IFLR India M&A Forum 2019

September 17, 2019, The St. Regis Mumbai 

Key Takeaways

Below are the key takeaways for IFLR India M&A Forum 2019:

Overview on the India M&A landscape

  • Slowdown in the economy has impacted the M&A landscape in India greatly.
  • Insolvent and pension funds are putting a good amount of capital in.
  • Growth rate will impact the volume of private equity this year, with exits hitting harder than entries.
  • Sector wise, the most interesting play are in the FinTech sector and consumer technology-based companies.
  • Start of consolidation in small NBFC's and FinTechs, as they have no real business purpose.
  • Exits are a consequence of a great business. Don't hold double standards between tech and traditional businesses.
  • Investors are nervous about the Indian corporate landscape. From an investment perspective, trust is important, or it will be a difficult situation.

Progressing with the Insolvency and Bankruptcy Code

  • The IBC is a market changing reform, which was long overdue in the Indian economy, and the effects has been felt beyond the banking sector.
  • Where are we today? We have made significant progress, which is more good than bad. When a new regime is introduced, it takes time to evolve.
  • We now have a framework, which has changed the behaviour between lenders and borrowers on stressed assets. Being proactive in recognising the problem and taking provisions is useful.
  • There is no other area of law where the regulators have responded with such accuracy in our issues. We hope to see the IBC become more active, and other solutions to come about in the future
  • Insolvency should however, be the last resort. We should acknowledge stressed assets and deal with it before it goes into insolvency.

The state of private equity in India

  • Most issues arising in the PE space are largely domestic. The macros are not helping either, and expect a potential crisis over the next 6 months.
  • However, going forward, with a longer term view, India is still a great place to invest.
  • It is important to pick the right sectors, due to credit concern, aftermath of GST etc. If you pick the right sector, you get the right value.
  • Trend – control deal is here to stay, there are more assets available when control sales are possible
  • It’s a healthy trend that there are more players in the region. The more players, the more capital there is, which is great for the Indian economy.

Complexities of cross-border transactions

  • Outbound trend: in the IT and technology sector, we see smaller companies being acquired, or they just perish. This is due to a low-cost business model. Huge companies look to acquire cross-border for these digital capabilities
  • Inbound trend: manufacturing sector is picking up in India, moving from China to India due to trade war. These have been set up through brownfield (JV or acquisition) in India.
  • Given that the credit markets are tough, there is activity in Private Equity cross-border transactions
  • It is common to underestimate anti-trust. You must understand the asset history very well – who has owned it and what they are doing in the market.
  • Integration issues are particularly prominent with cross-border transactions, due to cultural and regulatory differences.
  • Ultimately, communication is key. It's a balancing act due to confidentiality from both businesses, but from a legal perspective, it is important to plan ahead
  • India is a complex market, and regulatory changes are difficult to execute. This is something lenders are aware of, which would affect decision-making.

A look at the Healthcare industry

  • Due to lots of new technology, the pharma market is going through a lot of change. There is lots of investing in the R&D space.
  • Looking to commercialise the new technology is a priority, and this drives the activity within pharmaceutical companies.
  • A driver is the government investment in infrastructure. Currently India isn't a preferred jurisdiction due to regulatory complications. We currently see outbound investments from India.
  • Prevention of corruption in India is starting to become more prominent. Insurance companies are tying up with pharmaceutical companies.

The rise of shareholders activism

  • Places like India attract foreign investment, so expect good returns.
  • As companies change, the audit committee can become independent, resulting in a wave of shareholders activism due to major vs minority.
  • Corporate governance is a mechanism that has to work with the entire context. Which shareholder 'owns' corporate governance?
  • Proxy advisors play a major role, and it can be expected to increase. The question is whether we need to regulate them or not.
  • Looking forward, India still faces a gap in implementing the desired level of shareholder's activism.

Dispute resolution in M&A transactions

  • In mitigating the risks of disputes, it is very critical to define what role to play with external counsel.
  • With deal-mania, be aware in getting caught up and you may start to overlook basic key issues.
  • Sandbagging provisions prevents buyers from reporting damage which were not disclosed, as a lawyer you need to be careful of the data to include in the disclosure.
  • Pre-closing clauses: Indian courts and SEBI adopt MAC and its interpretations by the US courts.
  • Post-closing disputes invariably arise during integration efforts, such as successor's liability for bribery/corruption.

Data Privacy and the new world of business in M&A

  • ‘Fair & Complete’ disclosure of all data breaches/related claims/settlement agreements etc. need to be done as a part of Legal Due Diligence exercise
  • Key to data security is maintaining and updating an industry standard encryption, secure data access and authentication platforms.
  • Data security breach and resulting impact are noticed only after the acquisition of a company, due to outdated standards and processes.
  • Across the industry, there is no uniformity of approach towards GDPR compliance strategy. It's based on individual understanding of the compliance obligations under GDPR.


Debevoise & Plimpton


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