Cross-border M&A deals

Classification of M&A deals based on nationalities of the companies:

The feasibility and applicable legal and regulatory framework changes drastically depending upon the nationality of the involved companies. Nationality of a company is the nation of its registration irrespective of where the owners stay. The conditions for according a nationality require a company to have a physical presence in the country.

Following are the types of deals based on the nationality:

Domestic deals:

Domestic deals means the deals where both of the companies are Indian.

Foreign deals:

Foreign deals means where both of the companies involved in merger and acquisition are not Indian.

Cross-border deals:

Cross border deals means the deals in which one company is Indian and the another company is foreign (or at least one individual investor is a foreigner).

There are two types of cross border deals:

Inward M&A deals (FDI):

the inward deals are the deals in which a foreign company makes investment in Indian company. It is called foreign direct investment (FDI). The word direct means investment directly in a business as a shareholder without involving any financial intermediary. If the norms of investment in that sector geography are relatively liberal, this investment can be made through automatic route. If the investment is to be made in certain reserved sectors or beyond certain shareholding percentage, then approval of RBI or other government bodies in addition to all other approvals is required. (Note that the inward investment need not necessarily be in the existing companies.)

Outward Deals (ODI)

Indian company makes investment outside its geography or political borders, it is called overseas direct investment (ODI). Since this results in outflow of foreign exchange, again, the company that wants to acquire a foreign target has to take certain approval from authorities in India. For international merger and acquisition activities, the companies have to carefully understand the legal and regulatory frameworks of both the origination and destination countries in detail. Investing companies also have to understand, the specific country risks including the political risk, economic risk, social risks, cultural risks, business culture risks, etc.

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