Clamour gets louder for single-window clearance of M&As

With many merger and acquisition (M&A) deals getting caught in a cross-regulatory web, there is a call for single-window clearance. Delay in such approvals is said to have hit several such deals in the recent past. When it involves listed companies, this would hit the interest of minority shareholders. Sources say the Securities and Exchange Board of India (Sebi) is among those suggesting an umbrella body for (M&A) clearance. The aim is to smoothen the process, making it time-bound.

In the past year, a proposed merger between HDFC Standard Life and Max Financial Services had to be called off after it failed to get approval from the Insurance Regulatory and Development Authority of India (Irdai). A proposal to merge Orient Green Power’s wind power business with IL&FS Wind Energy hasn’t materialised, with tax implications delaying regulatory approval. Also, the Cabinet Committee on Economic Affairs is said to have rejected Chinese firm Shanghai Fosun Pharmaceutical’s proposed acquisition of Hyderabad-based Gland Pharma.

Experts say the current regulatory structure leads to complex deal making, putting at risk billions of dollars in investment. Reportedly, key stakeholders have started initial discussion with the government to set up an umbrella body on the lines of the erstwhile Foreign Investment Promotion Board, a single agency for requisite approvals. Also, in Gujarat and Telengana, the state governments provide single-window approvals for companies intending to set up industries.

“Creating such a nodal agency would be a great idea, as we have multiple regulatory stakeholders. There is no formal mechanism or platform for the regulators to work in sync,” said Rajesh Begur, founder, ARA Law.

A typical M&A deal requires approval from the Competition Commission of India, Reserve Bank of India, Sebi, stock exchanges and the National Company Law Tribunal. There are also sectoral regulators, such as the department of telecommunications, the aviation ministry or Irdai. In comparison, developed markets have a much simpler framework, say experts.

The idea, they add, is to have a coordination agency between regulators, without infringing on the latter's statutory powers. “M&As are of different kinds, being complex transactions, involving various laws and regulators which deal with those laws. The attempt should be to ensure coordination between regulators with similar views of applicable laws, and cases being cleared in a time-bound manner,” said Lalit Kumar, partner, J Sagar Associates.

A designated nodal agency would also help in reducing the timeline for completion, experts say. Typically it takes eight months for completing an M&A deal, compared to three months globally. If it is a cross-border deal, the timeline surges to 18 months, provided none of the regulators come up with objections or queries. Shortening of the timeline would help in reducing the risk of volatility for shareholders, especially in listed entities.

According to Riaz Thigna, director at consultants Grant Thornton, the activity in M&A is expected to gather more momentum and the complexity of deals is also expected to increase. “From a regulatory clearance perspective, there should be a sound mechanism in place, to ensure smooth sailing,” Thigna added.