SECTION 1: Market overview
1.1 What have been the key trends in the M&A market in
your jurisdiction over the past 12 months and what have been
the most active sectors?
Targeted government policies, a buoyant domestic M&A
market, unparalleled interest in the technology driven start-up
sector and large foreign direct investment (FDI) inflows have
been the key features of M&A market in India in 2016.
Major outbound M&A activity was witnessed in energy and
natural resources, cement, healthcare and financial sectors.
Inbound M&A was generally attracted by the high-tech,
industrial and healthcare sectors.
Restructuring large debt-ridden companies has provided
opportunities for investors to undertake M&A activities at
1.2 What M&A deal flow has your market experienced and
how does this compare to previous years?
The number of M&A deals fell from 886 in 2015 to 756 in
2016. However, the cumulative announced value sharply increased
from $31.3 billion to $52.6 billion due to a few big-ticket
transactions. Further, regardless of the low global interest in
FDI inflows, FDI in India jumped 18% and a record $46.4
billion. India stood as the tenth most attractive destination
in the world for FDI. The US contributed the highest number of
FDI inflows at $38.5 billion.
In 2016, India witnessed 917 private equity (PE) and venture
capital (VC) investments as against 1,045 in 2015. PE
investments declined for the first time in four years, with
nearly 1,000 transactions contributing to just below $14
billion. Startups contributed to 70% of the transactions, both
in terms of deal values and deal volumes.
1.3 Is your market driven by private or public M&A
transactions, or both? What are the dynamics between the
The market is driven by both public and private M&A.
As expected, a public M&A carries with it certain
additional compliances under the securities laws and therefore
transactions can take longer to close. However, unlike a
private transaction, substantial information about a public
listed target can be accessed easily in the public domain,
thereby paving way for better and faster due diligence. Given
that India has several unlisted but high value enterprises,
deal sizes of both public and private transactions are
comparable. Shares of a listed company can also be bought and
sold on the stock exchange, which offers a significant tax
benefit compared to transactions in the unlisted space.
However, listed transactions where a public takeover offer
needs to be made cannot be carried out on the stock exchange.
SECTION 2: M&A structures
2.1 Please review some recent notable M&A transactions
in your market and outline any interesting aspects in their
structures and what they mean for the market.
The acquisition of Essar Oil by Rosneft, Trafigura and
United Capital Partners was a multi-jurisdictional transaction
and faced significant regulatory and political hurdles. The
fallout of the Vodafone case was the reason that the investors
sought an assurance from the government that the transaction
would not face withholding tax. This deal also witnessed Sebi
(India's securities regulator), after it received complaints
from public shareholders, stepping in to ask the parties to
raise the delisting price for Essar Oil shareholders in line
with the valuation offered to the promoters by Rosneft.
The acquisition of Jindal Steel and Power by JSW Energy, a
large domestic M&A transaction, saw a structure combining
asset sale and share acquisition. Hybrid structures involving a
share purchase and slump sale are being used to provide the
necessary balance between the regulatory constraints and
Another deal announced in 2016 was the merger of Reliance
Communications (RCom) with unlisted telecom company Aircel. The
deal will be brought through RCom taking the wireless business
into a special purpose vehicle (SPV) through a slump sale and
ultimately getting merged with the mobile business of Aircel.
In the process, RCom and Aircel will transfer substantial
portions of their debts into the merged entity. Upon
completion, the merged entity also plans to sell 25% of its
equity, such that economies of scale could be achieved. The
merged entity would create the fourth largest mobile telecom
service provider. This structured deal could be seen as an
illustration of an M&A transaction driven by the need for
consolidation in the Indian telecom sector, which is getting
increasingly competitive by the day.
2.2 What have been the most significant trends or factors
impacting deal structures?
In most cases, M&A in India has been driven either by
the objective of the seller to reduce its debt or the goal of
Cross-border deals have been successful where correct
valuation has been met by the Indian promoters' willingness to
factor in major due diligence concerns, including regulatory
and compliance issues.
Hybrid financing sources have been the preferred mode for
M&A deals, while stock only transactions have been the
SECTION 3: Legislation and policy changes
3.1 Describe the key legislation and regulatory bodies that
govern M&A activity in your jurisdiction.
All companies in India are regulated by the Ministry of
Corporate Affairs (MCA) through the Companies Act 2013 (CA
2013). The MCA has recently notified the new set of provisions
in CA 2013 that will govern M&A activity.
The Securities and Exchange Board of India (Sebi) through
the Sebi (Prohibition of Insider Trading) Regulations 2015 and
Sebi (Substantial Acquisition of Shares and Takeovers)
Regulations, 2011 (Takeover Regulations) regulates public
M&A activities in India.
Cross-border M&A regulated by the Reserve Bank of India
(RBI) through the Foreign Exchange Management Act 1999 (Fema),
associated rules and regulations and the Foreign Direct
Investment Policy promulgated by Department of Industrial
Policy and Promotion (DIPP), Government of India.
The anti-trust regulator, Competition Commission of India
(CCI) regulates M&A transactions based on the nature, size
and effect of such transaction in India.
The Income Tax Department regulates M&A transactions
through the Income Tax Act 1961 (ITA) and the Double Tax
Avoidance Agreement (DTAA) with foreign countries.
3.2 Have there been any recent changes to regulations or
regulators that may impact M&A transactions or activity and
what impact do you expect them to have?
India has recently notified the provisions under CA 2013
relating to compromise, arrangements and reconstruction which
now allow fast-track mergers (between small companies and
between holding and its wholly-owned subsidiary) and paves way
for deals with lesser compliances. A provision in CA 2013
enabling a merger of a foreign company with an Indian company
is also expected to be notified shortly.
The newly promulgated Insolvency and Bankruptcy Code 2016
(IBC) has created a framework for acquisition of stressed
The RBI also radically liberalised the FDI regime by easing
norms for defence, civil aviation and pharmaceuticals and
opened them for greater foreign ownership.
Further, Foreign Portfolio Investors (FPIs) have now been
allowed to invest in unlisted non-convertible debentures and
other debt securities issued by private and public companies
and end-use restriction on investment in real estate, capital
market and purchase of land. Also, the rules for foreign
investment in rupee denominated bonds have been eased for
The CCI, in early 2016, eased the rules and procedures for
M&A pre-clearance by increasing the thresholds for
applicable asset and revenue values for reportable transactions
thereby paving way for completion of an increased number of
M&A transactions without requiring the pre-approval of the
3.3 Are there any rules, legislation or policy frameworks
under discussion that may impact M&A in your jurisdiction
in the near future?
The general anti-avoidance rules (GAAR) will be effective
from April 1 2017 and which permits the authorities to declare
any transaction as "impermissible avoidance arrangement", if it
has been entered with the intention of obtaining undue tax
benefit. Tax treaty benefits could also be denied if investors
fail to show commercial substance benefit through the country
In 2016, India and Mauritius announced an amendment in their
treaty, which will no longer allow Mauritius tax residents to
be exempted from Indian capital gains tax on sale of shares of
Indian companies that are acquired on or after April 1 2017.
Also, investments from April 1 2017 that are sold prior to
April 1 2019 will be taxed at 50% of the prevailing rate,
subject to motive and bonafide business test. Similar changes
were made to India-Singapore tax treaty as well. These changes
would increase the tax costs of investors investing in India
and alternative investment structures will have to be
The government of India has announced the abolition of the
Foreign Investment Promotion Board, which is the authority for
granting approval for foreign investments in certain sectors.
This is expected to further ease the flow of foreign capital
SECTION 4: Market idiosyncrasies
4.1 Please describe any common mistakes or misconceptions
that exist about the M&A market in your jurisdiction.
Unlike in many jurisdictions where an independent board
drives an M&A transaction, in India, the M&A
transactions are mostly driven by families with significant
shareholding and their nominees on the boards of the target or
In a cross-border transaction, the parties are free to
choose foreign law as the governing law which was often done in
order to avoid complex and delay ridden Indian court system.
The situation has now significantly improved and fast track
arbitration with quicker enforcement of judgment is now
entirely feasible within India.
4.2 Are there frequently asked questions or often
overlooked areas from parties involved in an M&A
In cross-border transactions, acquirers often enquire about
ownership restrictions, availability of acquisition finance,
post -acquisition funding through the debt route as well as tax
impact upon exit.
4.3 What measures should be taken to best prepare for your
Early engagement with qualified legal and accounting
advisors will ensure that no unexpected roadblocks delay a
SECTION 5(a): Public M&A
5.1 What are the key factors involved in obtaining control
of a public company in your jurisdiction?
In an M&A with a listed public company in India, control
can be secured through a mandatory public offer and such
transactions often need pre-clearance of the CCI. Acquirers
need to be careful that even after a public takeover offer, a
listed company continues to maintain a minimum public
shareholding of 25%. Although it is now possible to make a
combined delisting and takeover offer, the mechanism is not yet
widely adopted by acquirers in the listed space.
5.2 What conditions are usually attached to a public
Although a public takeover offer can be made subject to
conditions of minimum acceptance, the acquirer is prevented
from acquiring any shares in the target company if the minimum
level of acceptance is not reached. Further, a public takeover
offer can be made subject to the condition of receiving
regulatory approvals required for the acquirer to complete the
transaction. An acquirer is generally prohibited from making
its offer conditional upon any factor which is within its
control (like availability of funding).
5.3 What are the current trends/market standards for break
fees in public M&A in your jurisdiction?
Break fees are not a widely prevalent concept in India and
are not recognised under Indian law unless it can be
established that the break fees would amount to the actual
damages suffered by the party seeking the break fees. Payment
of break fees to a person resident outside India will require
prior approval from the RBI.
SECTION 5(b): Private M&A
5.4 What are the current trends with regards to
consideration mechanisms including the use of locked box
mechanisms, completion accounts, earn-outs and escrow?
Parties, especially in cross-border deals, often like to
structure their transactions though completion account
mechanism. Foreign exchange regulations however favour a locked
box mechanism as, at the time of completion of a cross-border
acquisition, the parties are required to file a form declaring
the purchase price. This form cannot be amended subsequently.
Parties often address this regulatory challenge by dividing the
acquisition over several tranches (with one major tranche in
the beginning) and adjusting the effect of completion account
in subsequent tranches.
The RBI in 2016 permitted a foreign acquirer to defer
payment of 25% of the purchase consideration to be paid to an
Indian seller for a period not longer than 18 months. The
transaction may be structured either through an escrow
mechanism or by way of indemnity from the Indian seller to the
5.5 What conditions are usually attached to a private
There is no concept of private takeover offers in India.
However, it is possible to squeeze out minority shareholders
after completion of acquisition of an unlisted company,
provided such acquisition is structured through a court scheme
or a contract in accordance with the provisions of CA 2013.
5.6 Is it common practice to provide for a foreign
governing law and/or jurisdiction in private M&A share
Clauses pertaining to foreign governing law or a
jurisdiction to foreign courts are usually provided in
cross-border deals where one party to the agreement is a
resident of a foreign country. However, given the reforms in
Indian arbitration laws, increasingly parties are making share
purchase agreements subject to Indian law.
5.7 How common is warranty and indemnity insurance on
private M&A transactions?
Warranty and indemnity insurances are not common in the
Indian deal space.
SECTION 6: Outlook 2017
6.1 What are your predictions for the next 12 months in the
M&A market and how do you expect legal practice to
2017 may be impacted by the recent global and domestic
developments of Brexit, increasing protectionist US policies,
rising geo-political tensions and demonetisation. However,
M&A activity in India is expected to increase with the push
of stable rupee, continuing regulatory reforms, decreasing
interest rate cut and demographic enthusiasm.
Sectors such as infrastructure, pharmaceuticals and
healthcare, financial services, technology and e-commerce are
expected to gain the widest attention.
Due to the regulatory changes in 2016 and implementation of
such legislation in 2017, the legal industry will have to
ensure timeliness in deal advice and execution, taking into
consideration different deal structures and strategies
available in light of the new legislations.
T: 91 22 2860101
F: 91 22 22834102
Dipankar Bandyopadhyay is an experienced M&A
lawyer and head of the corporate practice at Verus.
Bandyopadhyay advises on public and private M&A,
private equity, venture capital and financing matters.
Bandyopadhyay has represented both acquirers and
sellers on several complex, cross-border public M&A
transactions, a number of which have been recognised as
leading transactions in the jurisdiction. Bandyopadhyay
regularly advises on structuring of M&A deals from
the perspective of the complex regulatory environment
in India. He has advised Idea Cellular, India Power
Corporation, HSBC, AXA, India Carbon and Suzlon on
M&A matters in India.
T: 91 22 2860113
F: 91 22 22834102
Priyanka Devgan is an associate with Verus. Her
principal areas of practice are M&A and corporate
finance. She often advises clients on the regulatory
aspects of M&A transactions, including tender
offers, insider trading and competition law