Mergers and Acquisitions in India: A Step-by-Step Legal Guide

Whether you’re buying a company, selling one, or merging two businesses, mergers and acquisitions (M&A) in India is a complex but structured process. Understanding how it works can save you significant time, money, and frustration.

This guide is for business owners, investors, and founders who want a clear picture of the M&A process in India — without wading through dense legal text.

What is M&A? A Quick Refresher

A merger is when two companies combine to form one new entity. An acquisition is when one company takes over another. In practice, most deals in India are structured as acquisitions — where a buyer purchases shares or assets of a target company.

M&A deals happen for many reasons:

Expanding into a new market
Acquiring technology or talent
Eliminating competition
Achieving economies of scale
Exiting a business

Our mergers and acquisitions legal services team advises both buyers and sellers across a wide range of deal types and industries.

Types of M&A Deals in India

Share Purchase: The buyer acquires shares of the target company. The company continues to exist, but ownership changes.
Asset Purchase: The buyer purchases specific assets (machinery, IP, contracts) rather than the whole company. The target company continues to exist as a legal entity.
Merger / Amalgamation: Two companies combine under the Companies Act, 2013. This requires approval from the National Company Law Tribunal (NCLT).
Slump Sale: Transfer of an entire business undertaking as a going concern for a lump sum without itemised values. Has specific tax treatment.

The choice between these structures affects tax, liability, and regulatory requirements.

The M&A Process: Step by Step

1. Letter of Intent (LoI) or Term Sheet

The process typically starts with a non-binding LoI or Term Sheet. This document outlines:

The proposed deal structure
Indicative valuation
Key conditions
Exclusivity period

Both sides sign this early document to show serious intent before investing resources in detailed negotiations.

2. Due Diligence

This is the most important phase. The buyer’s team examines the target company’s:

Legal: Title to assets, pending litigation, contracts, intellectual property, regulatory licenses
Financial: Books of accounts, tax filings, outstanding liabilities, revenue quality
Commercial: Market position, customer concentration, competitor landscape
HR: Employment contracts, pending disputes, key talent risks

Due diligence can take anywhere from 2 weeks to 3 months depending on the deal size. Skipping or rushing this phase is one of the top reasons deals fail or buyers regret their purchase.

Before any M&A deal, it’s critical to have a strong corporate governance framework in place — because buyers will scrutinise this closely.

3. Valuation

Both sides will have different ideas about what the company is worth. Valuation methods include:

DCF (Discounted Cash Flow): Based on future earnings potential
Comparable transactions: What similar companies sold for recently
Asset-based: Net value of assets minus liabilities

Getting an independent valuer or merchant banker involved is often necessary for regulatory compliance as well.

4. Negotiation and Definitive Agreement

Once due diligence is complete and valuation is agreed, the parties negotiate and sign the final transaction documents:

Share Purchase Agreement (SPA) or Asset Purchase Agreement
Shareholder Agreement (if buyer becomes a co-shareholder)
Non-compete and confidentiality clauses
Representations and Warranties
Indemnity provisions

This is where experienced M&A lawyers earn their value. The specific wording of representations, warranties, and indemnities can determine who bears the risk if something goes wrong after the deal closes.

5. Regulatory Approvals

Depending on the deal size and sector, you may need approvals from:

Competition Commission of India (CCI): Mandatory if the combined assets or turnover of the parties cross the prescribed thresholds. For example, if the Indian assets of both parties combined exceed ₹2,000 crores, CCI filing is required.

Getting CCI approval for large mergers is a key regulatory step. Our competition law legal services team handles CCI filings and regulatory compliance.

SEBI: For deals involving listed companies, SEBI’s Substantial Acquisition of Shares and Takeovers Regulations (Takeover Code) applies.

RBI / FEMA: For deals involving foreign investment or NRIs, RBI approvals and FEMA compliance are needed.

NCLT: Required for statutory mergers/amalgamations under the Companies Act, 2013.

Sectoral Regulators: Deals in sectors like banking, insurance, telecom, or aviation need additional approvals from sectoral regulators.

6. Closing the Deal

Once all approvals are in place and all conditions are met, the deal closes. This involves:

Transfer of shares or assets
Payment of consideration
Filing of necessary forms with MCA/ROC
Updating shareholder registers
Board changes

7. Post-Merger Integration

This is often ignored but is critical to deal success. After a merger or acquisition, the two entities need to integrate:

Teams and cultures
IT systems
Contracts and vendor relationships
Compliance requirements

Common M&A Mistakes to Avoid

Skimping on due diligence: Buyers who don’t examine the target carefully end up with hidden liabilities, pending lawsuits, or tax problems they never expected.
Poorly drafted warranty and indemnity clauses: If the seller makes inaccurate representations and there are no strong indemnity provisions, the buyer has no recourse.
Ignoring CCI timelines: Many M&A deals are delayed because the parties don’t factor in CCI review periods. CCI has 30 working days for Phase 1 review, with possible extensions.
Not addressing key employee retention: In service companies and tech firms, the people are the asset. If key employees leave after the deal, you may have bought a hollow shell.
Tax structuring done as an afterthought: Deal structure has significant tax implications for both buyer and seller. This should be thought through at the term sheet stage, not after the SPA is signed.

Capital Markets and M&A

For listed companies, the deal has additional dimensions — open offer obligations, disclosure requirements, and SEBI clearances. Our capital markets legal services team regularly assists with listed company transactions.

Cross-Border M&A: Extra Layers for Foreign Buyers

If a foreign company is acquiring an Indian business — or an Indian company is acquiring one abroad — the deal involves additional compliance:

FDI Route: Foreign buyers must check whether the target’s sector falls under the automatic route (no prior approval needed) or the government route (approval required from the relevant ministry).
Pricing Guidelines: RBI requires that shares are not transferred to or from a non-resident at a price below fair value (as determined by an internationally accepted pricing methodology), to prevent under or over-invoicing.
Reporting to RBI: Cross-border share transfers must be reported through the Foreign Investment Reporting and Management System (FIRMS) within the prescribed timeline. Missing this deadline attracts late submission fees.
Tax Treaty Benefits: Many cross-border deals are structured to take advantage of Double Taxation Avoidance Agreements (DTAA) between India and the buyer’s home country. This needs careful planning with both Indian and foreign tax advisors.

Our international client desk works closely with foreign investors and their home-country counsel to structure cross-border transactions smoothly.

Final Thoughts

Mergers and acquisitions in India are exciting but complex. Getting the structure right, completing thorough due diligence, and navigating regulatory approvals are all steps that require experienced legal guidance.

Whether you are a founder looking to exit, a company looking to acquire, or a private equity investor looking to deploy capital — our M&A legal team at Sharma & Sharma Law Chambers LLP is ready to help.