M & As are critical in corporate life and are considered as inevitable tools for inorganic growth. The main objective of a M&A is to add value to all the stakeholders, based on the assumption that it will produce higher corporate potential value than the value of the two separate entities. Trend shows that with economic prosperity, business houses tend to involve more and more in M&As to meet various corporate goals.

Dynamics of India are strong and M&As have become a strategic choice for the growth of Indian companies. Many international and Indian M&As have helped companies to scale to the next pedestal and maximize the long-term value for stakeholders. However, practical experience shows that there are an equal number of cases where the M&As have failed to achieve the desired result.
Any major M&A transaction involves three major challenges – (1) commercial understanding including valuation & consideration (2) legal compliances to implement the transaction; and (3) post transaction implementation issues to achieve the desired advantages of a M&A.

Commercial understanding

As business grows, the management feels the compulsion of inorganic growth – to go at an upper echelon, to create larger market share, to enter into new geographic horizons or a new line of business. Thus, the search for M&A target starts, which leads to deal negotiations, business due diligence, valuations and arriving at commercial understanding for M&As. With the help of experts, a structure of the transaction is created to make it optimal in terms of cost, efforts and time.

Legal compliance phase

While framing the deal structure, legal framework governing the transaction is very significant. The legal complexity of an M&A depends upon the nature of business, size of entities involved, geographical coverage of the businesses and mode of transaction finalized. The primary law governing M&As is the Indian Companies Law; however, there are several other statutes which directly or indirectly govern these transactions:

• The Tax Laws – basically Income Tax.
• Stamp duty & property tax provisions of respective states.
• Regulatory frameworks of the industry.
• Accounting norms as prescribed for M&A.
• In case of listed companies – Securities Laws especially SEBI Takeover Regulations & Listing Agreements with Stock Exchanges.
• Foreign Exchange Laws in case of cross- border M&A.
• Anti-trust laws or Competition Act if the size of businesses are significant.

The legal framework for M&A in India segregates Mergers from Acquisitions. Mergers refer to consolidation of two or more business entities in which any one or all entities lose their legal existence, whereas Acquisitions refer to the takeover of controlling stakes of one company by another