DD of Private M&A Transactions in India

Private M&A deals in India are primarily used by companies looking to expand the scope of their operations & penetrate new markets. Acquiring private companies in India implies that each acquired business maintains its corporate & legal structure & continues to operate as usual.

India: DD

Conducting DD of M&A transactions in India requires:

• verifying target companies’ compliance with regulatory requirements;
• providing assistance in drafting M&A agreements;
• identifying obstacles.

One of the most time-consuming stages of private M&A deals in India is DD of material contracts & target companies’ liabilities. Other categories of contracts that need top be verified & analyzed include:

• Lease agreements.
• Copies of real-estate contracts.
• Insurance contracts.
• Guarantees & compensations supplied by target companies.
• Financing agreements.

Prior to undertaking DD of private companies in India, potential investors must also verify:

• target companies’ AoA.
• corporate rules, practices & procedures.
• labor agreements.
• lawsuits involving target companies or their subsidiaries;

• settlements & documents related to them;
• loans, guarantees, leases, or other credit agreements target companies have concluded within a 3-year period.

Normally, sellers usually do not provide potential purchasers with DD reports. However, when it comes to acquiring businesses via an auction in India by multiple bidders, sellers may provide bidders with a DD report.

Sellers’ Responsibilities

Sellers are expected to provide warranties pertaining to their companies starting from the date of concluding an M&A deal in India. They also bear personal responsibility for breaching their warranties or making them misleading.

Supposed or Factual Knowledge

Those contemplating concluding private M&A transactions in India should keep in mind that under Indian legislation, claims filed against sellers are divided into two groups:

Recompense for Damages

Under Indian legislation, the damages concept is based on the predictability principle. Only losses that could be predicted due to a breach of a contractual agreement are recompensed.

Contribution

This applies to reimbursement based on transaction documents. It is understood that the knowledge purchasers have obtained from sellers’ letters of disclosure & other documents should prevent them from making any claims for damages after conclusion of a transaction.

Conclusion

Not only does DD help potential investors get a better understanding of target companies’ value, but also assists them in gaining information that can substantially increase potential return on their investments.