INDIA Law and Practice Contributed by: Anuja Tiwari, Mallika Anand, Pranjal Bhattacharya and Antra Shourya, AZB & Partners
4.15 Privately Held Companies Please refer to 2.2 Liquidity Events for a detailed dis - cussion on the acquisition structures typically adopted for privately held companies in India. In some cases, acquisitions may also be structured as a business transfer or asset purchase ‒ although share acquisi- tions are generally preferred, as they allow continuity of business and contractual arrangements. Other than the key considerations discussed in 2.2 Liquidity Events , other key considerations include obtaining necessary regulatory approvals, compliance with FDI regulations, approval from sectoral regula- tors, and clearance from the CCI where applicable. The buyers also undertake comprehensive due dili- gence to identify risks relating to regulatory compli- ance, including legal, tax and regulatory considera- tions, business contracts and any restrictions therein, financial projections, internal financial systems, and forensic analysis to identify financial impropriety. The buyers also undertake an assessment of promoter- related arrangements, which are common in private companies. Where foreign investment is involved, the pricing of shares must comply with Reserve Bank of India (RBI) valuation norms. The use of deferred consideration or earn-outs is subject to regulatory requirements. 5. Overview of Regulatory Requirements 5.1 Regulations Applicable to Energy and Infrastructure Companies As discussed in 2.1 Establishing and Financing a New Company , setting up project companies or SPVs in the energy and infrastructure sectors requires com- pliance with the existing legal framework under the Companies Act. The regulatory landscape governing the specific sectors must also be taken into consid- eration. Principally, no approvals need to be obtained, except in cases of licensed sectors. By way of example, gen- eration of electricity is a de-licensed activity in India; a licence is required to be obtained for the transmission,
to be submitted to SEBI for comments and, thereafter, SEBI’s comments are to be incorporated in the final offer letter before its circulation. Under the Takeover Regulations, SEBI is required to provide its comments within 15 working days from the receipt of the letter. SEBI may also seek clarifications and additional information from the merchant banker and, often, the prescribed timeline may get extended until the clarifications and information are provided. In conducting its review, SEBI analyses the compli- ance of the tender offer with the Takeover Regulations (including the offer price) and ‒ broadly ‒ whether the terms of the offer and the transaction will have a det- rimental impact on the minority shareholders. The timelines for the tender offer are prescribed by SEBI through its various guidelines. However, the actual time involved in the process may vary, espe- cially in transactions where regulatory approvals are required and the payments are subject to obtaining the approvals. Competing offers can be launched only within 20 working days from the date of the initial tender offer. In such case, the schedule of activities and the tender period for both the initial tender offer and the compet- ing tender offer are carried out with identical timelines, and the last date to tender in the initial tender offer is changed to the last date to tender in the competing offer. 4.14 Timing of the Takeover Offer If the completion of the tender offer is subject to regu- latory/antitrust approvals, the payment to the tender- ing shareholders may be delayed until such approvals are obtained. Any such delay would, however, attract an interest to be specified by SEBI (typically 10%) to be paid to the tendering shareholders. The timing for obtaining the regulatory approval is fact-specific and depends on the modalities of the deal. That said, usually parties approach the regula- tors for obtaining the approvals (or, at least apply for such approval) prior to launching the offer.
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