India: Private M&A Comparative Guide
1.1 How are private M&A transactions typically structured in your jurisdiction?
Private M&A transactions are typically carried out under four broad routes:
acquisition of shares;
business or asset acquisition;
tribunal-based scheme of amalgamation; or
distressed sale under the Insolvency and Bankruptcy Code, 2016 (IBC).
Acquisition of shares: This entails either:
a secondary sale of shares by executing a share purchase agreement; or
the acquisition of fresh shares in the target by executing a share subscription agreement.
Business acquisition: For some acquirers, a business acquisition is the preferred route under which business units or undertakings are transferred as a ‘going concern' for a lump-sum consideration on a slump-sale basis. Business acquisitions involve the acquisition of a business unit, including assets and liabilities associated with such unit. From a commercial and strategic standpoint, some acquirers may also prefer to buy only key assets of the target and not the complete business unit. In the case of such acquisitions of identified assets, values are assigned to identified assets and the liabilities of the target are usually excluded. From a taxation standpoint, a transfer of business undertaking is entitled to certain tax benefits; whereas an asset acquisition has no tax benefits.
Tribunal-based scheme of amalgamation: In a tribunal-based scheme of amalgamation (court-based merger), the parties file a scheme of merger/amalgamation, demerger or sale of business with the National Company Law Tribunal (NCLT). In addition to obtaining approvals from the board of directors and shareholders, the transacting parties must obtain the go-ahead from their creditors and other sector-specific regulators (as may be applicable). Further, depending on the structure of the scheme filed with the NCLT, a court-based merger may also have some tax benefits.
Distressed sale: The sale of a distressed entity under the IBC takes place pursuant to a resolution process conducted by an NCLT-appointed insolvency professional, under the supervision of the committee of creditors (CoC) of the distressed entity. The process entails an invitation issued by the resolution professional to interested parties that meet the eligibility criteria approved by the CoC to file a resolution plan for the revival and turnaround of the distressed entity. The resolution plan(s) which meet the minimum statutory requirements are placed before the CoC for their consideration and approval. For a resolution plan to be approved, it must receive at least 66% of the voting shares of the CoC, followed by the approval of the NCLT. Another possible structure is to acquire the distressed entity as a going concern in liquidation.
Please click here to read the full guide, co-authored by Kaushalya Venkataraman and Ashu Bhargav, published in Mondaq.