This article has been written by Parinitha, a 5th year BCOM LLB Student from St Joseph’s College of Law, Bengaluru.
Abstract
Mergers and acquisitions are strategic moves applied by companies to achieve growth, increase market presence, and gain competitive advantages. Within the legal framework in 2024, much has changed with regard to how M&A is approached, specifically in regulatory frameworks that form part of efforts to attain fair competition and solve increasingly complex marketplace issues. This article examines the complex legal regimes surrounding M&A in the major jurisdictions, focusing on recent trends in India, the United States, and the European Union.
KEY WORDS: Mergers and Acquisitions, Fair Competition, India, US, EU
Understanding Mergers and Acquisitions
Mergers and acquisitions involve a wide array of transactions by which companies merge their operations. A merger often takes place when two businesses agree to merge their resources into a new company, but an acquisition is the action of one business buying out another, either by taking shares or by directly acquiring assets. Consolidation involves the creation of a new company from the merging of two or more existing ones. There are many diverse reasons for these transactions. Companies increase their market size by venturing into new geographical territories or expanding their existing geographical markets. Another area that is also important is operational synergies; when two companies come together, they save cost and enhance revenue by being better managed.
In addition, they may use the M&As as an element in their diversification strategy while trying to diminish risk when expanding into diverse sectors and industries. Thus, when companies diversify, such a strategy diminishes the extent of market volatilities in their primary business niches. More importantly, acquiring innovative companies gives entry to advanced technology and innovative capabilities that a company develops to enhance competitiveness in a constantly digitalizing economy.[1]
Legal Framework for Mergers and Acquisitions
Legal frameworks guiding mergers and acquisitions are very diverse depending on national laws, international treaties, and the various regulatory practices. However, some of the main features of these frameworks typically comprise antitrust laws, intended to avoid anti-competitive practices that may injure consumers or stifle competition. Securities regulations determine share purchases and sales of a public company, in addition to guaranteeing fairness and transparency in financial markets. It would stipulate the rules that mandate the way a firm is to be conducted from the inside, such as what should be approved by the board and what are the rights of shareholders in relation to a large transaction.
Regulation in Different Countries
Major bodies of regulation of M&A in the United States of America are the Federal Trade Commission (FTC) and the Department of Justice (DOJ). Other legal aspects include several major statutes that govern merger analyses. Under the Clayton Act, mergers that tend to cause substantial reduction in competition or tend to create monopolies in relevant markets are prohibited. In addition, the Hart-Scott-Rodino Antitrust Improvements Act mandates that parties involved in significant mergers notify the FTC and DOJ before closing their deals. There has been a recent trend of more aggressive scrutiny from U.S. antitrust agencies concerning mergers involving technology companies with high market power. The increasing vigilance reflects increasing concerns about monopolistic practices and their effects on consumer welfare.
The European Union adopts a very stringent merger control regime based on the EU Merger Regulation. Within this system, mergers above certain thresholds are made to notify the European Commission before their implementation. Such mergers are analysed by the Commission based on their potential effects on competition in the internal market. With regard to debates on digital markets and the mergers involving leading tech companies, debates over their role in the future strategy of the EU’s regulations will continue to evolve and influence future directions into 2024[2]. Competitive markets are maintained by a promise to prevent anti-competitive conduct that may result from consolidations in fast-moving industries.
India has the merger control regime basically through the Competition Act 2002, which has faced important amendments introduced by the Competition (Amendment) Act 2023 and in force on and from September 10, 2024[3]. This represents an important milestone for M&A activity regulation in India. New thresholds of deal value to indicate when notification is required for transactions to determine if it crosses over into the territory based on the value and not based on turnover or asset value, and thereby the attempt is made to capture a transaction that would otherwise escape the radar, although based on conventional parameters but having a competitive implication as regards its influence on the markets.
The amendments would also bring more efficiency in the examination process conducted by CCI regarding mergers. Timelines for review will be compressed from 210 days to 150 days. An understanding here is that with markets that have been paced at such breakneck speed that the momentum needs to be sustained, delays could scuttle strategic initiatives. Additional new rules allow some minority acquisitions- those that do not hand over control of a target company-to go through with minimal scrutiny by the regulators. This is quite handy for investors who seek to accumulate stakes without necessarily and fully opening up for scrutiny by the regulators, thereby encouraging more investment in all sectors.
Significant Regulatory Developments in 2024
Scrutiny by the regulators of digital markets globally is one of the key trends of the regulatory landscape of 2024. With increased digital transformation in the world, attention is being given to the M&A activities within those technology sectors characterized by high innovation and large utilization of consumer data. This follows concerns over all data privacy issues, market dominance, and consumer welfare implications associated with a concentrated market power of these giant tech firms. Regulators are increasingly recognizing the imperative for traditional frameworks to adapt to issues such as challenges arising out of digital economies.
Another important trend will be the increased consideration given to sustainability considerations and ESG factors in merger assessment deals. The relevant regulators may demand more disclosure with regard to sustainability practice under the merger assessment procedure. M&A companies need to be able to prove, at the very least compliance with existing law and business practices that are consistent with what society expects by showing proper stewardship over its environmental resources and accountability over social responsibility.
Globalization is still changing business operations. Organizations undertaking cross-border M&A operate in multiple regulatory bodies cutting across jurisdictions with different compliance requirements. This complexity requires an understanding of the different regulations whose impact can dramatically influence both transaction timelines and strategies.
Implication on Businesses
The changing legal landscape creates opportunities and challenges for companies engaged in M&A activities as they navigate through this intricate environment shaped by regulatory changes and heightened scrutiny from authorities worldwide. This has, among other challenges, imposed a higher burden of compliance on companies, which now have to put considerable resources into developing strong compliance mechanisms capable of negotiating the complex regulations while also adhering to antitrust laws and other relevant statutes.
It would be necessary for them to weigh their potential mergers or acquisitions against more and more dynamic legal standards that might affect their viability or desirability as an investment prospect. Of course, in the determination of a target firm’s competitive position, among others, likely regulatory obstacles become germane when transactions are considered. Early engagement with appropriate stakeholders can help ease both shareholder and regulatory approval or avert last-minute opposition at critical junctures in negotiations.
India’s Thorough Examination of Its Regulatory Framework
India’s merger control framework is mandatory and suspensory in nature; transactions are not allowed to be implemented until such time as they have been approved by the CCI, if they exceed specified asset value or turnover-based thresholds set forth under existing law. Major statutes that have governed M&A activities within India include not only the Competition Act of 2002 but also provisions outlined within the Companies Act of 2013 along with FEMA regulations governing foreign investment into Indian enterprises as well as SEBI regulations specifically towards public offering.[4]
Recent changes coming into the Competition (Amendment) Act 2023 will dramatically change how, going forward into 2024 and beyond, where increased competition is evident as various sectors compete with regard to investment opportunities that seem to exist both in-country and overseas alike under trends where globalization seems to increase localized markets with time, the mergers are looked into. Deal value thresholds are designed to capture transactions that may not qualify under traditional asset-based criteria but could still be of competitive concern, in large part because they have potential impacts on overall market dynamics affecting consumer choices available.
The streamlined review process would cut down the timelines for reviews at CCI from periods which had been mandated until a long time ago until it went up to 210 days, now shortened just to 150 days enhancing the efficiency levels related to the regulatory assessment but ensures proper scrutiny is still retained on significant transactions occurring through the various industries which participate in it too. This change shows recognition that timely approvals are necessary to maintain business momentum, especially in fast-paced environments where delays could hinder strategic initiatives planned out ahead accordingly.
Moreover, concessions made with regards to minority acquisitions help some minority percentages held in terms of the ownership share of target companies in proceeding without extreme monitoring from the regulatory body which happens to benefit the investors aiming at raising the stakes without causing the commencement of the exhaustive scrutiny review process therefore allowing significant investment activities across a myriad of industries which happen to be related to the procedure in question.
Indian company cross border mergers would entail an adherence to more than one regulatory framework. In particular, FEMA rules governing overseas investments that find their ways into India coupled with mandatory RBI approvals before even transacting across the border by involving foreign entities too!! Recent changes in laws make it easier and streamlined more processes about foreign investment for Indian enterprise that increased appeal levels about becoming the country of choice when seeking cross border destination as the home for furthering the reaches of international business.
Conclusion
The legal environment of mergers and acquisitions remains in a continuous flux since the regulatory agencies have kept pace with such market changes greatly influenced by the advancements of technology as well as the globalization that touches the local economies worldwide. For the year 2024, business will have to be even more vigilant, and its awareness of the change shall strategically navigate implications the proper way. While fair competition thrives in an economy due to appropriate regulation, the jurisdictions could ensure that M&A activities add to economic growth with innovation flourished in the markets relevant to the specific cases at hand.
This article, therefore, provides a rich overview of current state matters regarding mergers and acquisitions law as of the moment while emphasizing trends that continue to shape the future nature of transactions in various jurisdictions as well! Companies navigating the complex landscape will need to prioritize compliance and strategic planning while staying attentive to developments in emerging regulation that may, in turn, impact future growth trajectories going forward, into the next phases, of future undertakings thereafter.
[1] (2020). Mergers & Acquisitions (M&A) [Online]. Definition, Pillars, and History. Available at: https://corporatefinanceinstitute.com/resources/valuation/mergers-acquisitions-ma/ (Accessed: 26 October 2024).
[2] (2022). Trilegal Update | New Era for Indian Merger Control Begins on 10 September 2024 [Online]. New Era for Indian Merger Control Begins on 10 Sep. Available at: https://trilegal.com/knowledge_repository/trilegal-update-new-era-for-indian-merger-control-begins-on-10-september-2024/ (Accessed: 27 October 2024).
[3] Competition (Amendment) Act, 2023
[4] Mergers & acquisitions laws and regulations India 2024 [Online]. Shardul Amarchand Mangaldas & Co. Available at: https://www.amsshardul.com/insight/mergers-acquisitions-laws-and-regulations-india-2024/ (Accessed: 27 October 2024).
