Post-event report: mergers and acquisitions in India: is India the last oasis of hope in a global slowdown?
Rabindra Jhunjhunwala
Khaitan & Co, Mumbai
rabindra.jhunjhunwala@khaitanco.com
Saranya Mishra
Khaitan & Co, Mumbai
Monday 24 April to Tuesday 25 April 2023
The conference ‘Mergers and Acquisitions in India: is India the last oasis of hope in a global slowdown?’ was presented by the IBA Corporate and M&A Law Committee on 24 and 25 April 2023 in Mumbai, India.
Introduction
While the conference was based on the theme of M&A from an India-centric point of view, the attendees benefitted from cross-jurisdictional insights on topics such as:
- environment, social and governance (ESG) factors;
- regulatory implications on deal-making;
- insolvency and bankruptcy;
- financial sponsors; and
- outlook on investments, divestments and generally bullet-proofing deals.
In order to encourage participation and open discussion, the conference was hosted under Chatham House rules.
The conference hosted a total of eight sessions on a wide array of topics relevant for M&A activity, with India as the focal point. To foster the exchange of ideas among the attendees, seven parallel roundtables were also hosted on deal-centric topics (during session three).
Keynote speech
The tone of the conference was set with a compelling case for immediate investment in India, with the conclusion being that testing the Indian waters requires full body immersion: ‘toe-testing’ will not do the job.
Session one: Is India the last oasis of hope in a world that is slowing down?
The first session discussed India’s success story, as it stands today, and its future. Emphasis was placed on the factors contributing to India’s pride of place in deal-making, from regulatory reform to softer aspects such as geopolitics, demographic dividends, economic placement and India’s ‘unicorn story’.
Doubling down on India and the emergence of private credit were highlighted as opening the floodgates of investment in India, leading to a new era.
An amusing analogy was drawn between India and fantasy myths: India is a land of opportunities containing three mythical magical creatures: giants (India’s mega conglomerates), unicorns and a wizard king (the Prime Minister).
Session two: ESG: strategic priorities to lead the M&A trail – is India ready?
The session discussed the in-trend concept of environmental, social and governance (ESG) factors. Emphasis was placed on the political polarisation of ESG and how ESG, while having a broad connotation and being subjective, is better approached as a spiritual concept, which demands respect for environment, social aspects and good governance as a limb of the Gandhian concept of ‘Ram Rajya’ (good governance and selfless/conflict-free leadership).
The panel discussed the emerging framework for ESG corporate compliance, including reporting and evaluation mechanisms, and the implications of ESG posturing in deal making. It also investigated the three components of ESG, how ‘E’ and ‘G’ contribute to ‘S’ and the need for focus on ‘S’ in ESG discussions in India.
Session four: Financial sponsors bonanza – revived appetite from sovereign and pension funds, private equity and VC players
The session on financial sponsors provided insights into how financial sponsors are assessing deal-making, be it the value of the deal or the business underlying the deal. The panel discussed the current trends in Indian markets in terms of deal modelling (whether buyout or majority/minority investment).
In terms of investment mottos in India, while India has a good track record, an investor should play to its own strengths in terms of investment structuring and sector. In this context, the motto ‘pick your sport, and be prepared to play’, was put forward.
The consolidation and retailisation of funds were discussed as corporate actions that could open more frontiers for India and prove to be a gamechanger.
Session five: Public company M&A contractual positions and legal enforcement
The session focused on public M&A deal-making for increasing deal certainty.
The session kicked off with a discussion of public M&A deal structures, whether court-driven schemes, equity for cash or swap models. The conclusion was that, while cash has been king, other structures are increasingly popular and may need time and effort. The theoretical possibility of squeeze-out was also explored.
On the topic of transactional documents for deal certainty, the panel delved into deal devices such as break fees and ‘hell or high water’ clauses, and the laws governing such clauses (if any). For instance, it was discussed that break fees are not regulated in India. Regulatory considerations such as approval or interventions such as PN-3 on insider trading restrictions were also discussed, all as part of an endeavour to provide more certainty in the deal.
Session six: M&A opportunities for global investors
The session was an engaging discussion on divestments against the backdrop of several recent successful and high-stake divestments such as Air India and LIC. The panel provided a background on the evolution of the Indian government as a deal player through the case study of Air India, drawing the conclusion that the government has been learning and adapting to the ways of deal-making by adopting best practices and keeping pace with the private sector.
The threat of expropriation and sanction was also briefly discussed from the United States, Israeli and Indian perspectives.
The fallacious notion in public-private partnership that ‘profit is government’s and loss is private’ was also taken into account as a problem statement for public-private interaction.
Session seven: Trends in M&A disputes – bullet proofing deals and lessons learnt from the battlefield
The panel provided insights from dispute resolution practitioners on bullet-proofing deals, dispute avoidance, effective dispute resolution management and forum shopping.
Deal contractual frameworks for dispute resolution were one of the key points of discussion, with an emphasis on the need to understand the links between seat and venue, and dealing with seat, venue and prescription of governing law.
The drafting of dispute resolution and governing law clauses was also discussed from a transactional and an arbitration institution perspective, including in cases of multiplicity of transactional documents across jurisdictions in multi-jurisdictional deals.
Session eight: Insolvency & bankruptcy in India – M&A opportunities
The session on insolvency and bankruptcy engaged in cross-jurisdictional discussions on the features and challenges of insolvency and bankruptcy relating to M&A activity, delving into experiences from India, Europe and the Nordic countries.
The panel deliberated on the Indian Insolvency and Bankruptcy Code (IBC), its features and the challenges posed for the corporate insolvency resolution process (CIRP).
While analysing the pitfalls of the Indian IBC regime, it was observed that IBC is rather nascent, and needs to provide more certainty in deal making to avoid a situation where money recoveries are low – a situation akin to ‘operation successful, patient dead’. As a means of making IBC robust and CIRP more effective, practices that may be borrowed from other jurisdictions were discussed.
Session nine: Reshaping portfolios through M&A: regulatory driven consolidation
The panel discussed consolidation-based M&A activity. which is reshaping the portfolios of conglomerates and startups alike in an endeavour to unlock the full value of assets and businesses.
The panel offered multi-jurisdictional insights on how such M&A is being shaped across various jurisdictions (India, Italy, Japan, Switzerland, the United Kingdom and the US). The panel shared its views on regulatory frameworks, investment (inbound and outbound), antitrust, ESG-related interventions and data privacy concerns.
The growing focus on renewable energy, be it electric vehicles or green financing, was also discussed as an area ready for M&A activity, given the increasing demand for it at all levels.
Conclusion
The conference was due to be held in 2020 but was postponed on account of the Covid-19 pandemic. It finally saw the light of the day in 2023 and received an overwhelming response from around the globe. The conference was sold out, with more than 200 people participating. The conference also witnessed high participation from general counsels on day two of the event.
There were attendees from Germany, Hong Kong, Japan, the Nordic states, Singapore, Switzerland, the UK and the US. The panels had a healthy mix of perspectives, including:
- Indian regulators (Securities and Exchange Board of India (SEBI));
- in-house counsel (from the likes of Reliance Industries, Mahindra & Mahindra, Tata Motors, Aditya Birla Group, ICICI Bank, Citi India and Avendus);
- international dispute resolution institution (Singapore International Arbitration Centre, or SIAC);
- private equity and venture capital companies (Blackstone and Warburg Pincus); and
- Indian and international law firms.