India Business Excellence Fund – IV

Page 1 of 14 COMPETITION COMMISSION OF INDIA Combination Registration No.C-2023/04/1021 Non-Confidential 16th August 2024 Notice under Section 6(2) of the Competition Act, 2002 filed by India Business Excellence Fund – IV CORAM: Ms. Ravneet Kaur Chairperson Ms. Sweta Kakkad Member Mr. Deepak Anurag Member Appearance: Mr. Rajshekhar Rao, Senior Advocate; Mr. Yatharth Vardhan Singh, Advocate; Mr. Nilav Banerjee, Advocate; Mr. Soham Banerjee, Advocate; Ms. Anisha Chand, Advocate; Mr. Dushyant K. Kaul, Advocate; Ms. Meherunnisa A. Jaitley, Advocate; Mr. Prakash Bagla, Managing Director, India Business Excellence Fund – IV. Order under Section 43A of the Competition Act, 2002 1. On 17th April 2023, the Competition Commission of India (Commission) received a notice under Section 6(2) of the Competition Act, 2002 (Act) read with Regulation 5A of the Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011 (Combination Regulations) filed by India Business Excellence Fund – IV (IBEF-IV/Acquirer) in relation to its Page 2 of 14 acquisition in VVDN Technologies Private Limited (VVDN/ Target). [Hereinafter the Acquirer and the Target are together referred to as Parties]. Description of the Parties 2. The Acquirer is Category II Alternative Investment Fund (AIF) incorporated in India and registered with the Securities and Exchange Board of India (SEBI). The Acquirer primarily invests in equity and equity-linked instruments and/or debt and/or mezzanine or other instruments of Indian or India related companies. It is a sector-agnostic fund, providing growth capital to mid-sized companies. 3. The Acquirer is managed by MO Alternate Investment Advisors Private Limited (MOAIAPL), whose ultimate controlling entity is Motilal Oswal Financial Services Limited (MOFSL). MOFSL is the ultimate parent entity of the Motilal Oswal group. Thus, the Acquirer belongs to the Motilal Oswal group (Acquirer Group). Motilal Oswal group is a diversified financial services provider with products/services such as retail and institutional broking, private wealth management, investment banking, PE, asset management and home finance. 4. The Target, a company incorporated in India, is primarily engaged in the business of providing electronic manufacturing services (EMS), original design manufacturing (ODM) and product design services. The Target provides EMS/ODM services to both domestic and global customers in the following business verticals: 5G, networking & Wi- Fi, Internet of Things (IoT), camera-based solutions, cloud-based solutions, and data center infrastructure. Transaction 5. Pursuant to the proposed transaction the Acquirer would acquire 8.12% to 10.57% shareholding in the Target on a fully diluted basis through a combination of secondary Page 3 of 14 share purchases of equity shares and subscription to Compulsory Convertible Debentures (CCDs) (Proposed Combination).1 Submissions in the Notice 6. The Acquirer submitted in the notice that the Proposed Combination will not result in any overlaps between the Acquirer Group on one hand (including portfolio companies of the Motilal Oswal Funds), and the Target on the other. As such, there are no horizontal, vertical, or complementary overlaps between the activities undertaken by the Acquirer Group and the Target. Hence, the Proposed Combination falls under the category of combinations mentioned in Schedule III of the Combination Regulations and is eligible for deemed approval under the Green Channel Route. 7. It was also submitted that there is an insignificant existing supply arrangement between the Target and MOAIAPL (through its portfolio company, [---------------------------------- -------------------------]. It was mentioned that ordinarily, the Target is not engaged in the business of (i) assembling Printed Circuit Board (PCB) for sale/ supply in the market; and/or (ii) manufacturing products for the medical/healthcare sector. The Target itself is neither engaged in, nor has the capability to manufacture the medical and health care related products that are manufactured by [-------]. However, due to the supply chain constraints faced by [-------] for delivering health care products during the Covid-19 pandemic, the Target provided miniscule PCB assembly services to [-------] on an ad hoc basis to support the nation in the fighting against the Covid-19. 8. It was stated that entire supplies made by the Target to [-------] were against the purchase orders issued in 2020 on account of supply chain constraints. It was further submitted that till date, there was no formal long-term arrangement between [-------] and the Target for such PCB assembly service, which demonstrated the ad hoc nature of the supply 1 The Acquirer Group currently has more than 25% but less than 50% shareholding in the Target through IBEF- III and post the Proposed Combination, it will continue to have more than 25% but less than 50% shareholding in the Target. Page 4 of 14 relationship between them. Further to such purchase orders, the Target assembled the PCBs based on requisite PCB design specifications provided by [-------] itself. These assembled PCBs were used as consumables by [-------] for its machines to undertake various tests including Covid-19. 9. It was stated in the notice that providing PCB assembly services for external sales is neither a core business offering of the Target, nor a strategic input for [-------] machines. Further, [------] also procures PCBs from other suppliers who are engaged in the business of assembling PCBs for external sales. The turnover generated from the supply of assembled PCBs to [-------] constituted less than 1% of the total turnover of the Target for FY 2021-22 which demonstrates the de minimis nature of this supply arrangement. Even otherwise, the Target is a marginal player in the market for assembling PCBs in India. While the overall market for assembling PCBs in India (in terms of value) was approximately at INR 8,000 crore in FY 2021-22, the Target provided assembled PCBs only to the tune of INR [--------------] in FY 2021-22. Accordingly, the Target had a miniscule market share in the range of [0-5] % in the market for assembling of PCBs in FY 2021-22. Issue of Letter for Clarification 10. The Commission in its meeting held on 06th June 2024 considered the notice and decided to seek clarifications from the Acquirer in relation to the information provided in the green channel filing, inter alia, with respect to the supply arrangement between the Target and MOAIAPL (through its portfolio company, [---------]) for the supply of PCBs. A letter was issued to the Acquirer on 19th June 2023 and responses were received on 17th July 2023 (after seeking extension of time by the Acquirer) and` 25th July 2023. Submissions in the Response 11. In response to the letter, the Acquirer inter alia submitted that the supplies made by the Target to [-------] should not be considered as an overlapping activity because (i) PCBs Page 5 of 14 are basic building blocks of any electronic device and are not a strategic input which may have demonstrated a vertical overlap; (ii) there is no agreement governing the supply commitments/relationship between the Target and [-------] for supply of PCBs; (iii) the Target does not offer PCB assembly as a business offering to its customers; and (iv) the extremely miniscule market share of the Target for assembling PCBs in India ensures that there cannot be any appreciable adverse effect on competition in India. 12. It was also stated in the response that the Proposed Combination was consummated on 19th April 2023. Accordingly, the Proposed Combination is hereinafter referred to as ‘Combination’. Further, it was submitted that the miniscule supply relationship between the [-------] and the Target for PCB assembly service had continued till date, in order to largely fulfill historical purchase orders. Issue of SCN 13. The Commission considered the matter in its meeting held on 31st October 2023 and prima facie observed that the activities of Acquirer through [-------] exhibited vertical/complementary relationship with the activities of Target. Thereby, the Combination does not appear to fall under Schedule III of the Combination Regulations. 14. Accordingly, the Commission passed an Order dated 31st October 2023 (SCN) directing the Acquirer to show cause in writing within 15 days of receipt of the notice as to why: (i) notice should not be found void ab initio in terms of first proviso to Regulation 5A (2) of the Combination Regulations and it should not be held in contravention of the provisions of Section 43A of the Act; (ii) it should not be held liable for contravening the provisions of Section 44 of the Act for making statements in the Notice, including Notice Declaration and Green Channel Declaration which are false in material particular; and (iii) it should not be directed, under Regulation 8(1) of the Combination Regulations, to furnish correct notice in relation to the Combination.