The Ultimate Guide to the Merger Process in India: What You Need to Know

Are you feeling stressed about the merger procedure in India? Mergers can be confusing, full of legal terms, and quite overwhelming. But understanding the process doesn’t have to be so difficult. In fact, when done right, a merger can bring immense benefits like cutting costs, increasing market share, and boosting efficiency.

In 2023, there were more than 40,000 mergers and acquisitions globally. This number is only increasing as more companies look to merge to strengthen their positions. But how do you get through this complex process without getting stuck in the details?

Let’s take it step by step, so you don’t miss anything important. If you're ready to understand how to make a merger work for you, keep reading about high-impact mergers and acquisitions.

What is a Merger in Business?

It’s when two companies unite to form a stronger company. Think of it like a business partnership on a big scale. Instead of just working together, they actually combine everything—assets, resources, and even their employees.

Under the Companies Act, 2013, mergers are governed by Sections 230 to 232, which outline the process and legal requirements for companies to combine their businesses.

Why do companies merge? There are many reasons for mergers. Some want to get a more significant share of the market. Others want to cut down on competition or expand into new areas. The goal is always to create more value together than they could separately. 

Mergers can be friendly, with both companies agreeing, or a bit more one-sided, where one company takes control. One example of this is the recent high-impact mergers and acquisitions in India, showing how companies come together to become stronger and more competitive.

Key Steps in the Merger Process in India

Mergers are complicated and need a solid understanding of the process. If you’re involved in mergers in India, knowing the merger process steps is essential.  

Let’s break down the key steps involved in the process.

Initial Planning and Strategy Development

The first step in any merger is planning and strategy. Without a clear plan, even a promising merger can fall apart. At this stage, companies should define their goals. 

• Are they looking to expand their market? 

• Are they aiming to get access to new technology? 

• Or maybe they want to cut down on  competition? 

Understanding these objectives helps shape the approach to the merger.

Next is strategy development. This includes identifying target companies that align with your business goals. You’ll need to look at market trends, competitor moves, and your own strengths and weaknesses. A key question is: Will this merger strengthen our position, or are we taking too much risk? Answering this early can save you from headaches later.

Don’t forget about the legal side. India has strict laws when it comes to mergers. Any mistakes here can lead to big problems. This is why having legal experts on board from the start is important. They can help you with the rules and keep the process smooth.

Due Diligence

Once you’ve got your plan, the next step is due diligence. This is where the acquiring company digs deep into the target company to make sure there are no surprises. The goal is to assess risks and spot any red flags that could derail the merger.

Key areas covered in due diligence include financial, legal, and operational checks:

• Financial Due Diligence: This involves reviewing the target company's financial records. You’ll check their assets, debts, cash flow, and revenue. The aim is to confirm that the company is financially healthy and has no hidden debts.

• Legal Due Diligence: Here, you’ll review the legal aspects. This includes contracts, licenses, intellectual property, and compliance with laws. If there are ongoing lawsuits or legal issues, you’ll want to know about them.

• Operational Due Diligence: This looks at the company’s day-to-day operations. You’ll assess the supply chain, production processes, employee contracts, and management structure. The goal is to find any inefficiencies or areas where you can add value.

Due diligence is a thorough process that can take weeks or even months. It’s a step that helps you decide whether to proceed with the merger.

Valuation and Negotiation

After due diligence, it’s time for valuation and negotiation. This is where you figure out how much the target company is worth and negotiate the terms of the merger. 

Methods of company valuation in mergers:

• Comparable Company Analysis (CCA): Compare with similar companies.

• Precedent Transaction Analysis (PTA): Look at past mergers.

• Discounted Cash Flow (DCF) Analysis: Project future cash flow.

• Asset-Based Valuation: Value based on the company’s assets.

Valuation sets the stage for negotiations. If the valuation is too high, you might overpay. If it’s too low, the target company might feel shortchanged. It’s all about finding the right balance.

Regulatory Approvals

Getting the proper approvals is a big part of the merger procedure in India. You can't skip this step because it makes the merger legal and smooth.

• Competition Commission of India (CCI): They ensure the merger doesn’t kill competition. If they think it might, they can ask for changes or even stop the deal.

• Securities and Exchange Board of India (SEBI): If the merger involves public companies, SEBI steps in. They ensure the process is fair for all shareholders.

• National Company Law Tribunal (NCLT):  NCLT has the right to sanction or reject a merger. They check if the merger is fair for everyone, including creditors and shareholders.

To get approvals, you need to file applications with these bodies. The CCI will review the merger’s impact on competition, SEBI will look at fairness to shareholders, and NCLT will listen to any objections before giving the green light. 

Finalizing the Merger Agreement

Once you’ve got approvals, it’s time to finalize the merger agreement. This document lays out all the merger details, ensuring both parties are on the same page.

Key Components of a Merger Agreement

These are the basics you’ll see in most agreements.

Implementation and Integration

The benefits of a merger don’t just show up once the deal is done. You need to integrate the companies right to really see those benefits. When integrating a merger, it’s essential to focus on key areas like operations, marketing, finance, HR, and IT.

• Finance: Align accounting practices and consolidate financial reporting and budgets to avoid discrepancies.

• HR: Unify policies, benefits, and payroll systems. Ensure employees from both companies feel valued and supported, helping to retain talent.

• IT: Merge data, software, and communication tools to create a unified platform. This may require system upgrades and secure data transfers.

• Change Management: Regular communication and staff training are essential. Keep employees informed to reduce resistance and build trust.

• Integration Timeline: Break the process into phases, starting with critical areas like finance and IT. Set clear deadlines for each phase to ensure a smooth transition.

By focusing on these areas and maintaining clear communication, you can ensure the merger delivers the expected benefits.

Final Thoughts 

Getting through the merger procedure isn’t simple. It’s a tough road with legal issues, financial checks, and strategic moves. But if you get it right, the rewards can be huge. Mergers can open new doors and create growth opportunities. But, each step needs careful planning and expertise. You can’t skip steps or make mistakes, or it might all fall apart.

So, what’s the bottom line? Mergers are powerful, but they’re challenging. You must be ready, have the right team, and know when to ask for help.

Need help with your merger? CFO Bridge offers Virtual CFO services to guide you through each step and help you make the best decisions for your business.