Harsh Pais and Clarence Anthony,
Dealmaking in India touched the $100 billion mark in 2018,
driven by relative macroeconomic stability, progressive
liberalisation of government policies and sale of distressed
assets. The technology sector accounted for 32.2% of all deal
activity, followed by energy, mining and utilities (14.4%),
industrials and chemicals (14.1%) and financial services (11%).
M&A in India accounted for 13% of all M&A activity in
the Asia Pacific region.
The key drivers for M&A activity in 2018 were the
prominence of strategic acquirers (such as Walmart and
Schneider) and consolidation deals, and increased activity in
the distressed assets space on account of India's new
2018 was a record-breaking year for M&A activity in
India as compared to previous years. The aggregate deal value
was $100.1 billion across 416 deals (compared to 2017, which
saw a total deal value of $77.6 billion across 614 deals).
Historically, the Indian M&A market has been driven by
private deals. Nonetheless, public M&A has been boosted by
activity in the stressed assets space and consolidation deals
across sectors such as technology, financial services, energy,
industrials and chemicals and healthcare. Public M&A is
likely to gather momentum in 2019 on account of sustained
interest in distressed assets and consolidation/ divestment
amongst government companies.
Among the key trends influencing deal structures has been a
spate of consolidations across several sectors, including
technology, financial services, energy, industrials and
chemicals and healthcare; deal activity driven by insolvencies
(which has forced sales by distressed promoter groups); and
market penetration by foreign investors in the e-commerce and
technology sectors. These have been amongst the most
India continues to attract financial investors, as borne out
by a steady stream of strategic acquisitions and exits. Private
equity (PE) investors, historically active in sectors such as
energy, real estate and infrastructure, are now making large
strides in the technology / e-commerce space (marked by
strategic acquisitions by investors such as Berkshire Hathaway
and Softbank) and healthcare (which has witnessed numerous
asset acquisitions by PE-backed hospital chains). PE and
sovereign wealth funds are also increasingly targeting
distressed assets that are on the block as a result of the
Reserve Bank of India (RBI)'s push to clean-up banks'
distressed assets portfolios.
Walmart's acquisition of a 77% stake in Flipkart (which has
a 40% share in the Indian e-retail space) for $16 billion is
the world's largest acquisition in the e-commerce sector.
Following this deal, there has been a tremendous uptick in
M&A in the technology space, with technology deals
accounting for 32.2% of the 2018 M&A deal activity in
India. This deal trigged tremendous debates around it being a
back-door entry for Walmart into India's multi-brand retail
space, and its consequent impact on India's brick and mortar
retailers. The Indian government has recently amended the
regulations on foreign investment / ownership in the e-commerce
space to restrict such a back-door entry.
The acquisition of the Ostro energy platform by ReNew Power
for an enterprise value of $1.6 billion was recorded as India's
largest M&A deal in the renewables space – this
sector continues to see significant deal activity, driven by
consolidation strategies of well-established players.
LEGISLATION AND POLICY CHANGES
The key legislation that governs M&A in India
- Companies Act, 2013: Administered by the
Ministry of Corporate Affairs (MCA), the Companies Act is the
primary legislation governing companies and mergers in
- Securities Regulations: The securities
markets are regulated by the Securities and Exchange Board of
India (SEBI). The SEBI (Substantial Acquisition of Shares and
Takeovers) Regulations, 2011 govern M&A transactions
which involve the acquisition of a substantial stake in a
publicly listed company. The SEBI (Delisting of Equity
Shares) Regulations, 2009 govern take-private
- Foreign Exchange Management Act, 1999
(FEMA): Administered by the RBI, FEMA and the regulations
issued by the RBI thereunder regulate all capital inflows and
- FDI Policy: The Foreign Direct Investment
Policy issued by the Central Government comprises the
framework for regulating foreign investment into India,
including sector-specific restrictions.
- Competition Act, 2002: The Competition
Commission of India, the regulator established under the
Competition Act, accords anti-trust approval to transactions
above prescribed thresholds.
- Income Tax Act, 1961: Administered by the
Income Tax Department, the Income Tax Act along with double
tax avoidance treaties entered into by the Indian government
govern the tax treatment of M&A transactions.
- Insolvency and Bankruptcy Code, 2016
(IBC): Administered by the National Company Law Tribunals,
the IBC regulates auction sales under a corporate insolvency
Recent changes in law
Recent legislative changes include:
- IBC, 2016: Recent amendments to the IBC
have introduced sweeping changes to both substantive and
procedural aspects of the insolvency resolution process,
perhaps none more significant than the insertion of Section
29A, which is intended to restrict existing promoters of an
insolvent entity from exploiting the insolvency resolution
process by participating as bidders and potentially regaining
control of such entity. Interpretation by the courts has
radically enlarged the scope of this provision beyond the
conventional understanding of promoters – this may
have the effect of severely limiting the pool of potential
bidders for stressed assets.
- FDI in e-commerce: The Indian government has also
recently amended the regulations for foreign investment into
e-commerce by imposing significant restrictions on the
ability of an e-commerce marketplace to sell products sourced
from its affiliated entities.
- Enforcement of contracts: In a significant
departure from its earlier position, the Specific Relief
(Amendment Act), 2018 amended the Specific Relief Act, 1963,
to make specific performance of contracts more accessible to
litigating parties. Litigants are now permitted to seek
specific performance of all contracts, unless the contract
falls under one of the exceptions identified in the law.
- Cross-border mergers: Previously,
completion of any inbound or outbound merger was a
complicated process, requiring approval from both the RBI and
the Indian courts. The RBI has now simplified the process by
introducing a deemed approval construct for inbound /
outbound mergers that meet prescribed parameters. However,
this is a relatively nascent and untested area.
- Delisting Regulations, 2009 (Delisting
Regulations): The delisting regime contemplates a reverse
book building process for delisting price discovery. The
process itself was susceptible to speculation-based
inflation, without logical recourse for an acquirer who found
the discovered price unviable. The Delisting Regulations were
amended in November 2018 to plug this loophole – an
acquirer is now permitted to make a counter offer to public
shareholders if the discovered price is not acceptable.
Regulatory changes under discussion
The Central Government has announced that its draft
e-commerce policy will be released in 2019. The policy aims to
create a level playing field for overseas and Indian entities
and restrict foreign players from directly or indirectly
influencing prices of commodities sold on e-commerce platforms.
The Government is also considering establishing a separate
regulator for the e-commerce sector.
In relation to the disclosure of significant beneficial
ownership, the MCA has recently introduced rules imposing
disclosure obligations on individuals who are the ultimate
holders of beneficial interest in Indian entities. Given the
ambiguities around the scope of the rules, compliance with
these disclosure requirements in the coming months may prove
onerous, particularly in case of multi-tiered holding
There are several common mistakes and misconceptions that
relate to standard market practice in India. Transacting
parties tend to opt for foreign law-governed transaction
documents – this stems from the belief that choosing
Indian law may expose a transaction to the delays and
uncertainties usually associated with the Indian court system.
However, the Indian government is continuously taking steps to
encourage arbitration (including amendments to Indian
arbitration law and promoting Mumbai as a hub for international
commercial arbitration), revamp the court system and facilitate
the enforcement of foreign arbitral awards, to address these
Frequently overlooked areas
Regulatory and tax advice should be sought at the outset to
identify regulatory hurdles before transaction terms are
crystallised. Specifically, India has exchange control laws
which regulate how the securities of an Indian company may be
transferred. Administered by the RBI, these regulations are
prone to frequent amendments and often give rise to questions
that may alter proposed transaction structures. Importantly,
any transfer of shares of an Indian company where either, or
both, of the buyer and seller is an Indian resident must be
consummated through an Indian rupee-denominated
Overseas deals which involve the sale of an Indian business
should be consummated at the India level through a stand-alone
transfer agreement to avoid exposing the larger global
transaction to scrutiny by Indian tax authorities. Similarly,
Indian anti-trust and securities laws provide for 'long arm'
jurisdiction with respect to overseas deals which involve
indirect sale of an Indian business.
Acquisitions with respect to publicly listed companies are
required to adhere to the Takeover Code. Delisting Regulations
impose additional challenges in consummating take-private
Under the Takeover Code, a person who enters into an
agreement to acquire substantial stake (25%) or control of a
publicly listed company is required to make a public tender
offer to acquire at least an additional 26% of the target
entity's shares. However, the acquirer must ensure that the
prescribed minimum public float (25%) is maintained at all
times, unless the company is delisted as part of the
However, delisting has proved to be challenging in India
– a successful delisting requires a minimum acceptance
level of 90% (of public shareholders of the listed target
company) and is consummated through a reverse book building
process to determine the offer price, which often yields a
significant premium. In a recent move aimed at easing the
latter requirement, the Delisting Regulations were amended in
November 2018 to permit an acquirer to make a counter offer if
the discovered price is not acceptable to the acquirer.
Conditions for a public takeover
Public takeovers may attract the requirement of obtaining
mandatory regulatory approvals, such as those of
sector-specific regulators or anti-trust approval from the CCI.
Such approvals, when issued, may prescribe additional
conditions. Other than this, there is limited scope to
incorporate specific conditions in a public tender offer.
If the transaction underlying a takeover offer is terminated
because an essential condition (previously disclosed in the
offer documents) over which the acquirer has no control, is not
satisfied, the acquirer is permitted to withdraw the offer.
Break fee provisions are not common.
When it comes to consideration mechanisms in private M&A
transactions, the majority of private M&A are consummated
through completion accounts, though the locked-box mechanism
has become prevalent in recent times. Earn-out and escrow
structures have also become more common – however,
exchange control regulations impose limitations on such escrows
and earn-outs in cross-border transactions. The ever-increasing
volumes of cross-border deals have resulted in the penetration
of W&I insurance into the Indian market, though it is yet
to gain widespread traction.
Conditions for a private takeover
There is no practice of private takeover offers in India, as
private companies impose restrictions on the transfer of
shares, and each instance of transfer must be approved by the
board of directors. Exceptions are transactions involving the
exercise of tag-along and drag-along rights by the selling
majority investor, which effectively allows squeeze-out of
minority investors, or the sale of pledged shares by lenders.
In absence of such contractual rights, a squeeze-out of the
minority is challenging under Indian law.
Foreign governing law
Private M&A transaction documents are usually not
governed by foreign law – however, cross-border
transaction documents generally provide for foreign-seated
arbitration (in London, New York or Singapore).
The exit environment
The first half of the year saw a succession of IPOs and
tender offers, which petered out in the second half. However,
2018 marked tremendous growth for tender offers, PE buyouts and
exits. Buyouts increased by 102.3% (at $16 billion) compared to
2017 ($7.9 billion), whereas PE exits saw a sharp rise in value
($35.8 billion in 2018, compared to $5.7 billion in 2017).
Given factors such as the upcoming Indian general elections,
fallout of the mid-2018 liquidity crisis amongst Indian
non-bank financial institutions, the depreciating rupee,
volatile oil prices and ongoing global trade tensions, the
Indian M&A market in 2019 may be less buoyant compared to
the past couple of years. That said, as at the end of January
2019, M&A activity has not shown signs of slowing down. We
expect M&A activity to be driven by: the sale of distressed
assets; divestments of non-core assets; consolidation in the
financial services sector; and increased participation of PE
and sovereign wealth funds.
Mumbai and New Delhi, India
T: + 91 22 4079 1062, + 91 11 4259 9290
Harsh Pais is a partner in Trilegal, focusing on
M&A and private equity. Harsh advises extensively
on cross-border acquisitions and joint-ventures. In
addition, Harsh provides strategic counsel to clients
on matters involving change of control transactions,
corporate governance, securities laws, troubled
joint-ventures and crisis management. Harsh is also
experienced in providing transactional and regulatory
advice to clients in regulated industries, including
financial services; energy; and telecom, media and
Harsh was involved in reviewing the initial drafts
of the bankruptcy code developed by the Bankruptcy Law
Reforms Committee. As a member of FICCI's national
committee on corporate laws, Harsh has been invited to
advise SEBI on a proposal to liberalize the regime to
de-list publicly traded companies in India.
Harsh is ranked as a Leading Lawyer –
Highly Regarded for Corporate M&A by the IFLR1000
Corporate & Finance Guide 2019. Focusing on
M&A, Harsh garners recognition from clients for his
"high quality of documentation," as well as his
knowledge of regulatory issues relating to corporate
transactions. Further sources praise his "depth of
knowledge, quick fast and comprehensive advice," and
ability to "think out of the box, in doing so providing
He has past experience at a major international law
firm in New York and is additionally qualified in the
UK and New York. Harsh is an alumnus of Columbia Law
School and the National Law School of India.
New Delhi, India
T: + 91 11 4163 9393
Clarence Anthony is a counsel in Trilegal with a
focus on M&A, private equity and funds. He
regularly advises on transactions in regulated sectors
such as insurance, aviation, financial services and
real estate. In the past year, he has also acted on a
number of prominent deals in the manufacturing,
technology and renewables space. His clients include
some of the largest PE funds, development finance
institutions and multinational corporations.
Clarence is an alumnus of Government Law College,
Mumbai and is a solicitor registered with the Bombay
Incorporated Law Society. Clarence is also qualified to
practice in England and Wales.