Balancing the books for cross-border M&A in India

By Pawan Lingayat, Vice President, SMC Capitals – Partner of Translink Corporate Finance in India

Statista recently reported that India has become an attractive mergers and acquisitions (M&A) market. The data platform projects that M&A transaction value in this region will reach US$44.86 billion in 2025, with the average transaction amounting to US$105.52 million. These insights highlight how valuable cross-border M&A strategies have become for companies seeking growth, market diversification, and access to new technologies in India. However, while the ambition to expand internationally is strong, companies often underestimate the intricacies of financing these transactions. Translink Corporate Finance in India has identified three factors influencing the success or failure of cross-border M&A in the region.

Decoding common financing structures

Choosing the ideal financing structure is crucial for the success of a cross-border M&A transaction. Several options are available, each with distinct advantages and considerations:

• Cash transactions:Offer simplicity and clarity in valuation, making them attractive to sellers and often providing buyers with a competitive edge. However, they demand substantial readily available liquidity, which can strain a company’s financial resources.
• Debt financing:Enables companies to leverage borrowed capital, potentially maximising returns and preserving ownership control. Options range from traditional bank loans and syndicated lending to the burgeoning private credit markets. However, companies must manage debt levels judiciously, as excessive borrowing can elevate financial risk.
• Equity financing: Conserves cash reserves and can attract investors who bring strategic value and industry expertise. Equity financing facilitates shared risk and fosters smoother post-merger integration in cross-border deals. However, it does result in ownership dilution and may impact control dynamics.
• Hybrid financing: Combines debt and equity, offering a flexible and risk-mitigating approach. Instruments such as convertible bonds, preferred shares, and mezzanine financing provide adaptable funding solutions, especially valuable when navigating the diverse regulatory landscapes inherent in global transactions.

A strategically crafted financing approach must balance cost-effectiveness, flexibility, and risk mitigation for sustainable M&A transactions.

India-specific financing dynamics

A unique set of financing dynamics comes into play for Indian companies engaging in cross-border M&A, differentiating these deals from purely domestic transactions. These distinctions stem from regulatory nuances, currency risk considerations, and access to international capital markets. For example, the Reserve Bank of India (RBI) restricts Indian companies from utilising domestic bank loans to acquire other Indian businesses. So, in domestic deals, companies often turn to private debt funds or Non-Banking Financial Companies (NBFCs) for financing.

However, when an Indian company sets its sights on an overseas acquisition, the financing landscape broadens considerably. Indian companies gain the flexibility to secure loans locally in the target country, tap into foreign currency borrowings (External Commercial Borrowings – ECBs), or obtain financing from local banks, often backed by guarantees from Indian banks.

Innovative financing structures in practice

More companies are adopting creative and unique financing structures to secure cross-border acquisitions, like Data Infrastructure Trust’s bond issuance for the ATC India acquisition in September 2024. Backed by Brookfield, they raised $941 million through rupee-denominated bonds to finance the acquisition of American Tower Corporation’s Indian assets. What set this deal apart was the restriction of subscription to foreign investors only – a rare occurrence in India’s financial market.

Another emerging trend is the increased use of Leveraged Buyouts (LBOs) by Indian companies for overseas acquisitions. In an LBO, the buyer leverages the target company’s assets and future earnings as collateral to secure debt financing. This method empowers Indian firms to acquire larger international companies without significant equity dilution, offering an efficient pathway to a global scale while managing financial risk.

How companies should navigate cross-border M&A in India

Companies embarking on cross-border acquisitions in India or businesses seeking foreign investment through M&A should prioritise strategic alignment, robust risk management, and adherence to domestic and international regulations. Leveraging innovative financing options, such as private credit and structured debt, alongside traditional methods is essential for success. Additionally, thorough due diligence, meticulous integration planning, and proactive stakeholder engagement are vital for maximising returns and mitigating potential risks.

The path to successful cross-border M&A in India is paved with unique opportunities and challenges. Partnering with advisors with local roots and a global perspective can help companies balance the books and navigate these complexities. SMC Capitals, headquartered in Mumbai and Translink’s partner in India, offers this distinct advantage.

We combine extensive regional expertise with a research-driven approach to guide companies through the intricacies of cross-border M&A financing in this region.