1 of 14

20.01.2024

Anand Jayachandran

Partner

M&A – Recent legal trends

​

Presentation to ICSI – Bengaluru Chapter

Presented by

2 of 14

M&A – Recent legal trends

  • Review of M&A in 2023
  • Trend 1: Shift from principles-based regulation to prescriptive regulation
  • Trend 2: Legal quicksand - dynamic and ever-shifting laws
  • Trend 3: Regulator is the ‘baap’
  • Trend 4: Majority shareholders under a tight leash
  • Trend 5: Heightened focus on RPTs and audit functions
  • Trend 6: Shareholder activism and litigated M&A
  • What comes next?

​

Privileged & Confidential

2

January 20, 2024

3 of 14

Decline in deal volumes and value; consolidation a prevalent theme

Steep decline in mega deals; mid-market and smaller deals more active

Active sectors: Pharma/ Healthcare, IT and ITes, Consumer Goods, Infrastructure

Longer execution time frames

More cautious approach – deeper due diligence in non-traditional areas like ESG, HR, cybersecurity and background checks

Future performance-linked valuation frameworks

  • India is doing better than the rest of the world: stable energy prices, growing consumer base,  strong economic fundamentals,  global strategic alliances at a government level
  • Deals expected to pick up for cash rich companies – 2023 did not witness too many mega deals, but the mid-market will become more active, especially in sectors like TMT, Financial Services, Pharma/ Healthcare
  • Deals will favour cash flow generating businesses, valuations under pressure so there will be some rationalisation

Future Forecast:

3

Review of M&A in 2023

4 of 14

Trend 1: Shift to prescriptive regulation

  • Shift from principles-based regulations to prescriptive regulations.
  • Cocktail of the Companies Act, 2013 (“Act”), Ind AS Accounting Standards and SEBI (LODR) Regulations, 2015 (“LODR”) have resulted in a regime that is often very rule-based, technical and inflexible.
  • Trust deficit between GOI and private sector.

​

Privileged & Confidential

4

January 20, 2024

5 of 14

Trend 2: Dynamic and ever-shifting laws and regulations

  • Laws and regulations have become very dynamic, as the bulk of new rules are coming not from Parliament but from various regulators like MCA, SEBI and RBI by way of delegated legislation.
    • LODR has now been amended 41 times.
    • From Jan to Sept 2023 – SEBI has issued 127 Circulars.
    • MCA: 50 Rules, 218 Circulars and 746 Notifications.
  • Accumulation of regulatory cholesterol.
  • Regulate and forget is the new norm

Privileged & Confidential

5

January 20, 2024

6 of 14

Trend 3: Regulator is the ‘baap’

  • Regulators (SEBI, RBI, MCA, IRDAI): enforcement focused approach
  • Higher judiciary’s deferential approach towards regulator’s new personality
  • Law enforcement agencies (CBI, ED, Income Tax Department and SFIO) are becoming very prosecution-focused.
  • Increased focus on the valuation of shares by MCA, SEBI, RBI and IT.
  • Financial regulators are going too far and are increasingly being perceived as not facilitating ease of doing business.

​

​

​

Privileged & Confidential

6

January 20, 2024

7 of 14

Trend 4: Majority shareholders on a tight leash

  • Disenfranchising the majority shareholder has become the ‘new normal’ for SEBI.
  • Majority of minority approvals are de rigueur.
  • Certain provisions are of doubtful constitutional validity.
  • Shift from promoter-centric approach to MNCs – Similar governance considerations which a listed Indian subsidiary of an MNC will have to keep note of, especially with regard to transactions with overseas parent company. In this context, Eros International order (diversion of funds with respect to transactions with parent company) is a classic example.

​

​

​

​

Privileged & Confidential

7

January 20, 2024

8 of 14

Trend 5: Heightened focus on RPTs and audit functions

  • Disclosure and Approval based regime
  • Value diversion is a key focus area across regulations
  • Tension in the relationship between Auditor and Company:
    • The era of “friendly auditor” has ended.
    • Arrival of NFRA as the regulator for the accounting profession has made the audit community ultra-conservative.
    • Auditor seeking legal opinion on all contentious issues.
    • NFRA Circular on Fraud Reporting: Auditor cannot rely on legal opinion

Privileged & Confidential

8

January 20, 2024

9 of 14

Trend 6: Shareholder activism and litigated M&A

  • Shareholder activism and litigation to be expected and planned for on every M&A deal
  • Proxy advisory firms, minority shareholders and regulators are active and vocal
  • Challenges can arise from many sources
    • SEBI (Federal Mogul)
    • Valuation questions (PNB Housing)
    • Proxies and short sellers (Adani)
    • Accounting and disclosure issues (Daiichi-Ranbaxy)
    • Whistle-blower complaints
    • Oppression & mismanagement claims (Tata-Mistry)
    • Other suitors for assets (Future Retail-Amazon)
  • Buyers and sellers are more cautious (initially) and also prepared to litigate (later)

Privileged & Confidential

9

January 20, 2024

10 of 14

What comes next?

Privileged & Confidential

10

January 20, 2024

11 of 14

Privileged & Confidential

11

January 20, 2024

12 of 14

Privileged & Confidential

12

January 20, 2024

13 of 14

Privileged & Confidential

13

January 20, 2024

14 of 14

THANK YOU