INDIA (DOMESTIC FIRMS): An Introduction to Corporate/M&A: Mumbai-based

India: An Introduction to Corporate/M&A 

India is likely to be the world’s fastest growing economy through 2024, with the World Bank projecting that India’s GDP will increase by 6.3% in FY203–2024.

That said, the number of M&A deals and the aggregate M&A deal volumes in 2023 have been lower than those in 2022. Between January and June 2023, there were 1,201 M&A deals aggregating USD3.2 billion, which is significantly lower than the 1,914 M&A deals aggregating USD13.42 billion for the same period in 2022. This was primarily attributable to global conditions, a lack of investor activity and an absence of megadeals with ticket sizes exceeding USD1 billion.

In 2023, Indian M&A have largely been undertaken by investors looking for differentiated business as opposed to acquiring scale, and this has led to smaller deal sizes. However, Q3 saw the return of the megadeal, with six megadeals being announced in that quarter, including Walmart’s acquisition of a 40% stake in Flipkart for USD1.4 billion, taking the average M&A deal size to USD37 million. Perhaps consequently, reports indicate a 243% increase in M&A activity in Q3. Domestic M&A was robust throughout, with the USD40 billion merger of Housing Development Finance Limited into its subsidiary, HDFC Bank Ltd, being completed in July 2023, making the merged entity the seventh most valuable bank in the world by market capitalisation.

Key sectors such as e-commerce, IT and ITES, pharmaceuticals and healthcare witnessed significant deal activity, with activity in the start-up, ecommerce and IT and ITES sectors accounting for 64% of all deals in Q3.

Factors that may impact M&A in India in 2024  

Faster antitrust clearance  

India’s antitrust regulator, the Competition Commission of India (CCI), was inquorate for seven months, meaning it was unable to process applications for merger control. The CCI has now appointed a new chairperson and three new members, and this should address timelines.

In addition, the Competition Act, 2002 was amended in 2023 to, amongst other matters, provide that the CCI must process merger control notifications within 150 days of receiving the notification, as opposed to 210 days as the statute previously contemplated. This change has yet to be effected.

Deal value threshold for antitrust compliance  

The government has also amended the Competition Act to institute a “deal value” threshold, under which all transactions involving consideration exceeding INR20 billion must be notified to the CCI. While this amendment has not yet taken effect, the draft regulations issued by the CCI indicate that the “deal value” will include all non-compete or other fees payable to the sellers or any other persons, deferred consideration, consideration for options in securities (without discounting the future consideration to present value), payments for technology and intellectual property rights, etc. Once implemented, this could increase parties’ costs and lengthen timelines to complete larger M&A transactions. 

ESG considerations when restructuring stressed assets  

In October 2023, two senior functionaries of the Insolvency and Bankruptcy Board of India, India’s bankruptcy regulator, published a paper recommending that the Insolvency and Bankruptcy Code, 2016 be amended to mandate the consideration of ESG factors when evaluating resolution plans submitted for the restructuring of corporate debtors. This is merely a proposal, and it is unclear whether the Insolvency and Bankruptcy Board of India will act on it.

Slowdown in public sector disinvestments 

The government had intended to earn INR510 billion in financial year 2023–24 through the disinvestment of stakes in public sector undertakings. Reports indicate that the government is now prioritising strategic stake sales of private sector undertakings such as BEML Ltd., Shipping Corporation of India Limited and IDBI Bank Ltd., but it is unlikely to pursue any other divestment opportunities before the 2024 general elections. As a consequence, there is likely to be a slowdown in divestment-related M&A in 2024, and it is equally likely that the government will miss its target for disinvestment.

Personal data protection legislation  

India enacted the Digital Personal Data Protection Act, 2023 (the DPDP Act) in August 2023. Once the DPDP Act is implemented, it will likely impact M&A in India as the sharing of personal data for M&A transactions – whether for due diligence or otherwise – must comply with the statute unless the transaction is being affected through a scheme of compromise or arrangement, merger or amalgamation approved by a court, tribunal or other competent authority.

In addition, sellers and targets will likely need to obtain consent from all persons whose personal data is to be shared as part of the transaction. If the consents already obtained by the target do not extend to the business activities proposed to be undertaken following completion, new consents will need to be procured to ensure the viability of the transaction.

To the extent that the target business relies heavily on customer data, the acquiror may consider incorporating adjustments to the purchase price and/or walkaway rights if the parties are unable to obtain consents from the majority of the data principals.

Looking forward to 2024 

The outlook for M&A in India in 2024 seems promising, with GDP continuing to grow and increased infrastructure spending. As of September 2023, it was estimated that approximately USD100 billion to USD150 billion in funds available for investment have been specifically earmarked for India.

Lok Sabha elections are scheduled for 2024, and that will impact M&A if only to the extent of the duration of the elections. Nonetheless, the Indian economy seems to be well placed to attempt investment, and the outlook for M&A in 2024 is bright.