Mergers and Acquisitions process in India

By - Shivam Shekhar on October 29, 2022

Mergers and acquisitions is the consolidation of enterprises or their main financial assets through inter-business financial transactions. Mergers and acquisitions in India are among the most successful methods for hastening the implementation of a business plan for quick expansion. Businesses in all industries, including communications, pharmaceutical, automotive, food and beverage, and others, have developed quickly as a result of their Mergers and acquisitions strategy, in addition to other causes.


Over the last decade, Indian companies have been exposed to both domestic and foreign competition, and their capacity to compete now determines the existence of their business/trade. Due to the increasing competition between domestic and foreign enterprises, the bulk of Indian organizations has undertaken appropriate Mergers and acquisitions route, to expand in the current market. Since such transactions have significant legal implications, it is critical to enlist the assistance of lawyers in this regard. King Stubb & Kasiva is one of India’s best law firms for Mergers and acquisitions, having offices in 8 cities across the country. Mergers & Acquisitions practice is one of their areas of specialization and expertise.

Meaning of Mergers and Acquisitions

Mergers and acquisitions deals involve the merger of two businesses, by way of combining their assets and liabilities (merger) and one business acquiring another business’s assets and liabilities (acquisition). Even though the terms “merger” and “acquisition” are sometimes used interchangeably, their legal implications are distinct as briefly mentioned.

When a larger company buys a smaller company and absorbs its operations, this is referred to as an acquisition. A merger is the combination of two businesses of roughly the same size to move forward as one new organization or under the name of either of the two organizations, rather than continuing to function individually.

Steps Involved in an m&a Transaction

1. Perform Valuation Analysis & Negotiations

Assuming that the initial contact and negotiations go well, the acquirer requests comprehensive information from the target organization to help it evaluate the target as a potential acquisition target and as a stand-alone business. After developing many valuation models for the target company, the acquirer should have enough information to make an appropriate offer; once the initial offer is made, the parties can engage in a more in-depth negotiation of terms to kickstart the process of Mergers and acquisitions in India. The financial strategy of the transaction is also discussed and agreed upon mutually.

2. Letter of Intent

The letter of intent is used before the transaction is finalized to ensure that both parties have mutually agreed on the price and other terms. This is required before the target company agrees to offer the acquirer exclusive purchasing rights.

3. M&A Due Diligence and Final Agreement

For the third step of a Merger and acquisition transaction in India, After the offer is accepted and approved, a lengthy process known as the due diligence of the target company begins. The goal is to confirm or change the acquirer’s valuation of the target company by investigating and analyzing every aspect of the target company’s operations, including financial measurements, assets and liabilities, customers, and human resources. After due diligence is completed, the parties sign a formal contract for sale and decide whether to enter into an asset acquisition agreement or a share purchase agreement.

4. Inspecting the Memorandum of Association of the Company

This is done to conduct a search and determine whether or not the power of the merger and/or acquisition in India is endowed in MOA within the object clause of the companies.

5. Notifying the Stock Exchange

The stock exchange must be notified of the proposed merger and acquisition, and all necessary documents, such as resolutions, notices, and orders, must be delivered to the stock exchange within the prescribed time frame.

6. Drafting and Filing of Merger Proposal

The merger proposal must be approved by the boards of directors of both companies. Furthermore, they must pass a special resolution authorizing their Key Management Personnel to carry out the process. Post this, an application is filed with the respective jurisdiction’s High Court (“HC”). Furthermore, under Sections 230-232 of the Companies Act, 2013, the National Company Law Tribunal (“NCLT”) is entrusted with the powers of Arbitration, Compromise, Agreements, Reconstructions, merger, de-merger, and the winding up of companies. This is done to ensure fair and effective overseeing of the deals.

7. Notifying Stakeholders

After obtaining the HC’s approval, a notification within the prescribed period should be sent to all of the organizations’ investors and creditors about the upcoming gathering. This is very essential for a merger and acquisition in India, as it provides a legal forum for verification.

8. Filing Orders with the Registrar of Companies

The true confirmed copy of the request for the state’s HC must be documented with the Registrar of Companies (“RoC”) within the time frame specified by the HC.

9. Merging of Assets & Liabilities

The concerned companies can then combine their assets and liabilities following the terms of the merger proposal to complete the merger process. In the event of a merger or purchase between a listed and unlisted firm, sections 391-394 of the 2013 Companies Act may be used. This would offer the publicly traded company’s public stockholders with a safety net or a clear exit option. If major assets are stripped from a publicly traded firm, similar to a de-merger, public shareholders will be given a safety net or exit option, and the remaining business will be delisted.

10. The issue for Subscription of Shares & Debentures

After being listed on a stock exchange, the unified enterprises can issue shares and debentures as a new legal entity.

CONCLUSION

Mergers and Acquisitions in India have shown to be one of the most successful methods of conquering current different business obstacles and boosting business growth. Restructuring businesses primarily through mergers and acquisitions, operating on a larger scale, and other synergistic efforts appear to have assisted local enterprises in improving their worldwide competitiveness.

On the other hand, the entry of foreign firms into the local market via mergers and acquisitions in India appears to have put competitive pressure on domestic enterprises, driving them to improve their business operations and customer satisfaction by way of Mergers and Acquisitions routes or other appropriate measures.

The financial records, such as the company’s profit-and-loss statements, are thought to be the most important elements when analyzing the benefits of mergers and acquisitions. Mergers and acquisitions in India are successful when elements such as the company’s profit and loss, market share, and shareholder interest in the corporate expansion are measured in comparison to the company’s position concerning the same elements before the Mergers and Acquisitions route was undertaken. The success rate can be easily determined by reviewing the company’s market worth, before and after the Mergers and Acquisitions route undertaken.

FAQ

what are the basic elements of mergers and acquisitions?

For a successful M&A transaction, the basic elements are:
1. Legal compliance;
2. Valuation Analysis;
3. Negotiation;
4. M&A Due Diligence; and
5. Financing Strategy of the transaction.

what is the difference between a merger and an acquisition?

Even though the terms “merger” and “acquisition” are sometimes used interchangeably, their legal implications are distinct. When a larger corporation buys a smaller company and absorbs its operations, this is referred to as an acquisition. A merger is a combination of two businesses of roughly the same size to move forward as one new organization, or under the name of either of the two organizations, rather than continuing to function individually.

how do i merge two companies?

A simple 4-step process can be followed:
1. Assessing the Financial Health of the Companies involved in the Merger;
2. Establishment of Common Goals;
3. Assembling a Team to initiate the Merger;
4. Determining the terms of the Merger;
5. Creating a Purchase & Sale agreement; and
6. Put together an Internal Merger Transition Team & work through the integration of the companies.


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