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Reverse Acquihires and the Limits of India’s Merger Control: When Hiring Becomes Acquisition
- Khushi Gupta
- May 7
- 6 min read
(Khushi Gupta is a 4th year student at the National Law School of India University, Bengaluru)
Introduction
Reverse acquihires are no longer a Silicon Valley curiosity; they are now a competition law problem in plain sight. Recent deals by major technology firms have followed a common structure: hiring key teams while licensing technology, without acquiring equity, such as the Microsoft-Inflexion deal or the Amazon-Adept deal. Google has also replicated the structure by hiring Windsurf's CEO, co-founder, and select R&D staff into DeepMind, paying $2.4 billion in licensing fees and compensation.
Because they avoid share or asset transfers, these deals typically escape merger review. The structure is consistent with mass hiring combined with IP licensing and compensation, but without any formal transfer of shares or assets that would trigger notification.
Regulators have begun to scrutinise such arrangements in AI markets. Against that backdrop, India’s 2024 merger-control reforms introduced a deal-value threshold (DVT) to catch high-value transactions that slip past ordinary asset-and-turnover tests. This article asks whether India’s merger control framework can reach transactions that resemble hiring in form but function as acquisitions in substance.
The Deal Value Threshold: A Quantitative Fix with a Definitional Gap
The DVT was introduced to capture high-value transactions involving targets with smaller assets or turnover. Under the 2024 Combination Regulations, notification is required where the deal value exceeds INR 2,000 crore and the target engages in substantial business operations in India. In fact, the threshold of "substantial business operations" for digital firms has been set especially to cover those entities that mattered based on large user bases, high Gross Merchandise Value (GMV), or significant revenue from India.
DVT’s first full year has given a clear picture of its actual operations. Of the 162 combination notifications approved by the CCI between late 2024 and the end of 2025, only 12.36% were filed solely pursuant to the DVT. While the regime is functioning, the difference is narrow. The DVT expands coverage of small – but valuable – acquisitions, but remains tied to transactions that structurally resemble acquisitions. This fails to cover reverse acquihire, which is typically organised as mass hiring plus ancillary IP licensing or a non-compete arrangement, and may transfer substantial competitive value without transferring the enterprise, its shares, or its control. The DVT is a better measuring stick, but it cannot capture a transaction deliberately structured to avoid stepping onto the scale.
Economic Substance Over Legal Form: When Talent Acquisition Becomes Market Acquisition
Although hiring and acquisition are formally distinct, their competitive effects may converge in innovation markets. In innovation markets, a startup’s significance lies less in current revenue than in its potential to become a future competitor. As studies show, incumbents often attempt to eliminate such threats at an early stage by acquiring the startup. A reverse acquihire achieves similar results without a formal acquisition. Once a startup’s core team is absorbed, its capacity to evolve into a competitor is effectively eliminated.
This effect is particularly pronounced in AI and deep-tech markets, where human capital constitutes the firm’s primary asset. Acquihires can therefore function as mechanisms of talent pre-emption, internalising scarce expertise before it can support competing firms. This blurs the lines between hiring and acquiring in a practical setting. When Google paid approximately $2.4 billion to hire Windsurf's CEO and key R&D staff while licensing its technology, it arguably achieved the economic equivalent of acquiring a potential competitor, without the regulatory burden of a formal acquisition.
Reverse acquihires may also produce dynamic deterrence effects. If incumbents can systemically neutralise emerging threats through talent acquisition without any regulation, the incentive to enter the market itself is weakened. In the longer term, it could result in erosion of innovation and rivalry.
The Indian AI industry is particularly susceptible to reverse acquihires. India’s GenAI ecosystem has expanded to over 890 startups, but cumulative funding was only about $990 million by mid-2025, heavily skewed toward early-stage deals, with late-stage capital drying up as investors turn selective. This leaves many technically capable yet capital-constrained startups without a clear domestic scaling path, incentivising them to accept liquidity through hiring arrangements rather than formal acquisitions. At the same time, Bengaluru hosts over 600,000 AI/ML professionals concentrated in a few firms, creating a dense talent pool that global incumbents can absorb cheaply without meaningful scrutiny under India’s current merger control framework.
Doctrinal Limits: Why Existing Hooks Fail to Capture Reverse Acquihires
The economic concern is clear; the legal position under Indian law is not. The doctrinal difficulty is that Indian merger control relies on the idea of “combination” as defined in Section 5 of the Competition Act. Section 5 defines combinations in terms of acquisition of control, shares, voting rights, assets, or mergers. A reverse acquihire does not neatly fall within any category. The incumbent is simply hiring the team and licensing the IP and might be paying non-compete fees, but it is not acquiring the enterprise.
There are different potential hooks under the Competition Act which can cover reverse acquihires to some extent, but none of them is complete in itself. Section 5’s Explanation (a) defines control as a material influence, and CCI’s FAQs also mention that “Control” is capacious and that material influence is the lowest level of control, but that requires an enterprise whose decision can actually be influenced. Once the core team is taken away, along with the IP license, the residual entity may be little more than a shell.
Another argument could be made under Regulation 9(4) of the Combination Regulations, which requires parties to file a single notice, where the ultimate intended effect of a transaction is achieved as a result of a series of interconnected transactions. A hiring agreement combined with an IP licence and a non-compete payment could, in principle, be framed as interconnected steps achieving the economic equivalent of an acquisition. However, the framework is premised on investment in an enterprise, which hiring does not constitute. Therefore, the rule does not apply to transactions that are not in the form of a combination, even if the ultimate effect is similar.
Lastly, Section 20 of the Act allows the CCI to inquire into combinations, but only where a transaction falls within Section 5. It is not a free-standing call-in power for transactions that never look like combinations in the first place. A reverse acquihire never crosses that threshold, and therefore CCI does not have the power to investigate it.
The gap is definitional in law. While the 2024 Deal Value Threshold improves notification coverage for high-value transactions with substantial business operations in India, the regulations still operate within the combination framework rather than outside it.
Closing the Gap: Toward a Substance-Based and Call-In Driven Framework
The solution is not to stretch existing concepts of control, but to adopt a substance-over-form approach. The FTC’s 2025 report on AI partnerships adopts this approach, examining contractual substance and competitive effects rather than formal labels. India should take the same analytical approach. A reverse acquihire should be assessed by its competitive effect, not by whether the parties have dressed it up as hiring plus an IP licence.
That interpretive shift would be stronger if paired with an express call-in power for below-threshold transactions that may not neatly qualify as combinations but still reshape market structure. Comparative practice also suggests broader principles, such that a transaction that falls below merger thresholds is not automatically beyond competition scrutiny, and ex post control remains possible in some systems. Finally, the DVT’s “substantial business operations” concept should be read functionally. The CCI has already moved toward recognising that transaction value and Indian operational presence can matter even where assets and turnover do not fully capture significance. In innovation markets, workforce concentration should be treated as an indicator of competitive significance.
Conclusion
The DVT was a meaningful reform, but it is still a quantitative fix, not a complete answer. The 2024 framework widens notification coverage for high-value deals with substantial business operations in India, yet section 5 of the Act continues to define combinations through control, shares, voting rights, assets, merger, or amalgamation. Reverse acquihires expose the remaining gap: they may look like recruitment, but in economic substance, they can function as acquisitions of competitive capability. If India’s merger-control regime is to keep pace with AI and deep-tech markets, it will need to police not just value, but structure.