VOL.

2 ISSUE 2 Journal of Legal Research and Juridical Sciences ISSN (O): 2583-0066

ISSUES AND CHALLENGES FACED BY BUSINESSES IN MERGERS AND

ACQUISITIONS IN INDIA

Kunal Singh*

ABSTRACT

Mergers and acquisitions (M&A) are complex corporate transactions that bring together two
or more businesses, presenting a range of strategic, financial, and operational challenges.
Companies embarking on M&A face several challenges, such as the integration of cultures,
systems, and processes, managing employee retention and morale, regulatory compliance,
and negotiating the terms of the deal. This article highlights some of the common challenges
that companies face during the M&A process and offers insights into how organizations can
overcome them. It explores the critical factors that influence the success of M&A
transactions, such as effective communication, due diligence, alignment of strategic goals,
and post-merger integration planning. Overall, this article emphasizes the importance of
thorough preparation, careful planning, and effective execution to mitigate the challenges
and maximize the benefits of M&As. By articulating some of the landmark cases of merger
and acquisition in India.

Keywords: Mergers and Acquisitions, Strategic growth, corporate transaction, foreign

exchange.

INTRODUCTION

Mergers and acquisitions are corporate transactions in which two or more companies
combine their businesses to form a single entity. These transactions are typically undertaken
to achieve economies of scale, reduce competition, expand geographic reach, or improve
profitability. Mergers and acquisitions can take several forms, such as a consolidation of two
equal companies or the acquisition of one firm by another. They require careful planning and
due diligence to ensure that the transaction is successful and creates long-term value for
shareholders. While mergers and acquisitions can bring significant benefits to companies,
they also involve risks and challenges that must be carefully managed to avoid negative
outcomes. Mergers and acquisitions (M&A) are crucial strategies for businesses aimed at
expanding their operations, diversifying their products, acquiring new technology, and
opening up new growth

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*
BLS LLB, FOURTH YEAR, VIVEKANAND COLLEGE OF LAW, MUMBAI UNIVERSITY.

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opportunities. In India, the M&A market has been gaining momentum in recent years, driven
by factors such as economic liberalization, increasing competition, globalization, and
technological advancements.

MERGER:- A merger takes place when two companies decide to combine their operations,
assets, and liabilities to form a new entity. In a merger, both companies surrender their stock,
and shareholders receive shares in the new entity. The combination of two ownership and
management creates new ownership. There are several sectors in India where mergers happen
like in banking sector, telecom sector, entertainment sector, pharmaceutical sector, etc. a
recent example of a merger was in the telecom sector between Vodafone and Idea. Where
they merged and form an identity called (Vi)

ACQUISITION:- A merger takes place when two companies decide to combine their
operations, assets, and liabilities to form a new entity. In a merger, both companies surrender
their stock, and shareholders receive shares in the new entity. An acquisition occurs when an
acquiring company purchases the securities, assets, or management control of another
company to gain control over its operations, products, or services. A recent case of the
acquisition was of Tata group and airline company Air India in January 2022. Where Tata
group acquired air India in a successful bid of 21.7 billion dollars. For a 100% stake in the
company

REASON FOR MERGER AND ACQUISITION:- 1

Strategic growth: Mergers and acquisitions (M&A) can be a way for companies to accelerate
their growth and expansion into new markets. By acquiring another company, they can gain
access to new customers, products, or technologies that can help them achieve their business
goals.

1. Synergies: Mergers and acquisitions can help companies achieve operational synergies,
such as cost savings through economies of scale, better procurement, and distribution
efficiencies. By combining resources and eliminating redundancy, companies can achieve
greater efficiency and profitability.

2. Diversification: M&A can help companies diversify their business portfolios and reduce
their overall business risk. Acquiring companies in different industries or geographies can
help

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1
Dashmeet Kaur, ‘What are the top 5 reasons for merger and acquisition?’ (swarit advisors) , December 2019
https://swaritadvisors.com/learning/what-are-the-top-5-reasons-for-merger-and-acquisition/

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companies expand their revenue base and reduce their dependence on any one product,
market, or geography.

3. Talent acquisition: In some cases, M&A can help companies acquire talented employees
who have specific skills or expertise that are critical to the company's success. By acquiring
talent through M&A, companies can save time and money in hiring and training new
employees.

4. Consolidation: Mergers and acquisitions can also be driven by consolidation, where

companies in the same industry merge to create a larger entity with greater market share and
bargaining power. Both
Mergers and Acquisition transactions can take several forms, including the purchase of
assets, amalgamation, consolidation, and vertical and horizontal integration. The purpose of
M&A can range from expanding the market share, entering new markets, acquiring new
technologies, or improving efficiency and profitability.

LAWS GOVERNING MERGERS AND ACQUISITIONS IN INDIA:-2

In India, mergers and acquisitions (M&A) are regulated by several laws and regulatory
authorities. The main laws and regulations governing M&A in India are:

1. Companies Act, 2013: This is the primary law that governs the incorporation,
management, and dissolution of companies in India. The Act contains provisions related to
mergers, amalgamations, and acquisitions of companies.

2. SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011: This

regulation is enforced by the Securities and Exchange Board of India (SEBI) and provides
guidelines for the acquisition of shares and takeovers of listed companies.3

3. Competition Act, 2002: This Act is enforced by the Competition Commission of India
(CCI) and regulates mergers and acquisitions that may have a bearing on competition in the
Indian market.

2
Companies act, 2013
3
K.srinivasa reddy, ‘Regulatory framework of mergers and acquisitions: A review of Indian statutory
compliances and policy recommendations’ (emerald insight), March 2016
https://www.emerald.com/insight/content/doi/10.1108/IJLMA-03-2015- 0013/full/html?skipTracking=true
%20%20Read%20more%20at:%20https://taxguru.in/company-law/merger- acquisition-india-issues-
challenges.html

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4. Foreign Exchange Management Act (FEMA), 1999: This Act is enforced by the Reserve
Bank of India (RBI) and regulates foreign investment and foreign exchange transactions in
India.

5. Insolvency and Bankruptcy Code, 2016: This Act provides the framework for the
insolvency and bankruptcy of companies in India.

REGULATORY AUTHORITIES:- The regulatory authorities involved in the M&A process

in India are

1. Securities and Exchange Board of India (SEBI): SEBI regulates M&A involving listed
companies in India.

2. Competition Commission of India (CCI): CCI reviews M&A transactions to ensure that
they do not create anti-competitive practices in the Indian market.

3. Reserve Bank of India (RBI): RBI regulates foreign investment and foreign exchange
transactions related to M&A.

4. Ministry of Corporate Affairs (MCA): MCA is responsible for the administration of the
Companies Act, which governs the M&A process.

Overall, the M&A process in India is tightly regulated to ensure that the interests of
shareholders, consumers, and the economy are protected.

ISSUES AND CHALLENGES FACED BY BUSINESSES IN MERGER AND

ACQUISITION:- Despite the potential benefits of M&A, businesses in India face several
issues and challenges in the process. some of these challenges are.

REGULATORY HURDLES: One of the most significant challenges faced by businesses in

M&A deals is navigating the complex regulatory framework in India. M&A transactions in
India are subject to multiple regulations, including company law, securities laws, and
competition law. The procedure for obtaining regulatory approvals can be time-consuming
and cumbersome, involving multiple government agencies and departments. For instance, a
merger or acquisition involving a listed company requires approval from the Securities and
Exchange Board of India (SEBI), stock exchanges, and the Competition Commission of India
(CCI). The delays and uncertainties associated with regulatory approvals can impact the deal
structure and valuation.

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CULTURAL DIFFERENCES: Mergers and acquisitions involve combining different

organizational cultures, which can pose significant challenges. Cultural differences can lead
to conflicts among employees, management, and stakeholders. For example, the management
style and decision-making processes of the acquiring company may differ from those of the
acquired company, leading to resistance to change, lack of trust, and communication
breakdowns. 4

INTEGRATION ISSUES: Integrating two or more companies after a merger or acquisition

can be a daunting task, particularly when dealing with large organizations. Integration issues
can range from IT systems, operational processes, and human resources to supply chain
management and customer retention. A poorly executed integration can result in disruptions
to operations, loss of key personnel, and customer dissatisfaction, which can impact the long-
term success of the merger or acquisition.

VALUATION CHALLENGES: Valuing a business accurately is essential for a successful

merger or acquisition. However, valuing a business in India can be challenging due to the
lack of transparency in financial reporting, discrepancies in accounting practices, and non-
standardized valuation methods. Additionally, the valuation of the acquired company may
also be influenced by regulatory restrictions on foreign investments and currency
fluctuations.

LEGAL RISKS: Mergers and acquisitions involve taking on legal risks associated with the
acquired company's liabilities and obligations. The acquiring company must conduct
thorough due diligence to identify potential legal risks, such as pending litigation, tax
disputes, environmental concerns, and contractual obligations. Failing to identify such risks
can expose the acquiring company to significant financial and reputational losses.

ADVANTAGES AND DISADVANTAGES OF MERGERS AND ACQUISITIONS:- 5

ADVANTAGES

1. Synergy: Companies combine their resources and expertise to increase their potential and
capabilities to generate revenue. As the two companies merge all their assets their important

4
DealRoom by M&A Science https://dealroom.net/case-studies/how-paylocity-modernized-their-diligence-
management-with-dealroom
5
SAC ATTORNEYS LLP, ‘Advantages and disadvantages of merger and acquisition’
https://www.sacattorneys.com/amp/advantages-and-disadvantages-of-mergers-and-acquisitions.html
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resources and the experts of both companies come under one umbrella in one organization.
As a result, they all work on a single project in synergy for better output.

2. Economies of scale: Mergers and acquisitions bring about cost savings through shared
resources, increased efficiency, and the elimination of redundancy. By combining the
resources funds and capital of both companies the new entity holds an extra edge over its
competitor in the market. And as the result, they hold some extra edge in taking risks and
further steps in the growth of the business in the market.

3. Market share: By merging or acquiring Companies can expand their market share as they
get the consumer of the companies and creates a further large consumer base, which
translates into increased profits and revenue.

4. Diversification: Companies can diversify by acquiring businesses in different industries,

which helps them to mitigate risk and volatility.

5. Benefit from tax: companies can also merge to get away from the high taxes of
government. A highly profit-making company merges with a loss-making company to get
away from the high tax slab by showing the losses of the other company.

DISADVANTAGES

1. Integration issues: After a merger or acquisition, companies face integration issues such as
culture clashes, communication barriers, and management conflicts. The two companies
coming from working under different organizations to working under one organization
creates differences of opinion and different styles of working which in some cases creates
low efficiency and lower output.

2. Loss of talent: A merger and acquisition may result in the loss of top talent from the
acquired company, in some cases efficient employee or an expert leaves the company which
can adversely affect the success of the merger. As a result, it creates an adverse effect on the
output of the company.

3. Regulatory hurdles: Mergers and acquisitions may face regulatory hurdles and must be
approved by various regulatory bodies before they can be completed. For eg. (SEBI) (MCA)

4. Financial risk: A merger or acquisition is a significant investment of money, time, and

expertise, and if it fails to deliver results, it can harm a company's bottom line.

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LANDMARK CASES OF MERGER AND ACQUISITION6

 Vodafone and Hutchison Essar: In 2007, Vodafone acquired a controlling stake in

Hutchison Essar, a telecom company in India, for $11.1 billion. The deal faced
regulatory challenges, but Vodafone eventually received approval to complete the
acquisition.
 Tata Steel and Corus Group: In 2007, Tata Steel acquired Corus Group, a steel
company in Europe, for $12.1 billion. The acquisition made Tata Steel the fifth-
largest steel producer in the world.
 Bharti Airtel and Zain: In 2010, Bharti Airtel acquired Zain, a telecom company in
Africa, for $10.7 billion. The acquisition allowed Bharti Airtel to expand its
operations in Africa and become the fourth-largest telecom company in the world.
 Hindustan Unilever and GlaxoSmithKline Consumer Healthcare: In 2013, Hindustan
Unilever acquired GlaxoSmithKline Consumer Healthcare, a consumer goods
company in India, for $3.8 billion. The acquisition allowed Hindustan Unilever to
diversify its product portfolio and expand its presence in the Indian market.
 Walmart acquiring Flipkart: the American multinational retail corporation acquired
77% of shares in Flipkart by successfully beating amazon in the bidding war by 16
billion US dollars. As a result, Walmart entered to compete with Amazon in the
Indian e-commerce market.
 Zomato acquiring uber eat’s: the Indian online food delivery giant zomato
successfully acquired the American company uber’s food delivery service for 350
million US dollars. And created a monopoly in the business. Also reduced the loss
faced by uber eats in the past recent years.

CONCLUSION

In my concluding words I would like to address that despite the challenges and issues
associated with M&A deals in India, they remain a popular strategy for companies looking to
grow and expand their businesses. To mitigate these challenges, businesses must conduct
thorough due diligence, seek expert advice and guidance, and plan for effective integration
strategies. Moreover, having a clear understanding of the regulatory environment, cultural

6
Divi Dutta, ‘Mergers and Acquisition in India -A brief overview’ (July 2022) mondaq
https://www.mondaq.com/india/corporate-and-company-law/1210798/mergers-and-acquisitions-in-india--a-
brief-overview#

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differences, valuation challenges, and legal risks can help companies navigate the M&A
process successfully.

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