Jilian Consultants Co., Ltd.
Jilian Consultants Co., Ltd.

Private Merger And Acquisition In India

A Private Merger and Acquisition is a corporate restructuring tool that helps private business organizations to expand and diversify their scale of operations and to achieve other underlying objectives. A private merger means an arrangement whereby one or more existing companies merge their identity into another to form a new entity that may or may not be one of those existing entities. In laymen terms, it is a combination of two or more entities into one by accumulation of assets and liabilities of both the organizations. There are varied objectives of mergers such as, economies of scale, acquisition of technologies, access to varied sectors and markets, reduction in cost etc.

A private acquisition or takeover is the purchase by one person, of controlling interest in the share capital or of all or substantially all of the assets and/or liabilities, of the target. An acquisition can be be friendly or hostile and may be structured either by way of agreement between the majority shareholders or purchasing of shares from an open market or by making an offer for acquisition of the target’s shares to the entire body of shareholders.

With a few variations, the private merger and acquisition activity in India during the period from 2015-2019 has been quite strong. During this period, India has witnessed around 3,600 private acquisition and merger deals with an approximate value of more than USD 310 billion. Many sectors such as industrial goods, energy, telecom & media represented more than 60% of deals by volume and value. Some of the world’s most talked about deals include Walmart’s USD 16 billion acquisition of Flipkart (2018), the USD 13 billion acquisition of Essar Oil by a Rosneft-led Russian consortium (2017), and Adani Transmission’s USD 3 billion acquisition of Reliance Infrastructure’s integrated.

The current government’s reform agenda and the policies are more likely to formulate and encourage foreign investments. There is also an increase in the private Merger & Acquisition activity in India due to the new bankruptcy law and the faster pace of approvals initiated by the government as part of its ease of doing business in India campaign and the relaxation in Foreign Direct Investment norms. However, with the phase of recent geo-political events such as the US-China trade war, the Brexit situation in Hong Kong or the the drone strike on Saudi Arabia’s oil facilities indicated a dawning recession and India started sinking in deal making in the third and fourth quarters of 2019. In addition, the COVID-19 outbreak has equally disrupted the world in 2020 has not left the Indian economy untouched. Several private merger and acquisition deals in India have been stalled in the wake of this pandemic including the much-anticipated privatization of Air India and Bharat Petroleum Corporation Limited. But as the world will be able to retrench the spread of COVID 19 and lift the lockdown across the world, countries will expect from their governments to propose policies to revive the economy and help revive merger and acquisition activities.

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Legal Framework for Private Merger and Acquisition:

The following are the legislation that govern Mergers and Acquisitions in India:

  • Foreign exchange management act, 1999: The rules under FEMA are monitored by the Reserve Bank of India to regulate the foreign exchange transactions.

  • The securities and exchange board of India: SEBI monitors and controls the securities market in India. It also governs the M&A transactions that involve acquisitions of substantial stakes in a public listed company.

  • The Companies Act, 2013: All corporate transactions must be implemented under this act as this is the primary legislation that governs all companies in India.

  • The Competition Act, 2002: the M&A transactions that are likely to cause effects on the competition in India are regulated by The Competition Commission of India Regulations, 2011.

  • The Income Tax Act, 1961: Under this act, the tax treatment of mergers and acquisitions are governed along with the double taxation avoidance treatise signed between the non- jurisdiction country of the non- resident and India.

Recent Key Private Merger and Acquisition Deals in India:

  • Metropolis Investment Holdings Private Limited. in Ramky Enviro Engineers Limited: This was the first acquisition of the scale of USD 530 million in the environment sector after Prime Minister Narendra Modi launched a massive clean up programme. The Metropolis Holdings Private Limited belongs to the US giant Kravis Kohlberg Roberts & Co. Inc. and it acquired a 60% stake in Ramky Enviro Engineers Limited.

  • Jio Platforms deals: The Jio Platforms Limited have raised a total of USD 8.95 billion from various technology investors. (a) Vista Equity Partners runs the largest exclusive tech-focussed fund and has acquired a 2.32% stake in Jio Platforms, (b) Silver Lake Partners bought a 1% stake in in Jio Platforms for USD 750 million, (c) Facebook has bought a 9.9% stake in Reliance Jio for USD 5.8 billion.

  • Bharti Airtel: One of the most prominent deal of 2019 was by this telecom major as it received an approval of the Reserve Bank of India to raise funds to boost its customer base issuing a total of USD 3.5 billion and an additional of USD 0.98 billion through a foreign currency perpetual-bond issue.

  • Nippon Steel and ArcelorMittal’s acquisition of Essar Steel: At USD 7.2 billion Nippon Steel corporation and ArcelorMittal completed an acquisition of Essar Steel India Limited in 2019 together.

  • Max Healthcare and Radiant Life Merger: In 2019, Radiant Care private Limited acquired a 49.7% stake in Max Healthcare Institute Limited and Max India Limited from South Africa based Life-Healthcare for around USD 284 million.

  • Vodafone Idea- right issue: In August 2018, Vodafone India and Idea Cellular had a merger. Later in 2019, Vodafone Idea’s rights issue raised USD 3.5 billion in one of the largest issues in the country.  This will help bring down the debt-to-equity ratio of Vodafone Idea from 1.6 times to 0.9 times.

Though with the relief packages announced by the government of India to secure companies from corporate insolvency resolution process as a part of the COVID reforms may limit the Private Merger and Acquisition in the IBC space. However in the recent five years India has invested hugely, upto USD 1.48 trillion in projected infrastructure as per the global standards. As market trends suggest Indian corporates are likely to continue their consolidate businesses to boost their operating models, size and scale of operations by amalgamating their portfolio companies.