India stands as one of the world’s most active M&A markets, showing remarkable growth over recent years. Total deal value reached USD69.2 billion in the first nine months of 2024 – a 13.8% increase compared to the same period in 2023. Deal volume rose to 2,301 transactions from 1,855 in the previous year.
Foreign companies need India M&A Support for Foreign Companies to handle this thriving yet complex M&A environment. Cross-border transaction values could reach nearly $250 trillion by 2027, pointing to abundant opportunities. Overseas businesses aiming to tap into India’s growth trajectory need experienced advisors. These services help entrants understand India’s unique regulatory framework, which includes the Foreign Exchange Management Act, Companies Act, and Competition Act.
This piece outlines crucial steps foreign companies must take while entering the Indian market through M&A. We explain available transaction structures and regulatory approvals. Our practical insights will help you direct your market entry smoothly and implement successful post-closing integration.
Types of M&A Structures Available in India
Companies from abroad need to consult a mergers and acquisitions consultant in India to understand the different ways they can acquire businesses, as each method comes with its own legal and tax implications.
Share purchase vs asset purchase
Indian acquisitions typically happen in two ways:
- Share purchase: Buyers get ownership of the target company’s equity and take control of everything – assets and liabilities included. This works well because existing contracts, employees, and business relationships stay in place.
- Asset purchases: Buyers pick specific assets and liabilities without buying the whole company. Buyers usually prefer asset deals because they can be selective. Sellers like share deals better because they’re simpler and more tax-efficient. The process usually takes three to six months.
Merger through absorption or amalgamation
The law in India recognizes two types of merger structures:
- Merger through absorption: One company takes over another. The company being bought stops existing while the buyer keeps operating.
- Amalgamation: Two or more companies join to create a new entity. All original companies dissolve after merging.
Slump sale and business transfer
A slump sale transfers an entire business as a working unit for a lump sum. Employees must agree to move over on a “continuation-of-service basis.” Section 50B of the Income Tax Act governs taxation for these sales.
Joint ventures and mutually beneficial alliances
Foreign companies often choose joint ventures or strategic alliances to share risks and resources without full acquisition. India M&A support for foreign companies helps determine the best structure for regulatory and business alignment.
The M&A Process: From Planning to Execution
A successful merger or acquisition in India demands a structured approach. Foreign companies need India M&A support for foreign companies to navigate each phase efficiently.
Pre-deal planning and confidentiality agreements
- Sign confidentiality agreements to protect sensitive information
- Draft preliminary documents like Letters of Intent (LOI) or Memorandums of Understanding (MOU)
Legal and financial due diligence
- Financial teams analyze historical performance, assets, liabilities, and cash flow
- Legal experts inspect corporate structure, contracts, intellectual property rights, and compliance
Valuation methods and pricing guidelines
- Common methods: Discounted Cash Flow (DCF), Comparable Company Analysis, Precedent Transactions
- RBI mandates DCF for unlisted entities; SEBI guidelines for listed companies
Drafting transaction documents
- Agreements include Share Purchase Agreements (SPA), Asset Purchase Agreements, Disclosure Letters, and Shareholders’ Agreements
Regulatory approvals and filings
- Approvals depend on deal size and sector: Competition Commission of India (CCI), SEBI, sector regulators
- Foreign investment approvals may be required under FEMA rules
Post-closing steps and integration
- Blend operations, systems, and corporate cultures
- Ensure tax and compliance obligations are met
- Maintain future operating models and IT system integration
Key Legal and Compliance Requirements
Success depends on guiding foreign companies through regulatory requirements:
- Companies Act: Sections 391 to 394 govern M&A transactions
- Indian Contract Act, 1872: Protects parties against breaches
- Labor law: Manages employee transfers and service terms
- Foreign investment routes: Automatic vs Government Route; sectoral caps apply
- SEBI Takeover Code: Tender offers for certain share acquisitions
- Competition law: Deals exceeding INR 20 billion need CCI approval
- State-level regulations: Sector-specific incentives and tax breaks vary
Role of Mergers and Acquisitions Consultant India
- Provides guidance on labor law compliance
- Helps foreign investors understand valuation and pricing guidelines
- Ensures smooth integration post-merger or acquisition
Strategic Tips for Foreign Companies Entering India
- Choose India M&A support for foreign companies with proven track record
- Align with local financial, tax, and legal advisors
- Understand stamp duty and tax implications
- Consider W&I insurance to mitigate risks
- Navigate state-specific incentives and regulations
Benefits of leveraging India M&A Support for Foreign Companies:
- Minimizes cross-border regulatory risks
- Enhances deal valuation and strategic planning
- Streamlines post-merger integration
- Protects investments with expert legal and financial advice
Conclusion
Foreign companies entering India’s M&A market must rely on India M&A support for foreign companies to succeed in this dynamic environment. Expert guidance ensures adherence to complex regulations, including FEMA, Companies Act, SEBI rules, and competition laws.
Advisors streamline due diligence, valuation, transaction drafting, and post-closing integration. Aligning with local partners mitigates risks and optimizes tax structures. Proper planning, regulatory knowledge, and strategic execution allow foreign investors to fully capitalize on India’s growth opportunities.
Companies that leverage professional support can achieve smoother transactions, enhanced compliance, and sustainable business expansion. Corporate Legit is here to help navigate this process seamlessly.
Frequently Asked Questions (FAQs)
Q1. What are the main types of M&A structures available in India?
The main types of M&A structures in India include share purchases, asset purchases, mergers through absorption or amalgamation, slump sales, and joint ventures or strategic alliances. Each structure has distinct legal and tax implications, offering different advantages depending on the specific goals of the transaction.
Q2. How long does the typical M&A process take in India?
The acquisition process in India usually takes three to six months to complete. However, the duration can vary depending on the complexity of the deal, the parties involved, and the specific regulatory requirements that need to be met.
Q3. What are the key regulatory bodies involved in M&A transactions in India?
Key regulatory bodies involved in M&A transactions in India include the Securities and Exchange Board of India (SEBI), the Competition Commission of India (CCI), and sector-specific regulators. For foreign investments, additional clearances may be required under Foreign Exchange Management Act (FEMA) regulations.
Q4. How do labor laws impact M&A transactions in India?
Labor laws significantly impact M&A transactions in India. Employees cannot be compelled to work under new management without their consent. For businesses with over 300 employees, restructuring may require prior government approval. It’s crucial to navigate these laws carefully during the transaction process.
Q5. What role do M&A Advisory Services play for foreign companies entering India?
M&A Advisory Services in India play a crucial role for foreign companies by providing expertise on the complex regulatory framework, including the Foreign Exchange Management Act, Companies Act, and Competition Act. They help navigate cultural dynamics, assess country-specific risks, and optimize deal structures to align with strategic objectives and regulatory requirements.