Acquisitions and mergers are a major route for many start-ups, SMEs and even established companies in their business life. The origin of many of today’s most prominent companies can be traced back to this business practice – Disney/Pixar and Marvel, Exxon and Mobile, and Google and Android, among many others.
In India, various regulatory frameworks manage mergers and acquisitions (M&A) activities. The objective of these laws is to build the process of M&A more transparent so that it will protect the interest of shareholders and entities involved.
The economic development since 1991 has resulted in a drastic change of economic environment for the commercial sector in India, enhancing the market for commercial control categorized by M&A and other varieties of corporate reformation.
Regulatory Framework for Mergers and Acquisitions
The Companies Act, 2013
The Companies Act is the primary law applicable to all companies registered in India. All business transactions, including mergers and acquisitions, must comply with the Companies Act of 2013.
The securities in the Indian market are subject to the rules and guidelines issued by the Securities and Exchange Board of India (SEBI). M&A transactions are also dealt with within SEBI’s Substantial Acquisition of Shares and Takeovers amendment of 2018.
Foreign Exchange Management Act (FEMA), 1999
Foreign Exchange Management Act (FEMA) guidelines state that any exchange that intends to settle mergers in India must abide by FEMA guidelines. FEMA guidelines also require the supervision of full-time responsible persons such as administrative staff and secretaries who are members of the companies, as the companies involved in such cross-mergers have a testamentary liability.
Major technology acquisitions in recent years: Flipkart, eBay and Myntra
In 2017, Flipkart raised $ 1.4 billion from global technology leaders eBay, Tencent and Microsoft, announcing a merger with the Indian branch of eBay. eBay invested $500 million in cash and sold their business to Flipkart in exchange for an equity stake in the e-commerce giant. In addition, Flipkart acquired Myntra in 2014 for $300 million. The move consolidated Flipkart’s position in the e-commerce market and placed it on the global map of tech start-ups that “made it big.”
2021 Byju’s Acquisition Spree
Since 2020, edtech decacorn Byju’s has been on an acquisition spree. In July 2021, Byju’s acquired Great Learning, a professional and higher education company, for $600 million, and US-based digital reading platform Epic for $500 million. In April 2021, it bought out Aakash Education Services for a whopping $1 billion, affirming its space in the traditional coaching segment. Most famously, in August 2020, Byju’s bought ‘coding for kids’ edtech start-up WhiteHat Jr for $300 million.
Byju’s acquisition spree is helping the firm increase its lead over its competitors such as SoftBank-backed Unacademy, Simplilearn, UpGrad, Vedantu, Amazon Academy and traditional education institutes.
How do small businesses and start-ups get affected by acquisitions and mergers?
Many financial and business experts argue that acquisitions by big corporates exhibit their predator behaviour as they buy out the competition to maintain a monopoly. And that seems true in many cases; case in point, Facebook’s acquisition of Instagram and WhatsApp. It made Facebook the world’s biggest social media giant with transcontinental reach and access to billions of people’s data.
But in many cases, acquisition mergers are beneficial too, especially for small businesses and start-ups. When a small business gets acquired, it either gets full money for the stake or gains access to its parent companies’ vast resources while maintaining authentic leadership. There are many examples of this, like Tata Son’s multi-million stake in health tech start-up CureFit, Flipkart’s acquisition of Myntra and others. This helps the business grow and proves beneficial for both, the mega-corporate and the new company, which can now have financial stability and support to fall back on.