Cross-Border M&A in India: 2024 Market Developments and Regulatory Changes

Cross-border merger and acquisition (M&A) deals are seeing growth in India as companies seek optimized strategies to enter new markets, acquire new technologies, diversify portfolios, and consolidate operations globally. Indian companies are also expanding internationally through acquisitions. Cross-border M&A activity in the Indian market has particularly surged across the IT, pharmaceuticals, automotive, healthcare, industrial sectors, and consumer goods sectors.

India, with its robust economic growth, vast consumer base, and skilled labor pool, has emerged as a prime destination for foreign investors seeking opportunities for cross-border mergers and acquisitions (M&A). Such a strategy allows companies to expand their global footprint, access new markets, and enhance operational efficiency. Meanwhile, businesses across various sectors in India are leveraging cross-border M&A to strengthen their international presence, acquire new technologies, and consolidate resources.

The 2024 M&A market landscape in India

In 2024, India’s M&A market has demonstrated notable resilience, outperforming trends observed across other Asia-Pacific countries. According to a report published by the Boston Consulting Group on October 16, 2024, this growth represents a significant recovery from the downturn in deal activity between mid-2022 and 2023.

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During the first nine months of 2024, the total value of deals in India surged by 66 percent compared to the same period in 2023, driven primarily by high-value transactions. In contrast, global deal values saw a modest 10 percent increase, while the Asia-Pacific region experienced a 5 percent decline. Though the number of deals in India decreased by 3 percent, this drop was less pronounced compared to the 13 percent decline witnessed globally and across the Asia-Pacific region.

M& deals in India in 2024: Sector insights

India’s cross-border M&A landscape in 2024 has been marked by several high-profile deals.

The most notable is the Reliance-Disney merger, valued at US$8.5 billion and expected to be finalized by year-end, poised to reshape the media and entertainment industry. Another significant transaction was Bharti Airtel’s US$4.08 billion acquisition of a stake in BT Group, one of the first major cross-border M&A deals of the year. Additionally, the Data Infrastructure Trust completed the acquisition of ATC India’s assets for US$2.5 billion, positioning it as one of the largest infrastructure sector deals in 2024.

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These transactions highlight the strategic importance of investments in India’s evolving market.

In Q2 2024, 132 deals were recorded in India, amounting to US$6.2 billion. Analysts attribute this M&A growth to a surge in domestic deals, which saw a 29 percent increase in volume and a 2.5-fold rise in value compared to Q1 2024. The Adani Group was a key contributor, accounting for 52 percent of the total M&A value through four major deals in the industrial materials and ports sectors. However, cross-border deal volume and value continued to decline.

By the end of Q3 2024, India’s total M&A volume reached a record high, with 214 deals valued at US$11.4 billion, predominantly driven by domestic activity, which accounted for 154 deals worth US$5.7 billion.

Sector-wise, traditional industries dominated. The media and entertainment sector led in terms of deal value, while the retail and consumer sectors saw the highest deal volume.

Key sectors driving large-scale deals in India

Technology, Media, and Telecommunications (TMT): Technology, media, and telecommunications accounted for 40 percent of India’s total deal value in the first nine months of 2024. One of the largest media transactions involved Viacom 18 Media’s merger with Star India, previously owned by 21st Century Fox (under Disney’s control), in a US$3.1 billion deal. Meanwhile, in the technology sector, Nidar Infrastructure—a data processing and hosting service provider—went public via a US$2.8 billion reverse merger with Cartica Acquisition Corp.

Industrial: Despite global uncertainties, the industrial sector in India remains a key player in the M&A space. ACC-Ambuja Cement’s US$1.3 billion acquisition of Penna Cement is a notable example, aimed at supporting the Adani Group’s infrastructure expansion.

Healthcare: The healthcare sector has seen continued M&A activity, especially in domestic markets. One standout deal is Mankind Pharma’s US$1.6 billion acquisition of Bharat Serums & Vaccines, which positions the company as a leader in women’s health and fertility.

Types of cross-border M&A

There are two primary types of cross-border M&A: inbound and outbound mergers.

In an inbound merger, a foreign company merges with an Indian company, allowing the Indian entity to survive the merger while issuing shares or securities to the non-resident shareholders of the foreign company. For example, if a U.S. company merges with an Indian company, the U.S. shareholders would receive shares in the Indian entity.

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Conversely, in an outbound merger, an Indian company merges with a foreign company, with the foreign entity surviving the merger and issuing shares or securities to the Indian company’s shareholders. For instance, if an Indian company merges with a European company, the Indian shareholders will receive shares in the European entity.

Both types of mergers require strict adherence to the legal and regulatory frameworks in both the home and host countries to ensure compliance.

Regulatory frameworks and policies governing cross-border M&A in India

Cross-border M&A in India are governed by a complex regulatory framework that includes corporate laws, foreign exchange laws, and sector-specific regulations. Key components of this framework include:

1. Companies Act, 2013: This act outlines the procedures for mergers and acquisitions, including the necessary approvals from creditors and shareholders, court procedures, and filing requirements. Notably, Section 234, introduced in 2017, allows for cross-border mergers involving Indian and foreign companies, provided they meet specific regulatory approvals.
2. Foreign Exchange Management Act (FEMA): FEMA regulates cross-border financial transactions to ensure compliance with India’s foreign exchange laws. Inbound M&A transactions fall under FEMA (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017, while outbound transactions are governed by FEMA (Transfer or Issue of Any Foreign Security) Regulations, 2004.
3. Foreign Exchange Management (Cross Border Merger) Regulations, 2018: Issued by the Reserve Bank of India (RBI), these regulations provide a clear framework and conditions for both inbound and outbound mergers.
4. Reserve Bank of India (RBI): The RBI plays a crucial role in regulating cross-border M&A, ensuring compliance with foreign exchange policies. Approval from the RBI is often necessary for such transactions.
5. Securities and Exchange Board of India (SEBI): For listed companies involved in inbound mergers, adherence to SEBI’s guidelines is mandatory. In some outbound mergers, foreign companies may issue Indian Depository Receipts (IDRs) to Indian shareholders.
6. Competition Commission of India (CCI): The CCI is responsible for ensuring that mergers do not lead to anti-competitive practices or monopolies. Large cross-border M&A deals typically require clearance from the CCI.

Regulatory developments in India in 2024 impacting M&A

Recent amendments in the regulatory landscape have been introduced to simplify and facilitate cross-border M&A in India. In August 2024, the Finance Ministry amended the Foreign Exchange Management (Non-debt Instruments) Rules, 2019, to streamline FDI regulations, particularly regarding cross-border share swaps between Indian and foreign companies. These changes aim to enhance the global expansion capabilities of Indian businesses through mergers, acquisitions, and strategic initiatives, focusing on:

• Streamlining cross-border share swaps.
• Aligning the treatment of investments by Overseas Citizen of India (OCI)-owned entities with Non-Resident Indian (NRI)-owned entities.
• Allowing FDI in White Label ATMs (WLAs) to promote financial inclusion, especially in rural areas.

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Additionally, a notification issued on September 9, 2024, by the Ministry of Corporate Affairs introduced changes to the Companies (Compromises, Arrangements, and Amalgamations) Rules, 2016. These amendments, effective from September 17, 2024, mandate RBI approval for mergers between foreign holding companies and their domestic subsidiaries in India, while removing the need for time-consuming clearance from the National Company Law Tribunal (NCLT). This change aims to expedite the merger process, particularly benefiting start-ups.

The regulatory framework’s evolution reflects India’s commitment to creating a foreign investor-friendly environment, enhancing ease of doing business, and positioning itself as an attractive destination for companies looking to relocate or restructure.

Procedural aspects of cross-border M&A

1. Due diligence: Comprehensive due diligence is vital to assess the target company’s finances, operations, legal standing, and risks. Cross-border deals involve additional complexities, such as foreign regulations and tax implications.
2. Valuation and financing: Accurate valuation of the target company is critical, often complicated by differences in accounting standards between countries. Financing may involve multiple currencies, subjecting the transaction to exchange rate risks.
3. Taxation: Cross-border M&A deals can have significant tax implications. Structuring the deal properly requires navigating tax treaties, local tax laws, and double taxation agreements.
4. Shareholders’ approval: Both the acquiring and target companies must obtain shareholder approval before finalizing the deal.
5. Regulatory approvals: Depending on the nature and size of the transaction, government and regulatory approvals (including from the RBI) may be required.

Recent trends in M&A activity in India

The rise of cross-border M&A in India is driven by globalization, deregulation, and corporate restructuring. Companies engage in these transactions to circumvent trade barriers, access new financing opportunities, and spread R&D costs. India’s business-friendly policies and strategic market position continue to attract cross-border deals.

As the global economic landscape evolves, cross-border M&A in India is expected to rise, supported by regulatory reforms and the country’s growing focus on foreign investment. This trend will bring both opportunities and challenges as companies navigate India’s complex regulatory environment.

Source: Deloitte Report, India M&A Trends 2024

Inbound M&A

• Inbound deals saw substantial growth in 2023, with their share rising to 41 percent (US$55 billion) from 27 percent (US$50 billion) in 2022, primarily fueled by strategic buyers’ interest.
• Global strategic investors from the Netherlands, the US, and Germany increased their focus on India, contributing 65 percent of the inbound deal value. These investments were largely concentrated in the financial services (FS), technology, media, telecommunications (TMT), and manufacturing sectors.
• The rise in inbound M&A was driven by strong interest in FinTech, e-commerce, and auto components, supported by healthy local demand and favorable government policies.
• However, private equity (PE) inbound deal value dropped by 11 percent, reflecting a cautious investment approach due to changing economic conditions. Despite this, the energy sector saw a notable increase in PE investments, particularly in renewable energy.

Outbound M&A

• Outbound M&A deal value dropped by 49 percent in 2023 as compared to 2022, though deal volumes remained relatively stable.
• Stable volumes were driven by strong cash flows among corporates and regulatory relaxations for PEs, including new SEBI rules allowing private equity and venture capital (VC) firms to invest in foreign companies without ties to India.
• The sharp decline in outbound deal values led to a 50 percent reduction in the average deal size, reflecting a shift in transaction sizes as firms became more cautious due to global uncertainties.

Industrial and manufacturing sector

• The industrial and manufacturing sector experienced a 33 percent increase in deal value and a 22 percent rise in volume year-on-year (YoY) in 2023, with much of the growth fueled by the automotive segment.
• Foreign direct investment (FDI) inflows remained consistent, and cross-border deal value in manufacturing grew by 97 percent YoY in 2023. This surge was driven by strategic acquisitions in the auto components and the electric mobility space, as companies focused on optimizing supply chains and transitioning toward electric technologies.

M&A outlook in India in 2024-25: Key developments to watch

• Increased foreign interest: High-profile deals, such as the Reliance-Disney merger and Bharti Airtel’s acquisition of a stake in BT Group, underscore growing confidence in the Indian market. These transactions open new opportunities for investors, particularly in sectors like media, technology, and infrastructure.
• Private equity caution: Despite increased FDI, PE firms remain cautious due to global economic uncertainties. As a result, they are focusing more selectively on resilient sectors, such as renewable energy.

• Strengthened IPO pipeline: Cross-border mergers are creating larger, more competitive companies, potentially leading to an increase in future initial public offerings (IPOs), especially in the technology and media sectors.
• Potential delays: Regulatory complexities following new legislative updates, particularly navigating approvals from Indian authorities such as the RBI and CCI, may cause delays in IPO and cross-border M&A timelines.

• Better exit opportunities: Global acquisitions in India are providing attractive exit options for PE and VC investors, especially in rapidly growing sectors like e-commerce and fintech.
• Cautious exit strategies: With a decline in outbound M&A values, domestic companies may favor strategic mergers with foreign firms over traditional IPO exits, driven by global uncertainties.

Conclusion

Cross-border M&A in India presents significant advantages, including market expansion through access to new geographic regions, diversified customer bases, and technology acquisition. These deals also enable companies to leverage skilled labor and achieve synergies that result in cost savings and operational efficiencies, while enhancing scale and strengthening market positions.

However, several challenges must be navigated. Regulatory approvals require compliance with both domestic and international laws, while integration challenges can arise due to cultural differences. Furthermore, political and economic risks, such as geopolitical tensions and policy changes, as well as foreign exchange risks from currency fluctuations, can complicate transactions and outcomes.

Finally, while recent regulatory updates and legislative amendments in India introduce additional compliance requirements for cross-border M&A transactions, they aim to foster a transparent, compliant, and secure business environment and prevent monopolistic behavior. These changes are expected to promote long-term competitiveness in the Indian market, and foreign firms and investors need to conduct their due diligence when selecting a merger or acquisition target.

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