M&A 2.0: Can a new mergers playbook simplify the dealmaking process?

The existing rulebook is strewn with regulatory roadblocks, making mergers and acquisitions, especially for smaller companies and listed entities a burdensome process

Calls for easing mergers and acquisitions (M&A) are growing, even as the government looks for ways to simplify deal-making. Industry experts suggest policymakers reduce thresholds for shareholder approval, allowing listed entities to merge under a fast-track mechanism, besides easing the process for MSMEs. Capacity enhancement at National Company Law Tribunal (NCLT) benches has to go hand in hand with M&A reforms, say experts, arguing that they are currently inundated with Insolvency and Bankruptcy Code (IBC) cases. Data from the ministry of corporate affairs (MCA) shows that 309 applications, which require the approval of NCLT, were pending as of November 30, 2024. 

“Simplifying the documentation process and ensuring that NCLT intervention is only needed in cases of disputes rather than routine approvals can also significantly improve deal closure timelines,” says Sonam Chandwani, managing partner at KS Legal and Associates. 

Legal experts say that the current process under the Companies Act, 2013 and the Competition Act, 2002 involves multiple approvals from the NCLT, Competition Commission of India (CCI), Securities and Exchange Board of India (Sebi) for listed entities, Reserve Bank of India (RBI) for foreign investments, and sectoral regulators, leading to excessive delays. 

“The introduction of a single-window clearance mechanism for mergers and acquisitions, along with predefined timelines for approvals, can greatly enhance efficiency,” said Chandwani. 

Finance Minister Nirmala Sitharaman in her Budget 2025 speech has said that the government will rationalise the requirements and procedures for speedy approval of company mergers, and that the scope for fast-track mergers will be widened and the process made simpler. 

Under the current mechanism, however, only specific categories of companies benefit from the fast-track route, including two or more small companies, wholly-owned subsidiaries and their holding companies. Expanding the mechanism to include mid-sized businesses, startups, and distressed entities undergoing restructuring under the IBC will be a game changer that would accelerate consolidation, say experts.

 

Burdensome regulations

 

Compliance burdens, lack of access to structured financing, and difficulty navigating legal complexities are some of the major challenges for micro, small and medium enterprises (MSMEs) in the current M&A regime. Experts have called for a dedicated MSME restructuring framework, where smaller firms can restructure or merge through a simplified process with reduced compliance requirements. 

The disparity between the definition of 'small companies' under the Companies Act with the turnover threshold restricted to Rs 40 crore compared to Rs 50 crore under the MSME Act has excluded many from using the benefits of fast-track mergers.

“Introducing M&A norms for corporate entities registered as MSMEs would be a significant game changer for India Inc.  Valuation of shares of a company or stake of an LLP (Limited Liability Partnership) is another crucial aspect that needs to be considered in restructuring activities since they do not have shares and hence would require enterprise valuation,” said Gaurav Pingle, a practising company secretary. 

Experts says that reducing manual interference, introduction of standardised guidelines, and implementing mandatory timelines for approvals would help reduce delays in regulatory approvals. 

“A key aspect of simplifying the merger regime includes bringing forth a change in transactional jurisdiction of NCLT such that merger-related approvals can be approached before a single designated NCLT instead of multiple NCLTs when entities are spread across different jurisdictions,” said Sucharita Basu, managing partner, AQUILAW. 

Basu said that in cases where multiple approvals are required from various regulators, a unified digital interface for single-window clearance should be created for further streamlining along with digitisation of approvals to reduce procedural bottlenecks.

 

Listed troubles

 

Another aspect that the government could consider is related to the merger of two listed companies within the scope of fast-track mergers. The current fast-track mechanism of merger requires no involvement of the NCLT and can be availed by small companies, startups, and for mergers between holding companies and its wholly owned subsidiary. 

Company law experts said that listed companies are unable to take the benefit of the fast track mechanism for mergers with a wholly-owned subsidiary since approval of all shareholders is required. 

“If the applicability is extended to such companies, the government should also consider revising the shareholder threshold from 90 per cent criteria (at present) to 75 per cent. Considering the vast number of shareholders in a listed company, listed companies may be reluctant to pursue the fast-track merger route, even if permitted,” said Saurav Kumar, partner at IndusLaw.

As of November 30, 2024, 53 applications regarding amalgamation of small companies and those of mergers between a wholly-owned subsidiary and holding company were pending, according to data from the ministry of corporate affairs (MCA). Between April 1 and November 30 last year, 431 such applications were disposed of. 

Industry bodies are also preparing their proposals to air their concerns around the current M&A regime to suggest to the MCA. While reviewing the provisions for M&A as part of its proposal for changes to the Companies Act, the expert committee on company law said that the fast-track process for mergers can be made more robust while also protecting the minority shareholder’s interest. 

The committee also suggested that the Section 233 of the Act should be amended to permit fast-track mergers between a holding company and its subsidiary company or companies, other than wholly-owned, if such companies are not listed and meet such other conditions as may be prescribed.