India’s 2024 M&A Report Card: Promising Trends Amidst A Shifting Regulatory Landscape

India, one of world’s fastest-growing economies, continues to offer a plethora of opportunities for domestic and foreign M&A deals. India’s robust economic growth, political stability, surging consumer demand, liberalized regulatory framework continues to make it a top destination for investors, even amidst the rising global geopolitical and economic uncertainties. 

While the M&A boom of 2021-22, driven by post-pandemic recovery, set a high benchmark, 2023 experienced a correction, mirroring global trends. This was also in sync with the booming Indian capital market, with investors looking for an exit through the favourable public markets rather than M&A deals. Fortunately, the trends for 2024 seem much more promising.

In Q1 CY24 the mega US$ 8.5 billion Reliance-Disney merger set the pace, followed by Q2 CY24 witnessing several key acquisitions by the Adani group and the highest quarterly PE activity in the past 2 years. The most recent quarter saw Bharti Airtel’s acquisition of stake in BT Group for a whopping US$ 4.08 billion. According to Bloomberg, M&A activity in India has risen by 13.8% in 2024 reaching US$ 69.2 billion within the first nine months. This continues the steady quarter-on-quarter growth story for corporate India.

Emerging Sectors for M&A

While traditional sectors such as retail, manufacturing, technology, financial services and pharmaceuticals/healthcare continue to dominate, several new sectors are also emerging. The renewable and clean energy space is growing rapidly, aided by favorable regulations/incentives and India’s ambitious renewable energy targets. M&A activity in associated sectors such as infrastructure and real estate have also seen a recent resurgence, with the US$ 2.5 billion acquisition of ATC India by Data Infrastructure Trust leading the way in 2024.

The EVs and sustainable mobility solutions market is also witnessing substantial M&A activity, with companies like Ather Energy and Rapido being propelled into the unicorn club. India’s push towards AI and machine learning technologies has also made it an M&A hotspot with global giants like Nvidia, Google and Meta looking to enter the Indian AI ecosystem. Two Indian AI start-ups, Krutrim and Perfios, also achieved unicorn status in 2024, largely thanks to foreign capital. 

The government’s moves towards liberalizing the foreign investment regime across sectors such as space, defence and telecom is likely to open new avenues for M&A activity. While Indian companies continue to push the envelope with indigenous defence technologies, India could also become a ripe export market for tier 1 and tier 2 contractors for global defence OEMs, considering the emerging global military needs in the midst of growing geopolitical tensions and conflicts.

Navigating the Shifting Regulatory Landscape

In recent years, the government’s pro-business regulatory reforms – focused on enhancing ease of doing business – have been fundamental in ensuring greater deal certainty, shortening regulatory timelines, reducing government interfacing and thereby, driving growth in the Indian M&A deal market. 

The government’s continual liberalization of the foreign investment approval regime to place more and more sectors under the ‘automatic route’, eliminating the need of a government approval, has contributed towards a larger influx of foreign investments. The recent amendments to foreign exchange laws, allowing swap of equity instruments between Indian and foreign investors, have also removed regulatory ambiguities and should boost cross-border M&A deals. 

In addition, the framework for cross border mergers involving foreign companies and their Indian wholly-owned subsidiaries has been relaxed further, eliminating the need of an NCLT approval. Further, starting this year, Indian companies can list their securities on international stock exchanges, albeit the same is currently limited to exchanges in the GIFT City. This could open up international markets for Indian companies and simplify the process of international price exploration. 

In another welcome move for the Indian start-ups ecosystem and the booming mid-market sector, the government under the 2024 annual budget announced plans to abolish ‘angel tax’ for all investors from FY 2025-26 onwards. This was a 30% tax payable on the difference between the issue price and the fair market value, at the time of share issuance by unlisted companies. 

However, some key regulatory hurdles persist. The Press Note 3 introduced in 2020 (PN3), which requires obtaining a government approval for any inbound investments from a country sharing a land border with India continues to plague foreign investors, especially large conglomerates (which may have indirect and miniscule presence of Chinese shareholders) and PE funds (which may be drawing down funds from existing Chinese LPs). With no prescribed definition of ‘beneficial ownership’, the applicability of PN3 on several cross-border deals continues to remain a grey area. 

Recent changes to the listing regulations (such as the enhanced disclosures and related party transaction approval framework) are also likely to increase the compliance burden and corporate approvals for listed companies. While such changes are well intended and come in the backdrop of various governance related controversies facing corporate India, these changes could also increase the cost of doing business in India for investors.

The biggest regulatory change affecting the Indian M&A landscape is the complete overhaul of the Indian anti-trust and merger control regime, which would now subject a lot more M&A deals to CCI scrutiny. Under the new framework, any M&A transaction having a deal value of more than INR 20 billion (approx. US$ 240 million) or where the target company has substantial business operations in India, would need to be notified to the CCI. The definition of ‘substantial business operations’ has been pegged to the volume (including number of users for digital services companies) / turnover / GMV of the target’s company business in India. In the absence of a grandfathering provision, these changes would also be applicable on executed but yet to be consummated M&A deals. While various changes have been introduced simultaneously to streamline the CCI approval process, the new framework is certainly going to lengthen M&A deal execution timelines, especially in the booming tech consumer space where the newly introduced ‘number of users’ metric could assume relevance.

The Path Forward 

While India’s M&A landscape remains on an upward trajectory, future success will largely depend on fostering inclusive and holistic growth. In India, the demographics are such that as businesses reach a critical mass, they see an exponential rise in valuations, given India’s growing per capita income and market size. However, they might eventually face plateauing growth. Thus, to ensure that India remains a strong and sustainable market for M&A deals, it would be critical that this growth trickles down to SMEs in the coming years, such that they can become more robust and experience the exponential growth trajectory currently being seen by the big players in the market. 

In conclusion, despite global uncertainties, 2024 has shown stable, diversified and continued growth in India’s M&A landscape. With a stable economy, record forex reserves and India’s emergence as a key hub to fulfill global supply chain demands, the Indian M&A deal market should be well placed for significant opportunities and robust growth in the coming future, in line with India’s optimistic aim of becoming a US$ 10 trillion economy within the next decade. 

* Vaibhav Kakkar is a Senior Partner and Anuj Garg is an Associate at Saraf and Partners. The views expressed in the article are personal views of the authors.