Procedure for Mergers and Acquisition in India

Introduction

Mergers and acquisitions in India are complex procedures, whereby the companies are required to follow certain statutory provisions so as to complete the merger or the acquisition. Mergers and acquisitions are used as instruments of momentous company growth and are increasingly getting accepted by Indian businesses as a critical tool of business strategy. They are widely used in fields such as information technology, telecommunications, and business process outsourcing as well as in traditional business to gain strength in the market, expand the customer base, cut competition or enter into a new market or product segment.

TYPES AND PROCESS OF MERGERS

There has been a steady increase in cross-border mergers with the increase in global trade. Such mergers and acquisitions can bring long-term benefits when they are accompanied by policies to facilitate competition and improved corporate governance.

There are different types of Mergers that the company can follow:

• Horizontal Merger: It occurs when two companies competing in the same industry merge. The goal is to eliminate competition, gain market share, and potentially achieve economies of scale.
• Vertical Merger: This involves the merger of companies at different stages of the production process for a particular good or service. For example, a steel producer merging with an auto manufacturer. The aim is to gain greater control over the supply chain and potentially improve efficiency.
• Conglomerate Merger: This type of merger combines companies in entirely unrelated industries. The rationale behind this can be diversification to reduce risk or acquiring a company with undervalued assets.
• Congeneric Merger: This involves the merger of companies in related industries that don’t directly compete but might serve similar customer segments. For example, a bank merging with an insurance company. This can allow for cross-selling opportunities and potential synergies.

The process of merger has numerous steps to be followed, below is an illustration of the various different activities.

It is of foremost importance to carry out Strategic Planning and Evaluation before the merger. The objective of the merger is to be defined along with the identification of the target, post which the companies are required to evaluate the target companies. The second step is Valuation and Due Diligence. For this purpose, the target company’s value is determined, and then comprehensive due diligence is required to be done. In the final step of this stage, companies negotiate the terms of the transaction, including the purchase price, payment structure, and any contingencies or conditions. At the third step, the Companies shall carry out the Transaction Structuring and Documentation. For this purpose, the structure of the deal, such as asset purchase, stock purchase, or merger, considering tax implications, regulatory requirements, and financing options is to determined, after which the companies can enter into legal documentation.

Thereafter the companies are required to obtain the Regulatory and Shareholder Approvals. At this stage the companies are required to obtain necessary regulatory approvals and clearances from government authorities, antitrust agencies, etc. They will also require approval from shareholders of both the acquiring and target companies. As a part of Post-Merger Integration, the company are required to develop a comprehensive integration plan outlining the steps, timelines, and responsibilities for integrating the operations, systems, processes, and cultures of the acquiring and target companies. In this final phase, the implementation happens. Thereafter the company continues to monitor the performance of the merged entity against predefined targets and benchmarks, tracking financial metrics, operational efficiency, customer satisfaction, and market share.

Conclusion:

Mergers and acquisitions may be undertaken to access the market through an established brand, to get a market share, to eliminate competition, to reduce tax liabilities or to acquire competence or to set off accumulated losses of one entity against the profits of other entity.