Comprehensive Guide to the M&A Due Diligence Process in India (2025 Update)
Navigating mergers and acquisitions (M&A) in India demands a robust and current understanding of the M&A due diligence process. This critical step ensures both the buyer and seller are fully informed about the business they are engaging with, ultimately minimising risks and maximising value. In this comprehensive guide, we explore the M&A due diligence process, incorporating the latest legal updates, region-specific insights, and practical tips to help businesses across India make informed decisions and execute successful M&A transactions.
What is M&A Due Diligence Preocess?
M&A due diligence is a thorough, systematic investigation conducted before finalising a merger or acquisition. It involves scrutinising the target company’s financial, legal, operational, and tax aspects to identify any risks or liabilities that could affect the deal’s value or terms. In India, the M&A due diligence process is particularly vital due to complex regulatory frameworks and region-specific compliance requirements, such as those governed by the Companies Act 2013 and the Securities and Exchange Board of India (SEBI) regulations.
The main goal is to confirm that the seller’s representations are accurate and that the buyer truly understands the business’s true state. This process is essential for uncovering discrepancies, hidden liabilities, or operational inefficiencies, thereby ensuring a transparent and successful merger acquisition process.
Key Steps in the M&A Due Diligence Process
The M&A due diligence process involves several structured steps meticulously customised to India’s regulatory and business environment. Below, we outline the critical stages, weaving in updates from 2025 and region-specific considerations for legal mergers and acquisitions.
1. Initial Assessment and Preparation
The M&A due diligence process begins with a rigorous initial assessment. Buyers, often with experienced M&A advisory firms, must define the scope of due diligence, creating a comprehensive checklist customised to the specific transaction. In India, this includes mandatory compliance checks under the Companies Act 2013, SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 2011, and sector-specific guidelines, such as those for healthcare M&A or telecom M&A.
- Geo-Compliance Check: Preparation involves setting up a secure virtual data room, often hosted on platforms like those approved by the Ministry of Corporate Affairs (MCA). For cross-border M&A in India, mandatory additional checks on Foreign Exchange Management Act (FEMA) compliance are absolutely crucial. You must look for mandatory disclosures to ensure no regulatory hurdles arise.
- Procedural Update (2025): Advisors must first determine whether the deal qualifies for the expanded Fast-Track Merger route under the recent Companies Act amendments. If it does, then the entire merger and acquisition process can move faster, since this route allows companies to bypass the lengthy NCLT sanctioning. As a result, businesses save both time and resources while still remaining fully compliant.
Financial Due Diligence
Financial due diligence evaluates the target company’s economic health and sustainability. In India, this step is especially critical because of diverse accounting practices and, moreover, the added challenge of regional tax complexities. Therefore, buyers must carefully review financial and tax records to avoid hidden liabilities.
- Financial Statements: Review audited statements for strict compliance with Indian Accounting Standards (Ind AS). Recent 2025 amendments to Ind AS 103 (Business Combinations) now mandate enhanced disclosures for M&A transactions, ensuring full transparency in valuation.
- Revenue and Profitability: You must analyse revenue streams and profit margins, particularly for high-growth industries like IT or pharmaceuticals, which dominate M&A in Mumbai and Bangalore.
- Debt and Liabilities: Rigorously identify all debts, including those under scrutiny by the Income Tax Department or GST authorities, which directly impacts the deal’s final structure.
Legal Due Diligence
Legal due diligence ensures compliance with India’s complex legal landscape. Recent 2025 updates to the SEBI (Listing Obligations and Disclosure Requirements) Regulations significantly strengthen disclosure norms for listed companies, profoundly impacting public mergers and acquisitions.
- Contracts and Agreements: Examine all major contracts customer, supplier, and employment agreements. In cross-border M&A, ensure dual compliance with FEMA and relevant bilateral investment treaties.
- Competition Law (New DVT): Crucially, you must assess the deal against the Competition Commission of India (CCI)‘s new Deal Value Threshold (DVT) of ₹2,000 crore. If this is triggered, pre-merger notification is mandatory, a critical new compliance layer for M&A due diligence.
- Litigation and Disputes: Identify ongoing disputes, referencing recent case law like Vodafone India vs. Union of India (2024), which clarified retrospective tax liabilities in certain M&A transactions.
- Intellectual Property: Verify IP ownership and registrations, a step that is absolutely critical for tech acquisitions in India’s IT sector, particularly in Bangalore. You must also check for adherence to minority shareholder protection M&A rules under the Companies Act 2013.
Operational Due Diligence
Operational due diligence assesses the target company’s actual processes and infrastructure. You must ensure the business model is sound and scalable.
- Business Operations: Review supply chains and production capabilities, especially in industrial states like Gujarat or Maharashtra, where regional logistics challenges often affect manufacturing M&A.
- Technology and Systems: Assess the adequacy and security of IT infrastructure, which is now crucial for M&A in the Indian IT sector, given the push for digital compliance.
- Data Privacy: A mandatory check involves verifying compliance with the Digital Personal Data Protection Act (DPDP Act) 2023 for all data-handling practices.
Tax Due Diligence
Tax due diligence is non-negotiable in India due to complex regulations under the Income Tax Act 1961 and GST laws. Recent 2025 updates to GST compliance require detailed scrutiny of input tax credits in M&A transactions.
- Tax Liabilities and Disputes: You must verify compliance with tax filings, especially for cross-border M&A involving transfer pricing. Identify all disputes, referencing the implications of Cairn India vs. Government of India (2024), which directly addressed retrospective tax issues in M&A.
- M&A Tax Implications India: You must accurately calculate the full M&A tax implications India imposes, including stamp duty and potential tax leakages, before finalising the deal.
Common Challenges in M&A Due Diligence in India
The M&A due diligence process in India faces unique and often substantial challenges that you must proactively manage:
- Inadequate Scope: Missing region-specific regulations, such as Maharashtra’s stamp duty laws on asset transfers, can lead to significant oversights and unexpected costs.
- Incomplete Information: Sellers may withhold or selectively provide data, particularly in private equity M&A. Your team must insist on full disclosure.
- Time Constraints: Rushing due diligence, especially in competitive markets like Mumbai, risks missing critical financial or legal issues that could be deal-breakers.
How to Manage the M&A Due Diligence Process Effectively
To streamline the M&A due diligence process and enhance deal certainty, you must implement these expert tips:
- Engage Experienced Advisors: Partner with top M&A law firms in India, such as those in Kolkata or Mumbai, specialising in M&A advisory services and M&A consulting.
- Maintain Clear Communication: Use secure platforms like MCA-approved data rooms for complete transparency. You must ensure transparent and continuous communication flows between all parties.
- Be Thorough and Document: You must thoroughly investigate all aspects, including ensuring minority shareholder protection under the Companies Act 2013. Record all findings meticulously to comply with SEBI and MCA regulations and establish a strong basis for the final Purchase Agreement.
Recent Legal Updates Impacting M&A in India (2025)
Recent legal developments have fundamentally reshaped the M&A due diligence process:
- SEBI Regulations (2025): Enhanced disclosure requirements for listed companies ensure greater transparency in public mergers and acquisitions, placing a higher burden on due diligence findings.
- Competition Law (DVT): The introduction of the ₹2,000 crore Deal Value Threshold mandates competition review for high-value deals, regardless of traditional turnover thresholds.
- Companies Act Amendments: Strengthened minority shareholder protection impacts deal structuring and the required approval thresholds.
- Tax Reforms: Updates to GST and transfer pricing rules directly affect cross-border M&A and M&A tax implications in India.
Conclusion
The M&A due diligence process remains the cornerstone of successful mergers and acquisitions in India. By meticulously evaluating financial, legal, operational, and tax aspects against the backdrop of India’s rapidly evolving regulatory landscape, businesses can effectively mitigate risks and confidently unlock value. Partnering with experienced advisors is not optional—it is essential.
LawCrust Legal Consulting Services offers expert M&A advisory, consulting, and post-merger integration support to ensure a seamless process. Get in touch today to navigate your M&A journey with confidence.
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