigate the complexities of competition law, particularly in addressing concerns related to killer acquisitions. Our expertise includes evaluating the compliance of proposed transactions with statutory thresholds and competition law provisions, including potential anti-competitive effects. We provide comprehensive legal analysis, incorporating qualitative and quantitative assessments, to ensure adherence to existing and proposed regulatory frameworks, such as the Digital Competition Bill. Our tailored guidance helps businesses mitigate legal risks, achieve compliance, and align their operations with fair competition principles.