INDIA Law and Practice Contributed by: Raj Ramachandran and Krutamana Pisipati, JSA
4.2 Liquidity Event: Transaction Structure The structure of a transaction in case of a liquid- ity event would vary depending on numerous factors. Where there are several investors on the cap table, preferred routes would be to list the company or carry out a full company sale. In cases where there are fewer investors or the pro- moter is a key stakeholder and also fully involved in operations, a controlling stake sale or a stra- tegic buyout is also common. There are also instances of mergers between two tech companies. The most prominent in recent years have been Nazara Technologies, a gaming company’s acquisition of inter alia Moonshine Technology (the parent company of Poker Baazi) and acquisitions of offshore entities like Publishme, Ninja Globa, Fusebox Games, Paper Boat Apps and Deltias Gaming. 4.3 Liquidity Event: Form of Consideration Cash is typically the primary form of consid- eration in India, unless there is a valuation gap that is not closed during negotiations. In these instances, the transaction is sometimes struc- tured with multiple tranches of closing, with an earn-out component. In certain other cases, a full stake sale is also structured with a rollover equity investment in the acquirer entity. 4.4 Liquidity Event: Certain Transaction Terms Founders who are involved in the day-to-day operations and management are expected to stand behind the representations and warran- ties for specified periods of time based on the nature of the representations and warranties. VC investors typically only provide representations on title to the securities held by them.
While several options are available, the decision to list on a home country exchange or a foreign exchange is dependent on factors discussed in 3.1 IPO v Sale . 3.3 Impact of the Choice of Listing on Future M&A Transactions Certain minority squeeze-out provisions have been detailed in 6.8 Squeeze-Out Mechanisms . Accordingly, an Indian company listing in foreign exchanges as per 3.2 Choice of Listing , may still avail of the squeeze-out mechanisms available to the companies under the Indian Companies Act, 2013 subject to and along with any specific mechanisms of the relevant exchange they are listed at. 4. Sale as a Liquidity Event (Sale of a Privately Held Venture Capital- Financed Company) 4.1 Liquidity Event: Sale Process In a proposed liquidity event of a company, the shareholders may choose to sell via an auction or bid process or a bilateral negotiation. While bilateral negotiations are more common, auc- tions are also considered in transactions of larger value. Auctions are sometimes considered more effi- cient for the seller as they are implemented in parallel with various prospective purchasers to achieve the intent of sale within a definitive time period and ensure faster negotiations and defini- tive closure. Bilateral negotiations are targeted sales and acquisitions and may therefore take more time. There can be further delays if bilateral negotiations do not conclude, and the company or seller would have to restart the process.
201 CHAMBERS.COM
Powered by FlippingBook