Overseas mergers and acquisitions (M&A) and investment deals are highly susceptible to risks and failures, for a variety of reasons. While planning remains key, the secret sauce for a successful overseas deal is agility, i.e. flexible implementation of strategies and the ability to react quickly to unforeseen issues.
Indian entities looking to invest in overseas markets should consider the issues and points set out below.
As the first step, Indian entities need to understand the target market well. This would include a study of prevalent market practices and regulatory barriers. In addition, other soft issues, such as communication expectations and language, are also extremely important. Careful planning, early on-boarding of advisers (legal/financial) and continuous discussions with the advisers during the gestation period generally ensure seamless completion of a negotiated deal and discourage competitors in a bid situation.
An Indian entity or its advisers should have sophisticated knowledge of the following, to enjoy more credibility in overseas markets:
- Prevalent structures and the extent of flexibility possible, taking into account legal concerns associated with the various structures, such as full management control, no or low management control, joint ventures or bid with a financial partner (with a right to increase ownership).
- Taxation-related factors such as tax-efficient strategy, deductibility of acquisition costs (including interest), and withholding tax affect payments towards interest, dividends, royalties, etc. Indian entities should also get expert views on anti-avoidance, anti-inversion rules, etc., in the investment jurisdiction.
- General regulatory issues or approvals, such as foreign investments, antitrust, securities market, etc., as well as relevant sector-specific approvals. This will ensure that time and delivery expectations are set at the outset and reduce friction between the parties. In addition, depending on the target market, trade unions may be a big regulatory obstacle and may need to be factored in.
- Relevant disclosure requirements (primarily for public market deals), including whether the requirements are time based (as prevalent in India) or based on the judgement and analysis of the acquirer (as prevalent in US and other developed markets).
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Manish Gupta is a partner and Alok Sonker is an associate partner at Link Legal India Law Services.
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