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

The Indian economy grew faster than other emerging market economies in 2022, and proved to be quite resilient compared to many foreign economies which faced significant economic challenges. The Indian economy has rapidly regained the momentum lost during the pandemic, and is demonstrating resilience to the consequences of the situation in Ukraine.

Indian M&A in 2022  

In India, M&A values increased by approximately 50% in 2022 – approximately pre-Covid levels of economic activity. This was despite the fact that M&A values globally decreased by 37%. The strength of the Indian economy informs the fact that M&A in India in 2022 was dominated by domestic deals which accounted for 70% of M&A deal value in India.

There were fewer transactions with consideration exceeding USD5 billion. However, deal values for strategic M&A grew by 126% – possibly attributable to increased cash levels and lower interest rates. Indian M&A in 2022 was driven, in large part, by strategic imperatives, with large corporations consolidating their businesses, or entering new lines of business.

Horizontal and consolidation deals 

With a rapidly evolving global geopolitical environment, horizontal and consolidation deals dominated Indian M&A in 2022.

The largest Indian M&A deal in 2022 was the USD40 billion consolidation of India’s largest housing finance company, Housing Development Finance Limited Ltd, and its subsidiary, HDFC Bank Ltd. The transaction has already been approved by Indian regulators, including the Reserve Bank of India, the Securities and Exchange Board of India, and the Competition Commission of India (CCI), and is expected to complete in 2024. The merged entity will be the second largest banking entity in India in terms of assets.

Tata SIA Airlines Limited (operating as Vistara) and Air India have commenced formalities to complete a merger valued at approximately USD8 billion which will create India’s largest international carrier, and second largest domestic carrier.

Scope M&A deals 

Several M&A deals in 2022 were scope or capability-driven, with acquirers entering new markets – illustratively, the Adani group acquired Ambuja Cements and its subsidiary ACC in an approximately USD10 billion deal, making the Adani group the 2nd largest cement manufacturer in India overnight, and Torrent Pharma became one of the top ten cosmetic dermatology manufacturers in India by acquiring Curatio Healthcare. Aditya Birla Fashion and Retail Ltd, India’s leading fashion retail company, acquired eight digital-first fashion channels to diversify its portfolio – one of many M&A transactions designed to help acquirers transition from traditional brick and mortar business models to an online model.

Outbound M&A deals 

In 2022, outbound M&A activity in India increased by approximately 30% as compared to 2021, reaching a four-year high. The largest outbound M&A deal was the acquisition of US-based Viatris, Inc’s biosimilars business by Biocon Biologics Ltd, India’s largest biopharmaceutical company.

Factors That May Impact M&A in 2023  

Delays in obtaining approvals from the CCI 

Some large transactions which may have an appreciable effect on competition have been in limbo for several months. Although these transactions have been notified to the CCI in accordance with the (Indian) Competition Act 2002, a number of applications have not been processed as the CCI has been inquorate since October 2022. As of 9 February 2023, the CCI has, on the government’s recommendation, invoked the doctrine of necessity, and begun processing applications despite its lack of quorum. However, with fewer members the CCI may take longer to approve transactions than it has in the past.

Disinvestment of public sector undertakings 

The Indian M&A space may witness more acquisitions of public sector undertakings as the government is expected to continue its disinvestment efforts – other than for sectors such as atomic energy, space and defence.

While the government’s attempts at disinvestment have not been very successful – it has failed to achieve its divestment target every year for the past four years – reports indicate that, following the successful disinvestment of Air India, the sale of several state-run entities is being progressed.

Key Indian Law and Policy Reforms in 2022  

Reforms to the overseas investment regime 

In a move to increase outbound M&A and investments by easing compliance, the government overhauled the overseas investment regime in 2022.

Transactions involving deferred consideration no longer require prior government approval if they comply with identified conditions. Writing-off of investments, or amounts due, at the time of disinvestment has also been made easier. Additionally, Indian entities that are not engaged in financial services may now invest in overseas entities engaged in financial services other than banking and insurance.

Round-tripping concerns have also been addressed. Earlier, an Indian entity could not, directly or indirectly, invest in an offshore entity which held any investment in India without prior government approval. Indian entities no longer require government approval to invest in overseas entities that have invested, or may invest, in India, provided that the investment does not result in a structure involving more than two layers of subsidiaries. While this is a positive step, there is some confusion as to how the two layers of subsidiaries are to be determined.

The new regime has also introduced the concept of late fees for the filing of forms. This is a welcome change as previously forms – including those reporting investments or divestments – which were not submitted within the prescribed period could only be submitted after filing an application with, and adjudication of penalties by, the Reserve Bank of India. The late filing facility is also available for transactions undertaken prior to the implementation of the new regime provided that the forms are submitted, and late fees are paid, by 21 August 2025.

Reforms to insolvency laws 

India’s corporate insolvency regulations have been amended to facilitate faster, and more effective, insolvency resolution. The government continues to be proactive in its approach to the resolution of stressed assets and, in early 2023, sought inputs from the public on further amendments to the insolvency regime to increase efficiencies in insolvency resolution.

Digital Competition Act 

To deal with evolving technologies and the digital economy, the government has appointed a commission to draft a Digital Competition Act specifically to regulate digital intermediaries and prevent anti-competitive practices and the creation of monopolies. The proposed legislation – which is to be drafted by May 2023 – may also deal with, or prescribe conditions for, mergers and acquisitions of digital companies. It remains to be seen how the proposed legislation will impact M&A in India.

Deal Value Threshold for antitrust compliance 

The government is also proposing to amend the Competition Act 2002 to require the notification of all M&A transactions involving consideration of INR20 billion (approximately USD241.72 million) or more to the CCI. This could increase parties’ costs, and extend the time taken to complete larger M&A transactions.

Looking Forward to 2023  

Experts are optimistic about global M&A activity in 2023. The reforms to the overseas investment regime may result in an increase in outbound M&A activity and cross-border deals. India may also see a rise in stressed assets sales in 2023.

However, the proposals to regulate competition among digital companies, and impose a deal value threshold for M&A transactions, may be dampeners to M&A in India. Equally, while it seems extremely likely that the government will return to office following the elections in 2024, the unavoidable impact of elections is a consideration.

That said, with our fundamentally sound economy and robust markets, it seems likely that India will outperform the global economy with consequent growth in Indian and India-focussed M&A.