India: Private M&A Comparative Guide

1 Deal structure

1.1 How are private M&A transactions typically structured in your jurisdiction?

Private M&A transactions are typically carried out under four broad routes:

• acquisition of shares;
• business or asset acquisition;
• tribunal-based scheme of amalgamation; or
• distressed sale under the Insolvency and Bankruptcy Code, 2016 (IBC).

Acquisition of shares: This entails either:

• a secondary sale of shares by executing a share purchase agreement; or
• the acquisition of fresh shares in the target by executing a share subscription agreement.

Business acquisition: For some acquirers, a business acquisition is the preferred route under which business units or undertakings are transferred as a ‘going concern' for a lump-sum consideration on a slump-sale basis. Business acquisitions involve the acquisition of a business unit, including assets and liabilities associated with such unit. From a commercial and strategic standpoint, some acquirers may also prefer to buy only key assets of the target and not the complete business unit. In the case of such acquisitions of identified assets, values are assigned to identified assets and the liabilities of the target are usually excluded. From a taxation standpoint, a transfer of business undertaking is entitled to certain tax benefits; whereas an asset acquisition has no tax benefits.

Tribunal-based scheme of amalgamation: In a tribunal-based scheme of amalgamation (court-based merger), the parties file a scheme of merger/amalgamation, demerger or sale of business with the National Company Law Tribunal (NCLT). In addition to obtaining approvals from the board of directors and shareholders, the transacting parties must obtain the go-ahead from their creditors and other sector-specific regulators (as may be applicable). Further, depending on the structure of the scheme filed with the NCLT, a court-based merger may also have some tax benefits.

Distressed sale: The sale of a distressed entity under the IBC takes place pursuant to a resolution process conducted by an NCLT-appointed insolvency professional, under the supervision of the committee of creditors (CoC) of the distressed entity. The process entails an invitation issued by the resolution professional to interested parties that meet the eligibility criteria approved by the CoC to file a resolution plan for the revival and turnaround of the distressed entity. The resolution plan(s) which meet the minimum statutory requirements are placed before the CoC for their consideration and approval. For a resolution plan to be approved, it must receive at least 66% of the voting shares of the CoC, followed by the approval of the NCLT. Another possible structure is to acquire the distressed entity as a going concern in liquidation.

1.2 What are the key differences and potential advantages and disadvantages of the various structures?

Since business, asset acquisitions or share purchase transactions are privately negotiated transactions, they are relatively simpler than either a court-approved merger or an acquisition of a distressed entity under the IBC. This is because:

• both a court-approved merger/amalgamation and an acquisition of a distressed entity under the IBC are subject to the approval of the relevant company court with jurisdiction (ie, the NCLT) and tend to be time consuming; and
• there is a potential risk of objections being raised from stakeholders (including both creditors and shareholders).

The key advantage(s) and disadvantage(s) of each route are as follows:

Transaction route	Advantages	Disadvantages
Share acquisition	Additional actions such as the transfer of licences and assignment of contracts can be avoided, although there may be some licences for which notification for a change in control may be required. The process is time efficient.	In case of a secondary sale, there is a risk of defects in title to shareholding or irregularities in reporting of foreign investment (where applicable). The buyer must also bear past liabilities of the target (although it may be able to rely on the indemnity clause subject to any limitations that have been commercially agreed).
Business acquisition	Businesses are transferred as ‘going concerns' – that is, there is no interruption to the business activities. This also includes the transfer of plant, machinery, other assets necessary for running the business and employees. The process is time efficient.	Liabilities of the business are also transferred to the buyer. As an additional task, it must be analysed in advance whether the assignment or transfer of licences/registrations/permits of the target is possible. The buyer cannot ‘cherrypick' key assets as sale is of the target as a going concern.
Asset acquisition	Relevant assets can be cherry picked. Legacy liabilities can be excluded from the business.	The seller remains a shell entity. Accordingly, there is a risk of continued use of intellectual property related to assets. Assets relevant to the business must be separated out carefully. Fresh licences/registrations/permits must be obtained for the continuation of business.
Court-based merger	Cash consideration is not involved, as the share capital of the respective entities is merged. While practical difficulties exist and separate approvals are required, NCLT approval allows for the smooth transfer/assignment of various contracts and operational licences. Real estate can be transferred on the basis of the order of the NCLT itself. In other words, executing a separate deed for transfer of land is not required.	The process is generally time consuming – it takes around eight to 12 (months. Court involvement makes the process cumbersome and hence complicated.
Distressed acquisition under the IBC	A strategic route for entities that are in the business of turning around distressed assets. Distressed assets can be acquired at a cheaper rate. Buyers can get the distressed assets on a clean slate-basis on account of extinguishment of past liabilities.	There is limited due diligence, as this is a statutorily time-bound acquisition. There are no representations and warranties from the management or shareholders of the distressed entity. While the IBC route is supposed to be time-bound, in practice, the NCLT approval process tends to be time consuming, especially when multiple objections to the approval of the resolution plan are filed.

1.3 What factors commonly influence the choice of transaction structure?

The choice of structure, among other commercial considerations, depends on the following:

• the cost of the transaction;
• tax efficiency;
• the timeline of the transaction;
• the nature of the operations of the target – for example, an asset acquisition may be preferred where:
• • the target's business is asset light but has too many unknown past liabilities; or
  • the buyer only wishes to acquire certain assets but not other parts of the business of the seller; and/or
• the level of ease with court-driven processes.

1.4 What specific considerations should be borne in mind where the sale is structured as an auction process?

In an auction process, typically, the seller has greater negotiating power than the buyer (eg, the seller is a Fortune 500 company or a public sector company) and is bound by certain processes to ensure that the best possible price and terms can be obtained. In this scenario, the following specific considerations should be borne in mind:

• Negotiations should be conducted on the level of reliance on the vendor due diligence reports provided by the seller.
• The buyers that have qualified in the initial screening process may wish to conduct a top-up/confirmatory due diligence exercise, especially for areas where vendor due diligence has been unsatisfactory.
• The commercial aspects must be carefully assessed.
• The disclosures made in the disclosure schedule should be carefully reviewed, since the amount of due diligence will have been limited.
• Break-fee and reverse-break fee protections may be considered.
• While deal value is often the most important factor for securing the transaction, strategic incentives also play a role in swaying the deal in favour of a particular bidder.
• For distressed acquisitions, a statutory timeline is prescribed which may render the buyer unable to conduct fully fledged due diligence. In addition, the liquidation value (ie, sale price) is not revealed to the buyer until after the filing of resolution plan with the creditors' committee of the distressed entity.
• Where the Indian government is the seller divesting its stake in state-owned entities, the usual structure is an auction process. Typically, this entails the submission of bid documents and expressions of interest to acquire such entities strictly in line with the procedures and manner provided by the government. Interested buyers may also face external concerns due to:
• • the slow rate at which internal-departmental government approvals proceed; and
  • resistance from employees, management and even the general public.

2 Initial steps

2.1 What agreements are typically entered into during the initial preparatory stage of a private M&A transaction?

At the outset, the parties enter into confidentiality and non-disclosure agreement(s) prior to the initiation of due diligence exercise. This is followed by the signing of a term sheet, which is typically non-binding in nature. The term sheet outlines the broad terms of the deal. Once the broad contours of the deal (through the term sheet) have been agreed, the buyer initiates and conducts a due diligence exercise on the target and/or its business operations (depending on how the deal is structured).

Where there is overlap in the business of buyers and sellers, the parties may also execute a ‘clean room agreement' that facilitates due diligence on commercially sensitive documents of the target in accordance with the requirements of the Competition Act, 2002.

2.2 Which advisers and stakeholders are typically involved in the initial preparatory stage of a private M&A transaction?

A typical private M&A transaction involves the following key stakeholders and advisers:

• financial and tax advisers for:
• • assisting in structuring the commercials of the transaction; and
  • conducting due diligence on financial statements and tax-related filings;
• legal advisers for:
• • conducting due diligence;
  • preparing and negotiating the transaction documents; and
  • appearing before the National Company Law Tribunal;
• in deals where foreign parties are involved as buyers or sellers, banks that are authorised to deal in foreign exchange by the Reserve Bank of India, to handle funds and facilitate regulatory reporting with respect to foreign exchange;
• external consultants for other key tasks such as:
• • valuation of shares and assets; and
  • title verification for real estate of the target; and
• depending on the structure of the transaction, and apart from the buyer and the seller, other stakeholders such as:
• • lenders;
  • institutional investors; and
  • other significant shareholders of the target.

2.3 Can the seller pay adviser costs or is this limited by rules against financial assistance or similar?

The general rule under Indian law is that companies cannot provide financial assistance through loans, guarantees, security or otherwise for the purchase or subscription of their own shares. However, the question of whether payment of adviser costs is akin to financial assistance has not yet been reviewed by the Indian courts. That said, as India is a common law jurisdiction, and in the absence of any clear interpretation on this aspect, reliance can be placed on judgments of the English courts which prohibit financial assistance including the payment of adviser costs of the buyer. To err on the side of caution, parties to the transaction should bear their respective adviser costs in case of an M&A transaction.

3 Due diligence

3.1 What due diligence is typically conducted in private M&A transactions in your jurisdiction and how is it typically conducted?

The key areas of due diligence in private M&A transactions are as follows:

• Legal due diligence: This includes verification and assessment of:
• • corporate filings (including charter documents, share title check, reporting with the Reserve Bank of India, corporate registers);
  • material contracts with suppliers, vendors and business partners;
  • regulatory licences, consents, registrations, permits and related filing;
  • employment law-related compliances and filings;
  • employment terms;
  • employee claims and disputes;
  • finance agreements;
  • environmental compliance;
  • verification of trademarks, patents, designs and copyrights;
  • data protection and privacy policies; and
  • related compliance.
• Financial due diligence: This includes:
• • identification of liabilities;
  • verification of the accuracy of financial statements and adherence to accounting standards; and
  • confirmation of the overall financial health of the target.
• Litigation due diligence: This involves a review of litigation (both filed by and against the target) in accordance with a given materiality threshold in monetary terms. Any potential liability or compensation receivable on account of the outcome of the litigation will be spelled out in the litigation due diligence reports.
• Tax due diligence: This includes:
• • a review of key tax filings;
  • identification of tax liabilities (existing and potential);
  • tax-related litigation; and
  • the overall risk profile with respect to taxes.
• Public searches: This includes public searches for:
• • proper title in immovable property, trademarks and patents; and
  • corporate filings such as annual returns of the entity.
• In some of these searches, special external consultants are engaged – for example, land counsel are engaged to assess proper title in immovable property through verification of local land records.

In addition, due diligence on anti-corruption, anti-bribery, anti-money laundering practices and policies of the target is a growing trend in private M&A transactions.

In most transactions, the look-back period of due diligence varies depending on the type of due diligence exercise. For instance, verification of share and land title as well as trademark searches may be conducted since incorporation of the target; while for corporate filings and other statutory reporting/filings, the look-back period is generally three to five years. The look-back period is usually agreed between the parties beforehand.

As far as the process of due diligence is concerned, the management of the seller facilitates virtual data rooms with all relevant documents for the buyer's advisers to conduct due diligence. During the due diligence process, the sellers and their representatives provide such information and documents:

• as may be requested by the buyer's advisers from time to time; and
• in line with the scope of due diligence which may have been agreed between the transacting parties.

The types of reports issued after a due diligence exercise largely depend on:

• the transaction route taken by the parties; and
• the instructions received from the client as to whether a full-scale due diligence report or a red flag due diligence report should be prepared.

3.2 What key concerns and considerations should participants in private M&A transactions bear in mind in relation to due diligence?

The concerns and considerations with respect to due diligence vary depending on the industry sector in which the target operates. For instance, careful and extensive due diligence on licences and environmental filings is necessary with respect to companies in the manufacturing sector. On the other hand, companies in the services sector are exposed to risk under their material contracts that must be assessed carefully.

In addition, the level of review under a due diligence exercise must be determined beforehand. Giving more context, to ensure a faster deal cycle, some buyers may benefit from a red-flag due diligence exercise. Such shorter due diligence exercises are also suitable if the target was only recently incorporated. For targets that have been around for some time or that operate in heavily regulated sectors, a full-scale due diligence exercise is recommended.

3.3 What kind of scope in relation to environmental, social and governance matters is typical in private M&A transactions?

The concerns and considerations with respect to due diligence vary depending on the industry sector in which the target operates. For instance, careful and extensive due diligence on licences and environmental filings is necessary with respect to companies in the manufacturing sector. On the other hand, companies in the services sector are exposed to risk under their material contracts that must be assessed carefully.

In addition, the level of review under a due diligence exercise must be determined beforehand. Giving more context, to ensure a faster deal cycle, some buyers may benefit from a red-flag due diligence exercise. Such shorter due diligence exercises are also suitable if the target was only recently incorporated. For targets that have been around for some time or that operate in heavily regulated sectors, a full-scale due diligence exercise is recommended.

4 Corporate and regulatory approvals

4.1 What kinds of corporate and regulatory approvals must be obtained for a private M&A transaction in your jurisdiction?

The basic corporate approvals that are required for the completion of the transaction are board-level and shareholder-level resolutions, which will depend on the nature of the transaction. For example, a seller which is a private company requires only a board-level resolution and does not require shareholder consent for the sale of business. On the other hand, in addition to board and shareholder-level consents, a court-based merger requires the parties to obtain consent from their creditors.

From a foreign direct investment (FDI) perspective, while acquisitions in most sectors are placed under the automatic route (ie, not requiring prior government approval), a few sectors are placed under the government route (ie, requiring prior government approval). For example, an acquisition of up to 74% of the shares in the defence sector falls under the automatic route and beyond that under the government route (ie, with prior government approval). Other sectors under the government route include:

• multi-brand retail trading;
• print media; and
• insurance.

Beyond specified thresholds for acquisitions, government approval is required for acquisitions in the brownfield pharma and aviation sectors.

In India, since certain industries are more heavily regulated than others, approvals from the sectoral regulators may also be required. For example, laws exist for companies in the banking and insurance sectors that may require them to obtain prior approval from the relevant regulators for acquisitions of business, assets or shareholdings. Acquisitions of regulated entities such as banks, financial institutions, non-banking financial companies and insurance companies require approvals from the Reserve Bank of India and the Insurance Regulatory and Development Authority of India, as the case may be.

The Competition Commission of India requires a prior go-ahead if key asset and turnover thresholds are met by the transaction (please see question 9.1).

Further:

• a distressed acquisition under the Insolvency and Bankruptcy Code, 2016 requires the approval of resolution plan by the National Company Law Tribunal (NCLT); and
• a court-based merger also requires approval of the relevant scheme by the NCLT.

4.2 Do any foreign ownership restrictions apply in your jurisdiction?

Yes, Indian exchange control laws apply where one party (either buyer or seller) is not a person resident in India. These laws govern pricing, sector-specific investment conditions and restricted countries, and impose additional reporting requirements with respect to such transactions:

• Pricing guidelines: As per the basic rule,:
• • the price of equity instruments (defined under the Indian exchange control laws as equity shares, convertible debentures, preference shares and share warrants issued by an Indian company) issued to or acquired by a foreign non-resident buyer cannot be lower than the valuation of such equity instruments; and
  • conversely, where the seller is a non-resident, the price of equity instruments cannot exceed the valuation of such equity instruments.
• Sector-specific restrictions: Please see question 4.1.
• Restricted countries: Prior government approval is required to obtain FDI from any entity:
• • based out of a country that shares a land border with India; or
  • whose beneficial owner is based in a country that shares a land border with India.
• In addition, the transfer of shareholdings is subject to government approval.

4.3 What other key concerns and considerations should participants in private M&A transactions bear in mind in relation to consents and approvals?

The key consideration in private M&A transactions is to thoroughly review the terms and conditions of all consents and approvals to ensure that:

• the target is sufficiently complying with all terms and conditions;
• all relevant consents and approvals are renewed and up to date, and all dues if any are paid thereunder; and
• the buyer is aware of whether:
• • fresh approvals are needed post the transaction (and has the financial and operational capabilities of obtaining them); or
  • only a prior notification or intimation post the transaction is needed as per the terms and conditions of all consents and approvals needed for operating the business of the target.

Special considerations also apply where the target has its facilities on land leased by regional government bodies. Parties must obtain the consent of government bodies for the sale of business units or assets, as such deals amount to the assignment or transfer of a lease. Additionally, upon receipt of consent from the government bodies for assignment or transfer of the lease, a payment of transfer premium is also paid to the government bodies. In such cases, parties should ensure the commercial feasibility of the transaction, as such mechanisms may have significant financial exposure.

In addition to government approvals, some financial lenders, institutional investors and even counterparties in operational agreements require sellers to obtain their approval or intimate them in the event of a change in control, shareholding or management of a company.

5 Transaction documents

5.1 What documents are typically prepared for a private M&A transaction and who generally drafts them?

The types of documentation primarily depend on how the transaction is structured. Accordingly, the various types of transaction documents prepared and executed are as follows:

• Acquisition of shares: Share purchase agreements or share subscription agreements (in case of fresh issuance);
• Business acquisition: Business transfer agreements;
• Asset acquisition: Asset purchase agreements;
• Court-based merger: Scheme of amalgamation setting out the terms and conditions of the transaction, which must be filed with the relevant National Company Law Tribunal with jurisdiction over the transacting parties; and/or
• Distressed sales under the Insolvency and Bankruptcy Code, 2016 (IBC): Resolution plan.

5.2 What key matters are covered in these documents?

A non-exhaustive list of matters covered in share, business and asset acquisition transactions is as follows:

• the price of acquisition and the manner in which consideration will be paid (whether entirely upfront or if there is any deferred component);
• action items at different stages of transaction (pre-closing, at closing and post-closing);
• representations and warranties;
• indemnities; and
• confidentiality obligations.

Among other things, a typical scheme of amalgamation provides for issues such as:

• the rationale of the transaction;
• the accounting treatment of the scheme;
• the restructuring of the board of directors;
• amendments to charter documents;
• a mechanism for dividend payouts to shareholders of merging entities;
• the conditions of the scheme; and
• the share-exchange ratio.

A resolution plan provides for:

• a payment plan for operational creditors, financial creditors and resolution process costs, and business plan for the revival of the distressed entity;
• the term of the resolution plan and the management of the distressed entity during such term; and
• a schedule for implementation of the resolution plan.

Apart from the mandatory content, a resolution plan offers greater flexibility to the buyer in terms of its plan for the revival of the distressed entity.

5.3 On what basis is it decided which law will govern the relevant transaction documents?

In case of a transaction where one of the parties is Indian, the principle of party autonomy permits the parties to choose the substantive law that governs the transaction documents. In private M&A, where the target is an Indian company, since the underlying assets/securities are located in India, it is preferable to have Indian law govern the relevant transaction documents. Further, where the transaction is happening through a court-based merger or via a distressed sale under the IBC, Indian law will govern the transaction. If a governing law is not chosen, Indian courts look at the contract in order to determine the proper law of the contract that would govern the transaction – this implies:

• the system of law by which the parties intended the contract to be governed; or
• where their intention is neither expressed nor to be inferred from the circumstances, the system of law with which the contract has closest and most real connection.

Courts may also use the principle of lex situs to determine the proper law, which is the law of the place where the property is located.

Party autonomy also permits contracting parties to choose foreign arbitration seats, independent of the substantive law governing the transaction. Under Indian law, foreign arbitration awards made in a territory covered by the New York Convention are enforceable under the Arbitration and Conciliation Act, 1996. Foreign judgments passed in certain countries with which India has executed bilateral treaties can be enforced in the Indian courts by following the procedure laid down in the (Indian) Code of Civil Procedure. Such bilateral treaties create reciprocal arrangements between India and other countries for the enforcement of judgments and decrees. Some of the reciprocating countries include the United Kingdom, the United Arab Emirates, Singapore, Hong Kong and New Zealand.

6 Representations and warranties

6.1 What representations and warranties are typically included in the transaction documents and what do they typically cover?

Typically, fundamental representations and warranties provided by the seller(s)/target include the following:

• clear title to shares (in case of a share acquisition);
• capacity and authority to sell/perform the obligations under the document(s);
• no conflicts; and/or
• other fundamental warranties – for example:
• • disclosure of complete information to buyers;
  • no default under charter documents of the target;
  • no encumbrance on shares/assets/business;
  • no ongoing litigation with respect to shares/assets/business.

Although heavily negotiated, additional business-related representations and warranties are also included, such as:

• compliance with laws;
• anti-corruption;
• insurance;
• disputes and investigations;
• material business changes;
• competition;
• contracts;
• financial statements and liabilities;
• employment matters;
• insolvency;
• key assets;
• real estate and movable assets;
• intellectual property;
• related-party transactions;
• environment;
• consents and approvals;
• ESG-related representations and warranties
• data protection and information technology; and/or
• tax-related representations and warranties.

6.2 What are the typical circumstances in which the buyer may seek a specific indemnity in the transaction documentation?

Specific indemnity items are finalised on the basis of the outcome of the due diligence exercise undertaken by the buyer and most often revolve around issues arising in the context of:

• non-reporting/misreporting under the Indian exchange control laws;
• employment law-related claims;
• litigation claims;
• tax liabilities;
• regulatory approvals and consents; and
• lenders' claims.

If the target operates in a heavily regulated sector (eg, financial sector) or where there is a regulatory grey area, the buyer may seek appropriate indemnification to safeguard against regulatory issues.

6.3 What remedies are available in case of breach and what is the statutory timeframe for bringing a claim? How do these timeframes differ from the market standard position in your jurisdiction?

In the event of breach of representations and warranties, the non-defaulting party may institute a claim for indemnity or damages (depending on the terms of the agreement).

From a timeline perspective, Indian law differentiates between civil and tax claims. To elaborate, a civil claim may be brought within three years of:

• the date of the occurrence of breach; or
• the date on which the claimant learned of the breach, as the case may be.

This is usually negotiated in transactions to bring finality to claims to make this within three years of the date of closing of the transaction.

On the other hand, Indian tax laws permit the tax authorities to send a notice of assessment up to a maximum period of 10 years from the year for which the assessment is to be conducted. This leads most negotiating parties to agree that tax claims can be brought within 11 years (the additional year is added as the return of income is filed one year subsequent to the relevant filing period) of the date of closing of the transaction. This position is also heavily negotiated and typically the final agreed position varies from five to 11 years from closing of the transaction.

6.4 What limitations to liability under the transaction documents (including for representations, warranties and specific indemnities) typically apply?

Sellers typically attempt to limit their liabilities by:

• seeking materiality thresholds on certain representations and warranties;
• seeking knowledge qualifiers on certain representations and warranties;
• including a de minimis clause which provides for a monetary cap for claims eligible for indemnity;
• including an indemnity basket threshold clause which provides for a basket for eligible de minimis claims for indemnity payouts;
• prescribing time limits or a survival period for different representations and warranties;
• capping the overall indemnity payout for indemnity claims;
• prescribing a time period for raising a claim upon closing of the transaction;
• making disclosures which are exceptions to the representations and warranties;
• including indemnity as the sole remedy clause, which restricts the indemnity holder to indemnification rights only at the exclusion of other rights and remedies; and/or
• taking out indemnity insurance to limit direct exposure to indemnification.

6.5 What are the trends observed in respect of buyers seeking to obtain warranty and indemnity insurance in your jurisdiction?

Warranty and indemnity (W&I) insurance is not commonly used in smaller private M&A transactions in India. The reasons for this include:

• parties' lack of familiarity with these products; and
• the limited number of insurers that offer such products to buyers.

That said, a positive trend is developing for W&I insurance, particularly in big-ticket deals and deals involving uncertain market conditions. It is expected that W&I insurance will gain more traction in India in the coming years.

6.6 What is the usual approach taken in your jurisdiction to ensure that a seller has sufficient substance to meet any claims by a buyer?

The ability of sellers to settle claims is initially verified through due diligence on their financial statements. Further, fundamental warranties pertaining to sound financial health and capacity to enter into and perform the obligations under the transaction documents are sought in most if not all transactions in India. In certain cases where sellers do not have sufficient financial substance, buyers are also likely to seek protection under warranty/payment guarantee from the parent entities of the sellers (if any).

The buyer may also require an escrow arrangement to hold back a portion of the consideration to safeguard such amount for the fulfilment of future claims. Typically, funds put into escrow accounts are released to the sellers subject to the expiry of the agreed duration or the completion of milestones. Restrictions on escrow arrangements exist for transactions involving a non-resident entity as a buyer or seller, which include limits on the quantum and timeline of escrow fund – that is, 25% percent of the total consideration subject to a maximum period of 18 months from the date of execution of the transaction documents.

6.7 Do sellers in your jurisdiction often include restrictive covenants in the transaction documents? What timeframes are generally thought to be enforceable?

Restrictive covenants such as non-compete and non-solicitation clauses are common in transaction documents. While restrictive covenants that restrain the other party from exercising a lawful trade or business are void under Indian law, an exception to this rule applies where the goodwill of a business is sold. In such situations, it is lawful for a buyer to restrict the seller from carrying on a similar business within specified local limits where goodwill forms part of the transaction, subject to a test of reasonability by the courts. In this respect, there are certain judicial precedents in which restrictive covenants imposed on sellers in share acquisition transactions have been held to be valid. That said, restrictive covenants may be scrutinised under the Competition Act, which provides that agreements that cause or are likely to cause an ‘appreciable adverse effect' on competition within India are not permissible. There is no bright line of permissible duration; however, the competition regulator has typically not found non-compete covenants for a duration of two to three years to be problematic.

6.8 Where there is a gap between signing and closing, is it common to include conditions to closing, such as no material adverse change (MAC) and bring-down of warranties?

Yes, in most transactions, there is a significant period between signing and closing of the transaction – typically three to four months, depending on the number and complexity of conditions precedent in the transaction. For this interim period, MAC clauses are the most heavily negotiated clauses of the transaction documents and are quite common in India. Further, it is quite common for representations and warranties to have a bring-down mechanism – that is, representations and warranties are taken to be true, accurate and not misleading at the time of both execution and closing of the transaction.

6.9 What other conditions precedent are typically included in the transaction documents?

Typically, the following conditions precedent are included in the transaction documents:

• corporate and regulatory approvals for the transaction;
• consent from the relevant third parties, as may be applicable;
• valuation certificates satisfying adherence to pricing guidelines (in case of a cross-border transaction);
• agreement on the format of documents to be delivered and filed on closing; and/or
• resolution of key issues identified during the due diligence exercise.

7 Financing

7.1 What types of consideration are typically offered in private M&A transactions in your jurisdiction?

In most transactions, the buyer will pay consideration in cash. In some instances, a share swap can also be agreed as consideration. However, the form of consideration will usually depend on the mode of transaction. For example, in a court-based merger, no cash consideration is involved as the merging entities exchange shares based on an exchange ratio.

The Indian exchange control laws permit resident sellers to issue shares against various types of consideration, such as:

• a swap of equity instruments;
• the import of capital goods, machinery or equipment (excluding second-hand machinery); and
• pre-operative or pre-incorporation expenses (eg, payment of rent).

However, practical implementation becomes trickier where:

• both resident and non-resident entities are involved; and
• the form of consideration is not cash.

For example, a share swap may be difficult to implement, as under the Indian exchange control laws only incorporated entities can swap shares with non-resident entities or individuals where one or more of the parties is a non-resident.

7.2 What are the key differences and potential advantages and disadvantages of the various types of consideration?

If a foreign party is involved, negotiated consideration must also adhere to pricing guidelines (please see question 4.2). Further, where shares are issued as consideration, the tax authorities have the power to determine the fair value of such non-cash consideration, which can be higher than the negotiated value of non-cash consideration, resulting in a higher tax liability for the sellers. Additional requirements, such as obtaining a valuation report from a registered valuer, also exist in the case of both cash and non-cash forms of consideration.

7.3 What factors commonly influence the choice of consideration?

Generally, cash is the preferred choice of consideration. For other forms of consideration, such as share swaps, taxability is an important factor in determining the choice of consideration. The likelihood of higher taxability in the case of non-cash consideration makes this an unsuitable option for transacting parties. As discussed in question 7.1, the nature of the transaction will also influence the choice of consideration. For example, in a court-based merger, the mode of consideration is a swap of shares between the merging entity based on a share exchange ratio formulated under the valuation report.

7.4 How is the price mechanism typically agreed between the seller and the buyer? Is a locked-box structure or completion accounts structure more common?

Most transactions involve a completion accounts mechanism to arrive at the final purchase consideration. Typically, an initial consideration is paid out to the seller, which is adjusted based on an assessment of the financial statements of the buyer. Any discrepancy between the initial and final purchase considerations is either paid by the buyer as a ‘top-up' or repaid by the sellers at the time of closing, as the case may be.

7.5 Is the price typically paid in full on closing or are deferred payment arrangements common?

Deferred payment arrangements are fairly common; however, in transactions involving a non-resident buyer or seller, only 25% of the total purchase consideration can be deferred for a maximum period of 18 months from the date of execution of the transaction documents.

7.6 Where a deferred payment/earn-out payment is used, what typical protections are sought by sellers (eg, post-completion veto rights)?

Where a deferred payment/earnout payment is used, sellers may require:

• representation on the board of directors; and
• veto rights on certain matters that may affect the earnout payment.

As a deferred payment/earnout payment is tied in with the commercial position of the target's business, the post-completion veto rights can include items that have a bearing on computation of the deferred payment/earn out payment. These veto rights usually pertain to actions such as:

• a change in accounting standards;
• computation of revenues;
• earnings before interest, taxes, depreciation and amortisation or earnings per share;
• additional credit facilities; and
• the sale of key assets.

The sellers may also require the buyers to comply with certain standstill obligations – such as joint management of the target and continuation with existing customers or clients of the target – to ensure a steady flow of revenue, as this may have an impact on the computation of the deferred payment/earnout payment.

That said, restrictions under the Indian exchange control laws relating to the timeframe for deferred payments/earnout payments apply to transactions involving non-residents. In such transactions, deferred payments/earnout payments are interchangeable, as only deferral of consideration is legally permissible (please see question 7.5). Other protections can include requiring the acquired entity to follow familiar accounting standards/principles to safeguard against accounting manipulations by buyer to withhold earnout payments.

7.7 Do any rules on financial assistance apply in your jurisdiction, and what are their implications for private M&A transactions?

Please see question 2.3.

7.8 What other key concerns and considerations should participants in private M&A transactions bear in mind from a financing perspective?

The Reserve Bank of India has imposed a general restriction on banks preventing them from financing the acquisition of shares, except in certain situations. As a result, for inbound acquisitions of targets in India, financing is obtained from international lenders offshore, as banks are proscribed from extending financing to offshore acquirers. On the other hand, Indian companies (which are not foreign owned and controlled) seeking to acquire shareholdings in other Indian companies may borrow from banks only if the target is in the business of providing infrastructure facilities. For such domestic acquisitions, the issuance of non-convertible debentures to non-banking financial companies, foreign portfolio investors, mutual funds and alternative investment funds is also a thriving practice.

Unlike for equity investment, obtaining external commercial financing is permissible for asset and business acquisitions by domestic participants. Typically, for onshore acquirers under the Insolvency and Bankruptcy Code route, banks have been active in financing distressed acquisitions, as the funds are used not to acquire shares but to pay off existing lenders of the target. For such acquisitions, offshore borrowing is also permissible, as has been the case in quite a few distressed acquisitions in the recent past.

Financing for outbound acquisitions is a comparatively easier affair – in this scenario, domestic entities can avail of financing domestically from banks and other financial institutions or overseas if such outbound acquisitions are conducted through offshore special purpose vehicles.

8 Deal process

8.1 How does the deal process typically unfold? What are the key milestones?

A typical deal process for acquisition is summarised below:

• Preliminary stage: A deal is commenced with preliminary negotiations between the parties that culminate in the execution of term sheets and confidentiality agreements.
• Due diligence stage: Subsequently, the buyer conducts due diligence on the target.
• Negotiation of transaction documentation: This may happen simultaneously with the due diligence process or may commence once the due diligence process has made significant progress. In case of an auction, this will typically happen after the buyer has been selected to participate in the negotiation stage.
• Signing of transaction documents: Upon conclusion of the negotiation, the transaction document(s) is executed.
• Pre-closing/completion of conditions precedent: Most transaction documents specify a timeframe for the completion of pre-closing conditions precedent, such as:
• • obtaining regulatory approvals; and
  • resolving key issues identified in the due diligence exercise.
• In some cases, execution and closing are done simultaneously.
• Closing: At this juncture in the deal process (ie, once conditions precedents have been satisfied by the sellers/target), the deal is consummated by the parties executing necessary closing actions.
• Post-closing/completion of conditions subsequent: Some actions that require a longer timeframe to be completed are generally completed as conditions subsequent.

In a court-based merger or distressed acquisition under the Insolvency and Bankruptcy Code, 2016 (IBC), the deal process significantly varies from more conventional routes such as share, asset or business acquisitions. While due diligence is part of the deal process under both routes, other broad steps are summarised below.

Court-based merger:

• Preliminary stage: As under other routes, initial actions typically involve the signing of terms sheets.
• Corporate approvals: Subsequently, the companies obtain approvals from the board of directors and shareholders for amalgamation and appointment of consultants/legal advisers. A special majority consent of each class of creditors and shareholders is required. The requirement to hold meetings of creditors and shareholders can be dispensed with the permission of creditors (for creditors' meeting) and the National Company Law Tribunal (NCLT). At this stage, approval from the competition regulator is also obtained (if applicable).
• Petitions to the NCLT: A sanction of scheme is sought from the NCLT by filing a petition. At this stage, the NCLT hears the petitioners for directions on notices to be served on the relevant authorities.
• NCLT approval: Post completion of a few procedural steps under the petition stage, the NCLT approves the scheme of amalgamation and pronounces an appropriate order of sanction. Subsequently, the merging entities obtain the order from the NCLT and file it with the regional registrar of companies.

Distressed acquisition under the IBC:

• Invitation to submit resolution plans: The first steps entail preparation of an information memorandum and invitation to submit resolution plans for the distressed entity, both of which are issued by the resolution professional appointed for the distressed entity.
• Expression of interest: The interested parties file an expression of interest to submit resolution plans.
• Filing of resolution plan: A resolution plan is filed with the resolution professional.
• Approval of resolution plan: The committee of creditors (CoC) decides on the viability of the filed resolution plans and grants its approval to one of the plans. Before the approval of CoC, parties approach the competition regulator for approval (if applicable).
• NCLT approval: The resolution plan approved by the CoC is submitted to the NCLT by the resolution professional for approval.
• Implementation of the resolution plan: The implementation steps as provided under the resolution plan are carried out by the resolution applicant.
• Post-closing actions: Certain actions are completed post-approval by the NCLT, such as:
• • handover of compliance obligations to the buyer; and
  • notifications to government authorities of a change in control of the distressed entity.

8.2 What documents are typically signed on closing? How does this typically take place?

The documents which are signed on closing depend on the kind of deal structure. The principal transaction documents include:

• the share purchase, asset or business transfer agreement;
• share subscription agreements and shareholders' agreements; and
• in some cases, where the sellers remain on the management of the company, appropriate employment agreements.

All of these are executed prior to closing.

At closing, in the case of the transfer of shares, the buyer transfers the funds and:

• specified forms (ie, SH-4s) are executed, where share certificates exist physically; or
• the sellers deliver executed instructions to the depository participant to credit the shares to the buyer, where the shares are held in dematerialised form.

In case of a fresh issue of shares, a meeting of the board of directors is conducted by the target for the allocation and issuance of shares to subscribers. For business and asset transfers, ancillary documentation is executed, such as:

• fresh employment agreements;
• a conveyance deed for the acquisition of land; and
• assignment agreements for intellectual property.

In case of a court-based merger, after the scheme of arrangement has been approved by the NCLT, a board meeting is conducted to close the transaction.

8.3 In case of a share deal, what is the process for transferring title to shares to the buyer?

The title of shares in India is evidenced by the share certificates issued by the company. The shares of a company are transferred through a securities transfer form, also known as an SH-4, which is executed between the buyer and the seller. The transfer is complete only once:

• the board of directors of the target takes on record the SH-4 evidencing the transfer of shares; and
• a resolution for the endorsement of the relevant share certificates is passed at the same board meeting.

Once the share certificates have been endorsed in the favour of the buyer, the title in the shares stands transferred.

The company law process for transfer of shares which are held in dematerialised form requires the depository instructions from the seller to the buyer for the shares to be credited in the account of the buyer. Upon credit of the shares into the buyer's account, the registrar of share transfer typically generates a beneficiary position statement within seven days. Once generated, the board of directors takes on record the transfer.

8.4 Post-closing, can the seller and/or its advisers be held liable for misleading statements, misrepresentation, omissions or similar?

Post-closing disputes in transactions revolve around breach of representations or warranties and other post-closing conditions. In such cases, the buyer is generally entitled to claim:

• indemnity or damages; and
• if the agreement permits, both in the event of misleading statements, misrepresentation, omissions or similar.

Besides challenging such claims, defences to such claims are also usually built into the transaction documents. These include:

• knowledge qualifiers that are attributable to the buyer's own due diligence; and
• disclosures against specific representations and warranties.

Third-party advisers to the transacting parties are liable only to the extent of the fee paid to them.

8.5 What are the typical post-closing steps that need to be taken into consideration?

For share purchase deals, the most common post-closing steps are:

• corporate filings with the regional registrar of companies, such as forms for the appointment and resignation of nominee directors;
• the stamping of share certificates;
• the issuance of a withholding tax certificate by the buyer; and
• the amendment of the articles of the target.

In the case of business and asset transfers, post-closing actions can include:

• the transfer of permits and operational licences;
• the execution of novation contracts; and
• the transfer of possession of assets.

Similarly, in the case of distressed acquisitions under the IBC, common post-closing actions include:

• the handover of compliance obligations to the buyer; and
• notifications to government authorities for the transfer of licences and permits.

The post-closing steps for a court-based merger include:

• the payment of stamp duty on the transfer of land and other assets envisaged in the merger; and
• the filing of a compliance report with the regional registrar of companies.

9 Competition

9.1 What competition rules apply to private M&A transactions in your jurisdiction?

The Competition Commission of India (CCI), constituted under the Competition Act, provides that transactions which exceed specified thresholds under Indian competition law require prior clearance from the CCI before consummation of the transaction.

A transaction is notifiable to the CCI and requires clearance if the parties to the transaction meet the thresholds stated in the table below:

		India	Worldwide
Parties test	Combined assets	More than INR 20 billion	More than $1 billion, including at least INR 10 billion in India
	Combined turnover	More than INR 60 billion	More than $3 billion, including at least INR 30 billion
Group test	Combined assets	More than INR 80 billion	More than $4 billion, including at least INR 10 billion in India
	Combined turnover	More than INR 240 billion	More than $12 billion, including at least INR 30 billion

A transaction is notifiable if it meets either of the thresholds set out in the above table. Acquisitions of small targets, however, enjoy exemptions if:

• the value of assets of the target is less than INR 3.5 billion; or
• the target's turnover is less than INR 10 billion.

This is known as the ‘de minimis' exemption under Indian competition law and will remain in force until 28 March 2027. In addition, certain transactions do not usually need filing (eg, a transaction which involves only an investment).

As per the Competition Act, the CCI has a maximum of 150 days to approve the transaction. In some cases, transactions are eligible for approval under the automatic route. This route, known as the ‘green channel', is available where the parties:

• are not competing; and
• have no vertical or complementary relationships.

9.2 What key concerns and considerations should participants in private M&A transactions bear in mind from a competition perspective?

The single most important aspect of Indian competition law for transactions is ‘gun jumping' – essentially, either:

• failure to notify a notifiable transaction to the CCI; or
• prematurely acting on the transaction while it is under review by the CCI.

This violation of competition law renders parties at risk of a penalty of up to 1% of their global turnover or assets, whichever is higher.

10 Employment

10.1 What employee consultation rules apply to private M&A transactions in your jurisdiction?

There are no specific requirements under the principal labour statutes with regard to employee consultation when entering into M&A transactions. However, the Supreme Court of India ruled in 2011 that workers must not be compelled to work under a different management of a business undertaking if their consent to do so has not been duly obtained. Therefore, the court ruling establishes a requirement for sellers to obtain consent of workers before entering into transactions to transfer control of business undertakings. It further ruled that in such scenarios, workers can essentially walk away from their employment and are entitled to receive severance pay of 15 days of average pay for every completed year of continuous service or any part thereof over six months.

This ruling applies only to ‘workers', who are statutorily defined as any persons employed to "do any manual, unskilled, skilled technical, sales promotion, operational, clerical or supervisory work or any work for the promotion of sales for hire or reward", excluding employees who:

• are employed in an administrative or managerial capacity or for supervisory work; and
• earn more than INR 10,000 per month.

Similarly, this jurisprudence may be extended to a court-based merger, as the employment of workers shifts to another entity.

With regard to the acquisition of distressed entities under the Insolvency and Bankruptcy Code, 2016 (IBC), as per a recent ruling of the Supreme Court of India, the requirements relating to notice of a transfer of business undertaking and severance pay do not apply if:

• the employment is not halted by the acquisition;
• the transaction envisages fair treatment (ie, no less favourable than prior to the acquisition) of workers upon the transfer of undertaking; and
• the terms of the acquisition require the buyer to be liable for retrenchment payments as if the employment has not been interrupted on account of the acquisition of the erstwhile employer (please see question 10.2).

In the case at hand, the resolution plan fulfilled the above conditions and thus the requirement relating to notice of a transfer of entity to a new employer did not arise.

As the jurisprudence on this issue largely relates to the transfer of business undertakings and distressed acquisitions under the IBC, the requirement to obtain consent may not apply to share and asset acquisitions. However, it is recommended to err on the side of caution and obtain consent from workers in the event of a change in control or management in the target.

For employees (who are not classified as workers), consent or consultation requirements in the event of a change of control in the target do not apply. However, there may be rare instances, in the case of senior management/C-suite employees, in which consent or consultation requirements have been contractually agreed.

10.2 What transfer rules apply to private M&A transactions in your jurisdiction?

The Industrial Disputes Act, 1948, which applies primarily to workers (see question 10.1), requires companies that undergo a change in ownership or management to:

• give notice of one month or payment of wages in place of such notice to workers who have been in continuous service for not less than one year; and
• pay compensation to such workers that is equivalent to 15 days' average pay for every complete year of continuous service or any part thereof over six months.

An exemption applies where:

• the service of the workers is not interrupted by such transfer;
• the terms of employment post transfer are no less favourable than the previous terms; and
• the new employer is legally liable to pay the workers compensation on the basis that their service has been continuous and has not been interrupted by the transfer.

In addition, if contributions or reserves have not been made by the target under the control and supervision of the sellers prior to the transaction, the buyer will be liable for the payment of dues under various employee benefit laws, such as:

• the Employees Provident Funds and Miscellaneous Provisions Act, 1952; and
• the Payment of Gratuity Act, 1972.

It is crucial for buyers to conduct careful due diligence on these aspects, as they cannot contract out of such payment liabilities.

10.3 What other protections do employees enjoy in the case of a private M&A transaction in your jurisdiction?

In addition to other requirements, transactions in the manufacturing sector may face problems if trade unions are not supportive of a change in control or management in the target. Therefore, buyers should check whether a collective bargaining agreement with the trade union has been executed by the target. In such case, the collective bargaining agreement should be reviewed to check whether additional protections – such as a requirement to obtain the consent of the trade union to enter into a transaction – have been agreed.

10.4 What is the impact of a private M&A transaction on any pension scheme of the seller?

In a business transfer, the employees are transferred without any break in service and the acquirer assumes obligations in respect of all accrued employees' benefits, including the pensions of the employees for the period of employment with the seller. These benefits are either paid out at the time of acquisition or recorded in the books of the target as payables.

In asset purchase transactions, the buyer may decide whether:

• the identified employees will be offered continuity of service; or
• the relevant employees will resign from the target and be rehired by the buyer, so the pension scheme of the seller may not continue.

In case of an acquisition of shares, the payable pension is typically adjusted under the consideration and the pension scheme is continued by the target.

In a court-based merger and distressed sale under the IBC, all employee-based benefits and payouts are provided for under the transaction documents.

10.5 What considerations should be made to ensure there are no concerns over the potential misclassification of employee status for any employee, worker, director, contractor or consultant of the target?

Some employers (especially in the manufacturing sector) may misclassify workers as consultants or contract labour to avoid the payment of benefits extended to worker under various statutes (please see question 10.2). Therefore, at the stage of conducting due diligence on the target, it is crucial to review the contracts with consultants and contractors for the supply of labour. If any doubt arises as to misclassification, protections against any actual or perceived misclassification can be availed through adequate representations and warranties.

10.6 What other key concerns and considerations should participants in private M&A transactions bear in mind from an employment perspective?

Other key concerns may include checks on whether the target has made sufficient provisions in its books of account for payment of gratuity and provident funds. Additionally, under Indian law, every establishment with at least 10 employees must put in place an internal complaints committee under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 for the redressal of sexual harassment complaints. These aspects should form part of the due diligence exercise conducted by the buyer.

11 Data protection

11.1 What key data protection rules apply to private M&A transactions in your jurisdiction?

Indian data protection law has undergone a significant overhaul. A comprehensive statute, the Digital Personal Data Protection Act, 2023, was recently passed (although its provisions have not yet taken effect). Under the new law, compliance requirements will be significantly increased, including in relation to issues such as:

• consent (including parental consent for children's data);
• erasure requests;
• grievance redressal mechanisms;
• notification requirements in case of data breaches; and
• other comprehensive obligations of data fiduciaries and data processors.

The provisions of the new law, which also includes severe penalties for non-compliance, will be notified by the Indian government altogether or periodically. A new enforcement body will also be established to ensure compliance with the law.

11.2 What other key concerns and considerations should participants in private M&A transactions bear in mind from a data protection perspective?

Buyers must conduct thorough due diligence on the target to ensure compliance with consent, data storage and processing requirements and grievance redressal preparedness, especially in the case of transactions in the technology, retail and other consumer-facing sectors. Before the Digital Personal Data Protection Act was drafted, due diligence on the data protection capabilities of targets in India had little significance for buyers, due to the lack of comprehensive legislation. The new Digital Personal Data Protection Act is comparable to the regimes in developed jurisdictions such as the European Union. As a result, targets will need to be agile in adjusting to the new regime. As key checks, buyers should determine whether targets have initiated steps to comply with the new legislation. Adequate representations and warranties should also be obtained to this end.

12 Environment

12.1 Who bears liability for the clean-up of contaminated sites? How is liability apportioned as between the buyer and the seller in case of private M&A transactions?

If the target is operating in an environmentally hazardous or sensitive area, the buyer will typically conduct separate environmental due diligence. Depending on the results of such due diligence exercise, if the clean-up of contaminated sites or additional actions are required, the buyer will typically require the seller to undertake those actions prior to closing. In the case of any past liability for environmental claims, the buyer and seller will typically negotiate a time period within which such claims can be brought against the seller (usually this is a longer time frame than that of civil claims).

12.2 What other key concerns and considerations should participants in private M&A transactions bear in mind from an environmental perspective?

To avoid risks under environment protection laws, separate due diligence is often conducted on the target. While legal advisers will review filings and compliance with various environmental licences and approvals, it is also recommended that a specialist team of consultants conduct thorough inspections of manufacturing and storage facilities and issue a separate report of their findings. Key areas of focus include checks to ensure that the target has:

• proper and safe mechanisms for the storage and emission of hazardous substances; and
• facilities to safeguard the health of workers.

In addition, it is crucial to verify compliance with all terms and conditions of environmental consents.

To avoid risks, buyers usually push sellers to provide indemnities against the breakdown of operations due to environmental non-compliance. The transaction documents may also include a penalty clause that can be triggered against sellers in such scenarios.

13 Tax

13.1 What taxes are payable on private M&A transactions in your jurisdiction? Do any exemptions apply?

In India, share deals and business transfer deals are subject to capital gains tax (in the range of 10% to 30%). However, certain exemptions are available for court-based mergers subject to prescribed conditions for tax neutrality. In case of a distressed sale under the Insolvency and Bankruptcy Code, 2016 (IBC), exemptions or reductions may be requested as part of the resolution plan and may be granted on a discretionary basis.

While indirect tax generally does not apply to private M&A deals, goods and services tax (GST) may apply in certain cases (eg, on the transfer of movable property). In addition to income tax and GST, stamp duty of up to 10% (eg, in the case of deals involving the transfer of immovable property and shares) may apply depending on the transaction and the state in which it is undertaken.

13.2 What other strategies are available to participants in a private M&A transaction to minimise their tax exposure?

Tax strategies are devised on a case-by-case basis. Most transactions involve one of the multiple tax structuring mechanisms available under the Indian tax laws. For example, a capital reduction is one of the ways in which parties can reduce their tax exposure in M&A transactions. The choice of mechanism will depend on the specific details of the transaction.

13.3 Is tax consolidation of corporate groups permitted in your jurisdiction? Can group companies transfer losses between each other for tax purposes?

No. Tax is payable on a standalone basis and there is no option for tax consolidation at the corporate group level. Generally, transfer of losses between group companies is not permitted.

13.4 What other key concerns and considerations should participants in private M&A transactions bear in mind from a tax perspective?

Key considerations include checks on:

• prescribed minimum transaction values (eg, guidance value for immovable property, prescribed book value for shares);
• substance-based taxation under the general anti-avoidance rule; and
• computation mechanisms such as minimum net book value and factoring guidance values in the case of a transfer of shares.

14 Trends and predictions

14.1 How would you describe the current M&A landscape and prevailing trends in your jurisdiction? What significant deals took place in the last 12 months?

Factors such as geopolitical instability due to the situation in Ukraine, skyrocketing oil prices, soaring inflation and a slowdown in funding due to fears of impending recession have put a brake on M&A activity worldwide. However, India is bucking these global trends and enjoyed healthy M&A activity in 2022, with deals reaching a record high of $170.6 billion (according to Refinitiv's India Investment Banking Review 2022 Report). Deal activity also increased by 28% compared to 2021; and the deal cycle in the first two quarters of 2023 was also strong. While developed economies are experiencing a slowdown, India has seen no decline in gross domestic product. Although there are some concerns over the lack of new investments in companies, there has been a growing trend of consolidation.

According to the latest report from PricewaterhouseCoopers, "M&A accounted for a major share of the deal value in India, boosted by more than 20 large transactions, and reached a record high of USD 107 billion – almost twice that of 2021". Most deals were aimed at consolidating market share by acquiring growth-focused entities. The Indian market has seen buoyant activity in the banking and financial services, infrastructure and technology sectors, as well as among startups. Significant Indian M&A deals in 2022 included:

• the merger between HDFC Limited and HDFC Bank;
• Razorpay Software Private Limited's acquisition of Poshvine;
• Sharechat's acquisition of MX Taka Tak;
• Neelachal Ispat Nigam Limited's strategic disinvestment to Tata Steel Long Products Limited;
• the Zomato-Blinkit merger;
• the Adani Group's acquisition of Ambuja Cements; and
• Mensa Brands' acquisition of various entities from Times Internet.

14.2 Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?

The Competition (Amendment) Act, 2023 is a key development that will significantly impact M&A activity in India in the coming year. The Amendment Act has amended Section 5 (which deals with combinations) of the Competition Act by introducing the concept of a deal value threshold in addition to the asset and turnover-based criteria. This effectively expands the review scope of the Competition Commission of India (CCI). The Amendment Act now provides that any transaction relating to the acquisition of control, shares or assets of an enterprise or merger with has a value exceeding INR 20 billion will require approval from CCI if the entity being acquired or merged has ‘substantial business operations' in India. Detailed regulations may follow for deal value calculations and thresholds in this regard.

Further, towards the end of 2022, the Reserve Bank of India overhauled India's overseas investment regime. Broadly, the latest rules on overseas investment have been notified as part of efforts by the Indian government to liberalise the regulatory mechanism for overseas investments by individuals and entities. Additionally, amendments have been made to the rules governing fast-track mergers (applicable for a certain class of small company) to facilitate the faster disposal of merger applications. Further, in the last couple of years, the Indian government has introduced several production-linked incentives spread across 14 sectors in the manufacturing space. M&A activity has increased significantly as a result. It is thus clear that the government is enhancing the ease of doing business in India in order to increase deal activity.

That said, as India gears up for general elections in 2024, a slowdown in deal activity is likely, especially due to uncertainties regarding the incoming government. Given the additional work pressure due to the 2024 elections, India's administrative machinery may function less efficiently, which may lead to a delay in approvals.

15 Tips and traps

15.1 What are your top tips for the smooth closing of private M&A transactions and what potential sticking points would you highlight?

The entire deal process should be planned and organised in a manner that ensures timely execution and closing. For instance, the target should be educated on maintaining statutory records and filings based on a structured internal policy for document retention. It will be easier to facilitate and conduct due diligence if the target stores its documents in a structured manner.

As an obvious next step, the documents of the target should be mirrored in the data room in an organised manner. This facilitates the faster completion of due diligence, so the deal process can move ahead to the preparation and negotiation of the transaction documents. The deal process can be further streamlined if relevant advisers are engaged in a timely manner at each step of the process to coordinate with multiple stakeholders both internally and externally.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.