M&A Valuation in India A Comprehensive Guide and Beyond
Mergers and acquisitions (M&A) are a cornerstone of corporate strategy, driving growth and restructuring across India’s vibrant economy. As of 2025, sectors like technology, healthcare, and financial services are leading a new wave of deals, characterised by increased sophistication and regulatory oversight. At the very core of these complex transactions is M&A valuation, a process that determines a target company’s worth, influencing everything from the negotiation table to the long-term success of the new entity.
A precise, legally compliant M&A valuation is no longer a matter of choice; it’s a legal and financial imperative. Regulatory bodies in India, including the Securities and Exchange Board of India (SEBI), the Ministry of Corporate Affairs (MCA), and the Competition Commission of India (CCI), are stepping up their scrutiny, making a robust and transparent valuation a critical safeguard against disputes and penalties.
For instance, deal data from the first quarter of 2025 shows M&A deals driving a total value of USD 29.8 billion, a 7% increase from the last quarter of 2024. A key takeaway from this period is the distinct rebound in average M&A ticket sizes, which went up by around 6% to USD 72 million. This trend signals that while the number of deals may have stabilised, the quality and scale of transactions are on the rise, placing an even greater emphasis on a meticulously executed M&A valuation.
The Updated Legal Framework for M&A Valuation in India
The legal and regulatory landscape for M&A valuation in India is constantly evolving. Staying current with new laws and amendments is essential for any business professional, from corporate counsel to financial advisors.
Companies Act, 2013 and 2025 Amendments
The Companies Act remains the central pillar for M&A legal procedures. A significant development in 2025 is the expansion of the “fast-track merger” provisions under Section 233, as per the Companies (Compromises, Arrangements, and Amalgamations) Amendment Rules, 2025. These rules, effective from 4th September 2025, have broadened the scope to include:
- Unlisted companies that meet specific thresholds for outstanding loans, debentures, or deposits.
- Mergers between holding companies and their unlisted subsidiaries.
- Mergers between two or more unlisted subsidiaries of the same holding company.
This move streamlines the legal process and reduces the reliance on the NCLT for many deals, which makes an efficient M&A valuation procedure a key part of the fast-track route.
Income Tax Act, 1961
Tax implications are a major factor in M&A valuation. The Income Tax Act, particularly Sections 56(2)(viib) and 50CA, governs the taxation of share transfers at fair market value. The Finance Act, 2024, introduced a groundbreaking change by allowing for AI-assisted scrutiny of valuation reports filed with the Income Tax Department. This technological advancement aims to reduce misreporting risks and adds a new layer of compliance for valuers, making a flawless M&A valuation report more crucial than ever.
SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 Updated 2025
For publicly traded companies, SEBI’s regulations are non-negotiable. The 2025 amendments require real-time digital submission of valuation reports for open offers through the SEBI SCORES portal. This increased transparency means that listed companies must provide more detailed disclosures about their M&A valuation methodologies, making a detailed, well-documented valuation a compliance necessity.
Competition Commission of India (CCI)
The CCI’s role has expanded with the implementation of the Digital Valuation Threshold (DVT) in 2023. This change means that even deals involving smaller, digital-native firms can fall under CCI’s purview if the transaction value exceeds INR 2,000 crore, or if the target company holds significant “data assets.” This new standard for M&A valuation is specifically designed to address “killer acquisitions” in the tech sector, forcing companies to include data and digital assets in their valuation models.
Valuation Methods and Their Legal Implications
Merger and acquisition valuation is rarely a one-size-fits-all process. Indian businesses typically use a combination of methods, each with its own legal and regulatory considerations.
- Discounted Cash Flow (DCF): This method, which projects future cash flows, is widely accepted. However, it requires a transparent and well-documented set of assumptions. Regulators and courts, such as the Delhi High Court, have a history of questioning aggressive projections. A robust M&A valuation using DCF must align with Indian Accounting Standards (Ind AS) and be defensible in the face of regulatory scrutiny.
- Comparable Company Analysis: This method relies on market multiples from similar companies. The legal challenge here is ensuring the chosen peers are truly comparable. The courts have been known to caution against cherry-picking companies to inflate a valuation, making a well-justified selection of peers a legal necessity.
- Precedent Transactions: This approach uses historical deal data. While useful, it requires meticulous legal due diligence to ensure the relevance and comparability of past transactions. A recent Mumbai High Court case, for example, highlighted the importance of validating precedent transactions to prevent an inflated M&A valuation.
Legal Due Diligence: The Foundation of an Accurate M&A Valuation
A financial valuation is incomplete without a comprehensive legal due diligence. This rigorous investigation uncovers legal risks and liabilities that can directly impact a company’s value. In the Indian context, legal due diligence for M&A valuation must go beyond the standard checks.
- Contract and Intellectual Property (IP) Review: This is crucial, especially in sectors like IT and pharma. Unenforceable contracts or disputes over IP rights can significantly reduce a company’s worth.
- Regulatory Compliance Check: Verifying adherence to sector-specific laws is non-negotiable. In sectors like telecom, banking, or insurance, licenses and regulatory approvals directly influence a company’s value.
- Litigation Check: Pending lawsuits or arbitration can lead to significant financial liabilities. A 2024 Supreme Court ruling emphasised the need to disclose litigation risks in a M&A valuation report.
Regional and Cross-Border Challenges
India’s diverse regulatory landscape introduces unique challenges. While a deal might be legally sound at the national level, regional laws can complicate matters. For instance, stamp duty on share transfers varies significantly from one state to another, which can affect the overall cost and, by extension, the final M&A valuation.
For cross-border M&A, Indian firms acquiring assets in the US or EU must now comply with the OECD’s 2024 Transfer Pricing Valuation Guidelines. This creates dual reporting obligations and adds complexity to the process. However, the surge in cross-border activity, particularly in India’s IT sector, is a testament to the country’s growing global appeal. The Economic Survey 2025 reported a 20% increase in cross-border M&A activity, underscoring the need for a global perspective on M&A valuation.
FAQs on M&A Valuation in India
1. Who can perform M&A valuation in India?
Only registered valuers under the Insolvency and Bankruptcy Board of India (IBBI) are authorised to perform valuations under the Companies Act, 2013. For specific cases, SEBI-registered merchant bankers may also provide opinions.
2. How do regulators review valuation reports?
Reports are scrutinised by multiple bodies:
- SEBI: For listed companies, ensuring transparency and protecting minority shareholders.
- CCI: For competition compliance, especially with the new Digital Valuation Threshold.
- Income Tax Department: For fair market value, with new AI tools assisting in the process.
3. What happens if a valuation is challenged after a deal?
If a valuation is challenged, courts or regulators can demand a revaluation. In extreme cases of non-compliance or fraudulent reporting, deals can be reversed or penalties levied, as seen in some of SEBI’s 2024 directives on undervalued open offers.
4. How do ESG factors impact M&A valuation?
ESG (Environmental, Social, and Governance) performance is now a material factor. Following the 2025 Business Responsibility and Sustainability Report (BRSR) Core framework, ESG disclosures are linked to financial performance, and a company’s commitment to sustainability can enhance its valuation, especially for listed firms.
Conclusion: Legal Precision and Expert Guidance
Navigating the complexities of M&A valuation in India requires a multi-disciplinary approach. Businesses must blend financial expertise with a deep understanding of the legal and regulatory frameworks. By staying current with the latest amendments and leveraging technology, companies can ensure a fair, transparent, and compliant valuation that sets the stage for a successful merger or acquisition.
Whether you are a large corporate in Mumbai or an SME in Bangalore, partnering with experienced merger and acquisition lawyers and valuation specialists is essential. Firms like LawCrust Legal Consulting Services offer end-to-end solutions, helping you navigate the intricacies of M&A valuation and due diligence across India. By choosing an expert team, you can mitigate risks, ensure compliance, and secure the best possible outcome for your deal.
About LawCrust Legal Consultation
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