Booming India M&A deals require careful handling

India private equity partners wishing to join the rush of deals face a complex regulatory web. Our experts Sakshi Agarwal, Director, Corporate Services in India, Rohit Chauhan, Associate in India, and Jocelyn Oh, Commercial Director in Singapore share their advice.

Mergers and acquisitions (M&A) and private equity (PE) activity in India has been breaking records. Last year India saw M&A deals worth almost US$80bn, with 1,268 transactions completed between January and June 2021.

Deals involving Reliance Industries, Embassy Group, Bharti Airtel, Byju’s, Adani and Zomato were among the eye-catchers.

India private equity drives rush of deals as India FDI hits a high

India’s technology sector has emerged as one of the top industries of interest for the Private Equity firms driving activity in the global M&A market.

Telecoms, retail, real estate and food services are next in line and are riding the acquisition wave as investors look to diversify and enhance positions in Indian markets in order to reap the rewards of economies of scale.

International investors – including Facebook and Google – are leading sources of interest. Both bought stakes in Jio Platforms, the Mumbai-based technology subsidiary of Reliance Industries.

While liberal government policies, economic reform and the dynamic attitude of corporations have aided this robust M&A growth, transacting in India remains an arduous process, requiring a good understanding and trusted support to fulfil the country’s complex compliance regimes.

How India M&A deals are financed

A common financing flow is to raise private funds in developed financial markets such as the EU and US, with further support from financial institutions at a regional level either through Hong Kong or Singapore.

In addition, Singapore-based vehicles are often used as holding companies for investments into India due to favourable tax treaties and trade policies that benefit entities in both Singapore and India.

After deal due diligence and negotiation, the following stages are typically involved in completing the transaction to acquire a company in India:

1. Preparing outline procedures of the transaction
2. Creating schemes of merger
3. Seeking regulatory approvals

Outline procedures

Plans for a domestic M&A deal (under the Companies Act 2013) are expected to adhere to an extensive list of Indian laws, accounting and industry standards.

At the time of article publication an outline procedure should consist of the following steps:

• Prepare an independent valuation report
• Prepare a scheme of merger report stating: acquiror and acquiree details; purpose and rationale of the merger; operational, financial and legal details of the merger in relation to local laws (see summary of information below)
• Apply to the Tribunal seeking directions to hold shareholder meetings
• Petition the Tribunal for confirmation of the scheme of merger (if required)
• Obtain approval of the scheme of merger by majority of shareholders and creditors
• Obtain court order to sanction the scheme of merger
• Obtain approval of scheme from the National Company Law Tribunal (NCLT)
• File a copy of the court order with India’s Registrar of Companies
• Effect the transfer of assets and liabilities and all contractual obligations
• Allot shares to shareholders of transferor company
• Fulfil any conditions in the Tribunal’s orders sanctioning a Scheme of Arrangement

Summary of information required in a schemes of merger report

The Scheme of merger is the primary document that must be filed with the authorities. The scheme should be drafted with the following subjects in mind:

• Strategy
• Due diligence
• Tax planning
• Stamp duty
• Business valuation
• Third-party consents
• Government department approvals
• Majority and minority interests

Summary of approvals required

To proceed with the acquisition, the scheme of merger report should obtain approval from:

• Boards of directors of companies involved
• Shareholders and creditors
• Stock exchanges
• Financial institutions
• Landholders
• Tribunals in respective jurisdictions
• Reserve Bank of India
• Competition Commission of India (CCI)
• Other stakeholders such as the Insurance Regulatory and Development Authority of India (IRDA)

Laws and standards governing India M&A deals

It is pertinent to note that all M&A documents should comply with the relevant laws and standards in India. Some of the common statutes that are applicable are:

• Chapter XV of Companies Act 2013 comprising sections 230-240
• Companies Rules 2016
• National Company Law Tribunal Rules 2016
• Foreign Exchange Management Act 1999 · Consolidated FDI Policy Circular of 2020, as amended by the Department for Promotion of Industry and Internal Trade (DPIIT), a department of the Ministry of Commerce and Industry
• Securities and Exchange Board of India Act 1992
• SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 (SEBI LODR Regulations)
• Competition Act 2002
• Insolvency and Bankruptcy Code 2016
• Income Tax Act 1961
• Indian Stamp Act 1899
• Accounting Standards 14 and Indian Accounting Standard 103
• Industry-specific regulations, wherever required

As these lists show, completing a deal in India can be likened to piecing together a puzzle. Investors and General Partners (GPs) may find their time and expertise are best used in keeping the overall direction and bigger picture – strategy, operation and valuation – on track, while working with trusted partners on the ground to weave the individual pieces together.

How Intertrust Group can help

• With over 4,000 employees across the world, we combine global and local expertise to help with the administration of more than USD $470 billion of client assets.
• We are an independent, trusted partner of global M&A deal teams, notably in the PE sector. We take on the responsibility of meeting statutory requirements and fulfilling local compliance obligations.
• As specialised professionals, we are able to draft M&A schemes, resolutions, affidavits and agreements between parties. We also assist in applying for official approval of deals and coordinate with government departments to facilitate the process.
• Our Global India Desk team can help set up investment structures and assist with M&A activities on the ground, ensuring that clients are compliant with local regulations.