Gone are the days when private equity investments were considered entirely benign from an antitrust perspective. Over the last five years, the Competition Commission of India (CCI) has become more attentive to potential competitive concerns arising from common ownership in rival entities, in the context of private equity investments. The issue has gained spotlight in the CCI’s enforcement priorities following steady deal momentum involving minority investments by private equity investors in the same sector.
India’s approach resonates with developments in other jurisdictions, such as Europe and the United States. The European Commission has intensified its focus on common ownership while the US Federal Trade Commission has introduced frameworks to address private equity roll-ups that may hinder competition. Like in India, such frameworks include requirements to disclose detailed information about each party’s prior acquisition history during merger review.
This article explores recent cases that highlight the CCI’s nuanced approach to preserving competitive neutrality. The cases discussed below involve minority acquisitions by financial sponsors with contractual rights in the investee companies.
A look at key decisions
The CCI’s first instance of intensified scrutiny was in 2020 which concerned a private equity minority deal in the pharmaceutical sector involving ChrysCapital’s investment* in Intas Pharmaceuticals. ChrysCapital already had equity exposure in multiple pharmaceutical companies such as Mankind Pharma and Curatio Healthcare. During the merger review, it was revealed that Mankind, Curatio and Intas were close competitors, with combined market shares over 30% in more than 20 pharmaceutical product markets.
The CCI’s key concern was that ChrysCapital’s common ownership across multiple pharmaceutical companies could result in coordinated behaviour and give them the ability to pursue anti-competitive goals such as, diminished competitive intensity in pricing and innovation. To address these concerns, ChrysCapital dropped its board representation right in Mankind, diluted its contractual veto rights in Mankind, and instituted robust firewalls to prevent the flow of sensitive information between Mankind, Curatio, and Intas.
Three years later, General Atlantic’s (GA) minority investment in Acko Technology and Services, a digital insurance provider in India, raised similar concerns**. GA acquired about a 20% shareholding, along with an expansive veto and board representation rights package. However, Acko also held a miniscule stake of about 3% along with a right to appoint an observer on the board of Vivish Technologies, which operated a gated community management software. Similarly, GA held almost a 33% stake in NoBroker Technologies, which operated a similar gated community management software.
Given that Vivish and NoBroker were both significant players in the gated community software market, the CCI raised concerns about GA’s increased influence over Acko leading to indirect influence over Vivish. In the CCI’s view, this raised the risk of softened competition between two prominent players. To address this, GA committed not to interfere in Vivish's affairs, access non-public information about Vivish via Acko, or influence individuals representing Acko in Vivish.
The latest on the block is Ruby Asia (KKR controlled) and Singtel’s (Temasek controlled) acquisition*** of about a 26% stake in STT GDC, engaged in providing data centre colocation services. Interestingly, Temasek held 30% in Bharti Airtel, whose subsidiary Nxtra Data competes with STT in India. Common ownership of Temasek in two close competitors with sizeable market shares in overlapping cities in India raised concerns on softening of competition in the colocation service market. The CCI also feared coordinated behaviour risks and the potential exchange of commercially sensitive information between competing service providers.
To alleviate such risks, Singtel committed to enforce strict information barriers to prevent the exchange of sensitive data between STT and Nxtra in addition to existing firewall mechanisms under the transaction documents. Singtel also committed to avoid cross-directorships, appointing a non-Singtel employee as an observer on STT’s board, and recusal by Singtel’s nominee from meetings where STT’s India business would be discussed.
Learnings, themes and takeaways
Upon first blush, the decisions might seem like regulatory overreach considering that they were all minority financial investments. However, a closer inspection reveals a discernible trend in the CCI’s intervention strategy which has been limited to cases where:
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the contractual rights package of the investors conferred a degree of material influence over the target’s business operations and its competing portfolio entity; and
the competing portfolio entities and the target were close competitors and commanded a significant market share in the overlapping markets.
Overall, the CCI’s approach underscores the importance of maintaining competitive neutrality amidst common ownership. For thematic investors, these insights offer valuable guidance to navigate the regulatory labyrinth. Upfront guardrails (inspired from the CCI’s common ownership concerns) in deal documentation can significantly mitigate the risk of the CCI raising a red flag during deal scrutiny. Such pre-emptive identification at the diligence stage itself and inclusion of safeguards in transaction documents can go a long way in securing timely antitrust clearances.
*Combination Registration No. C-2020/04/741, order dated 30 April 2020.
**Combination Registration No. C-2023/04/1017, order dated 6 June 2023.
***Combination Registration No. C-2024/07/1168, order dated 5 November 2024.
Anisha Chand is Partner and Yatharth V. Singh is Associate at law firm Khaitan & Co. Views are personal.
