Mergers & Acquisitions in India

In the first half of 2015, India experienced mergers and acquisitions (M&A) totaling $19.2 billion through 178 deals. This is an 11% growth from the previous year, which experienced 156 deals totaling $17.2 billion. 2014 experienced the highest number of M&A activities in the past decade; 2015 is projected to exceed that.

Mergers (Amalgamations)
Laws in India use the term “amalgamation” for merger. The Income Tax Act, 1961 [Section 2(1A)] defines an amalgamation as the merger of one or more companies with another or the merger of two or more companies to form a new company. All assets and liabilities of the amalgamating companies become assets and liabilities of the amalgamated company. Shareholders with at least nine-tenths in value of the shares in the amalgamating company (or companies) become shareholders of the amalgamated company.

There are two types of mergers:

  1. Merger through Absorption – combination of two or more companies into an existing company; all companies except one lose their identity
  2. Merger through Consolidation – combination of two or more companies into a new company; all companies are legally dissolved and a new entity is created; the acquired company transfers its assets, liabilities, and shares to the acquiring company for cash or exchange of shares

In 2015, one of India’s most high-profile mergers through absorption was that of Kotak Mahindra Bank Ltd., India’s fourth largest private bank, and ING Vysya, the Indian branch of the Netherland’s ING Bank. Kotak Mahindra signed a Memorandum of Understanding with ING Bank, establishing both firms’ cooperation in exploring cross-border opportunities, and ING now owns a minority stake in the Indian firm.

As in any country, acquisition in India may be friendly or hostile. Hostile acquisitions (takeovers) occur when the acquiring company buys a majority stake without the target company’s consent. Historically, hostile acquisitions have been rare in India.

India’s Companies Act states that a company’s investment in the shares of another company exceeding 10% of the subscribed capital can result in a takeover. An acquisition does not necessarily entail full legal control; a company can also have control over another by holding a minority ownership.

In 2015, Atlanta-based global mobile engagement provider mGage acquired Bangalore-based Unicel Technologies. Due to this friendly acquisition, mGage is poised to become one of India’s largest providers of enterprise mobile messaging solutions.

KPMG, an accounting firm, predicts the following sectors will be ripe for significant M&A in India:

  • Consumer goods
  • Medical devices, Healthcare, Pharmaceutical
  • Media & Technology
  • Energy
  • Infrastructure

Favorable government policies contribute to the growth of M&A in India. The Companies Act of 2013 provides a simpler and quicker process for M&A by increasing transparency and governance, reducing litigation of shareholders, and making corporate restructuring more efficient. Other reasons for growth include the country’s stable economy, strong capital flow, and foreign investment. Because of globalization, Indian firms are constantly looking for opportunities to expand in foreign markets, and vice versa.

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