Mergers and Acquisitions

Indian Mutual Funds – New M&A Rules! Anu Tiwari (Partner), Ritu Sajnani (Senior Associate), Utkarsh Bhatnagar (Senior Associate) and Karthik Koragal (Associate) The Securities Exchange Board of India (“SEBI”) carried out a regulatory revamp exercise of SEBI (Mutual Funds) Regulations, 1996 (“MF Regulations”) and various circulars issued under it by way of a circular on mutual fund(s) (“MF”) issued on March 4, 2021 (“MF Circular”), effective from March 5, 2021, thereby streamlining a robust regime governing the reporting, compliance and disclosure requirements applicable to asset management company(ies) (“AMC”) and the trustee(s) of such AMCs. Reporting requirements strengthened Currently, the MF Circular requires an AMC to furnish the complete details of any indirect change in its control/ promoters of the sponsor(s) to SEBI and also notify details of a proposed change in control (whether direct or indirect) to the unitholders, by way of an email (in addition to publishing the same in newspapers. Similarly, in case of any proposed change to the fundamental attributes of a MF scheme, trustees are now mandated to obtain comments from SEBI, prior to effectuating such change. With an intent to ensure better compliance, SEBI has also expanded the scope of ‘key personnel’ of an AMC to include chief investment officer, chief risk officer, chief information security officer, chief operation officer, compliance officer, sales head, investor relation officer(s), etc. in addition to the erstwhile list of key personnel, which included the chief executive officer, fund manager(s), dealer(s) and head of other departments of the AMC. Hence, inter alia these new key personnel who are also now prohibited from carrying on self-dealing or front running activities, in addition to meeting the prescribed eligibility criteria. The revised reporting requirements extends SEBI’s regulatory prowess to monitor and bring more transparency in relation to the indirect change in control of the AMCs’ process. Relaxations and scrutiny go hand-in-hand In order to facilitate innovation in the MF space, SEBI has introduced certain relaxations like permitting employees of AMCs to participate in private placement of equity by any company, has allowed trustees to delegate its function(s) to declare/ fix a record date and decide the quantum of dividend, etc. to AMC officials. Further, trustees are now mandated to report to SEBI the MF securities dealt by them, only if a transaction exceeds INR 5 lakhs (vis-a-vis the previous threshold of INR 1 lakh). The regulator has also classified investment in non-convertible preference shares (“NCPSs”) as a ‘debt instrument’ and accordingly, limitation of a MF scheme to invest not more than 10% of its net asset value in debt instruments will also include NCPSs. The trustees now being required to obtain SEBI comments before effecting a ‘change in in the fundamental attributes of a MF scheme’ seems burden-some, as the regulator’s role, and oversight, already guarantees for the requisite checks and balances to govern the MF scheme, including for MF scheme transfers, through separate regulations and circulars in this behalf. Above is likely to add another layer to M&A deal-making, with already many layers involved, impacting deal costs and timelines, especially if a ‘new sponsor’ application may be involved, from a process, governance and unit holders’ standpoint. Albeit above ties into SEBI’s increasing focus on MF trustee’s accountability, which has hitherto been an overlooked area, given the nature and composition of MF trustee boards. Though, done with noble regulatory intent, one would have to see whether the above changes, including expansion of key personnel, further ‘spook’ trustee directors, especially independents - already an onerous position, with few upsides, especially after Calcutta High Court’s Order in the ITC / JPMorgan MF Trustees case, and SEBI’s approach qua Franklin Templeton trustees in 2020, expand the scope of potential SEBI show-cause ‘noticees’ from the current list of 7 (!), and shoot MF M&A in the knees, which was given a new lease of life recently via SEBI dropping the ‘3/ 5’ profitability criterion in Regulation 7, MF Regulations.

The Securities Exchange Board of India (“SEBI”) carried out a regulatory revamp exercise of SEBI (Mutual Funds) Regulations, 1996 (“MF Regulations”) and various circulars issued under it by way of a circular on mutual fund(s) (“MF”) issued on March 4, 2021 (“MF Circular”), effective from March 5, 2021, thereby streamlining a robust regime governing the reporting, compliance and disclosure requirements applicable to asset management company(ies) (“AMC”) and the trustee(s) of such AMCs.
Continue Reading FIG Papers (No.4 : Series – 2): Indian Mutual Funds – New M&A Rules!

Takeover of Publicly Traded Companies - Flashback 2020

 India’s twin achievement of receiving the highest-ever FDI[1] and touching record highs at the bourses[2] occurred in the Financial Year 2020-2021. While the former came about in the first five months of the fiscal year (i.e. during the COVID-19 lockdown), the latter took place near the end of the calendar year 2020.

The year 2020 saw unprecedented business disruption due to the pandemic. Many Indian businesses were forced to reorganise and innovate to tackle the pandemic, which also resulted in revaluation of many firms by their acquirers. Cash rich and savvy investors took advantage of this unrivalled opportunity to make acquisitions and investments which is evident from the overall high deal activity in the calendar year 2020, especially in Q4.
Continue Reading Takeover of Publicly Traded Companies: Flashback 2020

Regulatory Considerations for M&A Investors During COVID-19 Era

CAM authors collaborate for this article with our Guest Authors –  Michael J. Cochran, Partner at Kilpatrick Townsend & Stockton and Gabrielle Gollomp , Associate at Dentons

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The COVID-19 pandemic and the corresponding economic volatility has dramatically impacted the US and the Indian M&A market. While many high-profile companies have abandoned proposed deals, various other companies have expressed or maintained interest in pursuing strategic acquisitions during this time. This article discusses the regulatory changes that parties should consider when contemplating M&A events in the Indian and the US markets in the wake of COVID-19.
Continue Reading Regulatory Considerations for M&A Investors During COVID-19 Era

Control Premium: Analysis of Recent Top Deals and What 2020 is Likely to See

While of all us are getting used the to the new normal and are hoping that the worst will be behind us soon, we thought it would be great to share with you (i) our analysis of control premium paid in top takeover transactions of publicly traded companies in the last three financial years, and (ii) our thoughts on the way pricing trends will shape up in 2020 and what regulators should do about the current pricing regime for M&A transactions.

Part A deals with our analysis of ‘control premium’ paid in top 20 control deals (involving tender offers) in each of the last three financial years, aggregating to a total of top 60 control deals. Part B deals with the broad parameters of the way regulatory regime should change to allow pricing flexibility and exemption from open offer so that the regime is more contextual to enable deal making in the current market situation; we call it the ‘Deal Freedom’.
Continue Reading Control Premium: Analysis of Recent Top Deals and What 2020 is Likely to See 

Global trends in private M&A

This guest post is by Jaya Gupta, Head of India Desk, Corporate at Allen & Overy LLP
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In 2019, global M&A activity switched down a gear although it was still the third-strongest year in a decade in terms of value and transaction volume.

With macroeconomic issues such as continuing trade wars between the US and China, tensions in the Middle East and, to some extent, Brexit, impacting cross-border activities, many investors resorted to strategic domestic megadeals.


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Cross-border demergers – lack of legislative intent?

In the matter of Sun Pharmaceuticals Industries Limited, the Ahmedabad bench of the NCLT has ruled that Section 234 of the Companies Act, 2013 and the FEMA Cross Border Merger Regulations, 2018, do not permit cross-border demergers. Sun Pharma sought to demerge two of its investment undertakings in India into two overseas resulting companies, based in the Netherlands and the US. Being a listed entity, it obtained prior approval of SEBI through the relevant stock exchanges and the requisite corporate consents of its shareholders and creditors. The RBI granted its implied deemed approval by stating that the demerged company is required to abide by the applicable rules and regulations, which it had undertaken that it would. None of the other stakeholders to whom notices were issued by the tribunal, including the Registrar of Companies (ROC), objected to the demerger on the ground that it was not permitted by law.
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 Control deals Tender offers 2019 - Takeover regulations

Control deals are gaining popularity because of the ability of the incoming controlling shareholder to control the ‘when’ and ‘how’ of the functioning of the business that is housed in the company. Additionally, the stigma associated with promoter’s relinquishing control of their companies is on the wane in India. Despite the market conditions, 2019 saw a fair deal of control transactions in the country. For such category of deals, calendar year 2019 was comparable to calendar year 2018 in number and value terms.

In this blog, we are sharing with you our analysis of control transactions in which exit was offered to public shareholders through the tender offer route in 2019[1], under the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (Takeover Regulations). We will be sharing a detailed report on the 2019 activity of such transactions separately.
Continue Reading Control Deals Involving Tender Offers: Flashback 2019

 Tender offers in India 2018

January to December 2018 was a more active year compared to 2017 for tender offers made under the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (Takeover Regulations).

Non-banking financial companies (NBFCs) saw a particularly high number of tender offers. These included tender offers for Tourism Finance Corporation of India Limited, Pranami Credits Limited and LKP Finance Limited. But while the NBFC space may have had the greatest number of tender offers, the highest tender offers in terms of size/value were in banking (IDBI Bank Limited), healthcare (Fortis Healthcare Limited), pharmaceuticals (Merck Limited), and cable & broadband (Hathway Cable and Datacom Limited and Den Networks Limited) sectors.
Continue Reading Tender Offers in 2018: The Year That Was

The use of digital technology in the education sector is growing at a remarkable pace in India. With news reports giving Byju’s, a Bengaluru based learning app, a valuation of over USD 2 billion in its latest round of investments, the investors’ interest in the education technology (edtech) sector is on the rise.
Continue Reading M&A Trends in the EdTech Sector