This article is written by Muskan Khandelwal pursuing an M&A Bootcamp. This article has been edited by Ojuswi (Associate Lawsikho). 

This article has been published by Sneha Mahawar.


Cross-border mergers and acquisitions offer a once-in-a-lifetime chance to accelerate globalization and economic growth since they are strategic and beneficial to both parties involved. Nevertheless, mergers and acquisitions have their own set of challenges, such as layoffs, negative environmental effects, foreign laws and taxation, and cultural barriers, to name a few. As a result, it’s much more critical to determine whether they provide a long-term development model i.e., sustainability.

This article uses case studies to interpret the significance and sustainability of mergers and acquisitions both globally and in India.


The terms ‘merger’ and ‘acquisition’ refer to the process of merging two companies or assets via a series of financial agreements such as tender offers, asset purchases, and management acquisitions.

People are seen to apply the phrases ‘mergers’ and ‘acquisitions’ identically, despite the fact that the two phrases have distinct connotations.

The phrase ‘acquisition’ refers to the process of taking over a business and establishing new ownership. The term ‘merger’ refers to when two companies of about equal size join forces to progress as a unified force rather than independently. When both CEOs agree to combine their interests in respective firms, a merger might also entail an acquisition arrangement.

Cross-border mergers

With the narrowing of the world, cross-border mergers are on the rise. Furthermore, India is steadily improving its ease of doing business ratings and is increasingly becoming a preferred commercial location. The expansion of cross-border mergers has been aided by such a favourable economic climate.


In simple terms, a cross-border merger is the merging of two firms that are situated in separate nations, leading to the formation of a different/new company. An Indian firm combining with a foreign corporation or vice versa is known as a cross-border merger. An entity (another firm) from another nation can buy a corporation in one country. The local business might be private, public, or government-owned. Cross-border mergers and acquisitions occur when two or more companies combine or are acquired by foreign investors.

Management and power over the merged or acquired firm will be transferred in the process. In aspects of a merger, the assets and liabilities of two corporations from two distinct nations are merged into a new legal entity, whereas in terms of a Cross border acquisition, the assets and liabilities of a domestic corporation are transformed into those of a foreign company (foreign buyer), and the domestic company is immediately associated.

Laws govern cross-border mergers in India

The Ministry of Corporate Affairs has recognized Section 234 of the Companies Act, 2013 as the legal foundation for cross-border mergers in India. This took effect on April 13, 2017, putting the notion of the cross-border merger into practice.

In India, cross-border mergers are governed by the following laws:

  • Companies Act, 2013 SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 
  • Foreign Exchange Management (Cross Border Merger) Regulations, 2018 
  • Competition Act, 2002 Insolvency and Bankruptcy Code, 2016 
  • Income Tax Act, 1961 
  • The Department of Industrial Policy and Promotion (DIPP) 
  • Transfer of Property Act, 1882 
  • Indian Stamp Act, 1899 
  • Foreign Exchange Management Act, 1999 (FEMA) 
  • IFRS 3 Business Combinations

Types of cross-border mergers

Horizontal, vertical, market expansion or marketing/technology related concentric, product extension, conglomerate, congeneric, and reverse mergers are the most common. In the Companies Act of 2013, Section 234 of the Act, the notion of inbound and outbound mergers was also included.

Inbound M&A

A foreign corporation merges with or buys an Indian company in this procedure.

E.g., Ranbaxy was acquired by Daiichi. Here, Ranbaxy is an Indian company that was acquired by Daiichi, a foreign company. 

Outbound M&A

An Indian corporation merges with or buys a foreign company in this procedure. 

Tata Steel, for example, acquired Corus. Tata Steel is an Indian company, acquiring a foreign company, Corus.


Cross-border mergers and their impact on the sustainability of businesses  

Globalization’s new paradigm

Trompennars and Asser (2010) proposed that the idea of mergers and acquisitions and strategic alliances may be used to expand the entire world. Even during the financial crisis of 2008/2009, more ‘share for share’ agreements were proposed and implemented. 

Cross-border transactions are those in which two countries are engaged in a deal in which one of the sides provides an alluring promise of worldwide market expansion. This type of contract entails numerous legal and cultural complexities, such as a thorough understanding of foreign market dynamics and management bias in order to efficiently integrate the companies.

A typical example of a cross-border merger is the 1987 merger of Swedish Asea and Swiss Brown Boveri Inc. The resulting company grew to become the world’s largest supplier in the $50 billion electric power business. Furthermore, the corporation went on to establish 850 subsidiaries. In addition, almost 1,80,000 people were discovered working in nearly 140 nations.

In the present era, businesses have realized that they must function within a business environment that is characterized by interconnectedness rather than independence or sole dependence. Employees are either integrated into the new environment or laid off as a result of mergers and acquisitions. Due to the rigors of buying and selling, even the buyer can go bankrupt. However, there is a benefit to the mergers and acquisitions strategy.

Mergers and acquisitions, according to Calipha et al. (2010), are the most common mode of future expansion and building long-term value.

It is well known that numerous newly amalgamated enterprises outperformed their predecessors, particularly where they were able to bear evolutionary forces. The fact that mergers and acquisitions are strategic alliances that regulate development by sharing risk makes them an attractive prospect.

According to Rosinski, some authors believe there are primarily three ways for achieving expansion: organic growth, alliances, and mergers and acquisitions. Some argue that there were primarily five approaches to increase the order of cultural risk in order to expand internationally: greenfield venture, international strategic alliance, global joint venture, overseas acquisition, and finally, cross-national merger.

Knowledge, resources, human resources, technology, and, most crucially, access to the local enterprise at a lower cost are all acquired through cross-border mergers and acquisitions. (Sonenshine & Reynolds, 2014). Furthermore, owing to cross-border mergers, there are significant prospects of globalization and a significant change in the company’s internal strategies.

Even if the rate of success is one-third, according to Trompenaars and Asser (2010), certain companies have had success rates greater than that. Despite the fact that there are multiple kinds of deals available, such as joint ventures, real estate deals, and so on, the purchaser frequently chooses mergers and acquisitions. A regulatory difficulty or a failure to resolve pending agreements might be the cause.

The research was conducted by Harvard Business School and the CFOs of Bain and Company. The failure to build shareholder value, when earnings are less than the cost of capital, was presented as the fundamental reason for failure.

Rosinski reported a stunning success in 2003. Unilever bought Bestfoods for about $25 billion in the 2000s. The transaction was one of the twenty largest mergers and acquisitions in the world that year. The major reason for the achievement was that the firms’ cultural differences were recognized.

If we seek to understand the rate of success of mergers and acquisitions, we may look at two of the most famous cross-national cases: Dutch Shell (1907) and Unilever (1930). It’s simpler to explain why when one sees them.

The smaller nations possessed the majority of the shares in both circumstances. Aside from it, two head offices were formed to deal with day-to-day difficulties and run operations. Furthermore, there was the least amount of government intrusion.

According to Rosenbloom (2002), the measurable value of the deal and the number of cultural barriers or execution risks are the two most essential criteria that make mergers and acquisitions preferable.

Is cross-border mergers and acquisitions a threat to business sustainability

Cross-border mergers and acquisitions have been the most crucial phenomenon in the global market in the past two decades. In the global economy, exuberant mergers and acquisitions may be a potent weapon for development and survival. However, 70% of agreements fail to close internationally, according to statistics.

In the European zone, financial trade and liberalization in the European Union (EU) and the European Monetary Union (EMU) have contributed significantly. Cross-border mergers and acquisitions are a one-of-a-kind worldwide phenomenon in terms of finding inexpensive assets, saving money on taxes, developing new technologies, growing, diversifying, and so on.

However, like with every calculated decision, benefits come with risks. As numerous enterprises have discovered to their detriment, not all regimes provide the same level of legal safety as they would have assumed in their native countries. Notwithstanding the potential advantages of cross-border transactions, some organizations are wary of extending their footprints, preferring to keep a little portion of their riches at home rather than risk losing a bigger portion abroad.

Market assessment, regulatory review, cultural fit, and deal structure evaluation are the main obstacles that develop as a result of the general concerns that arise during such transactions. The following are some of the unique issues that occur with such transactions and become a threat to the sustainability of the business:

  • Tax systems that are complicated
  • Legal procedures in a foreign nation may be complex and differ from those in one’s own country.
  • The other nation may have strict labour regulations, as well as significant duties to interact with labour unions and work for councils.
  • Variations in attitude and cultural differences may lead to more complex talks.
  • A potential clash between the nations’ regulatory and/or taxing frameworks.
  • In the jurisdiction of the target firm, there are political hurdles and government involvement.
  • If the target supplies a critical public service or a large number of employees, there may be implied political hurdles.
  • Due to the difference in the legal landscape, a significant rise in operational expenses might make the purchase less lucrative in the long term.

The take-off for global expansion has frequently exposed businesses to a slew of difficult and perplexing obstacles that need meticulous navigation. 

These obstacles that pose a threat to sustainability could include: 

  1. political considerations and their implications; 
  2. legal and regulatory compliance challenges; 
  3. cultural and communication barriers; 
  4. labour and employment issues; 
  5. tax and accounting issues; 
  6. post-closing integration challenges; and 
  7. antitrust and anti-competition concerns.

Case study: Promising M&As

Despite the numerous drawbacks, certain mergers in the past appeared to be promising, such as the recent merger of Zee Entertainment Enterprises Limited (ZEEL) and Sony Pictures Network India (SPNI), the two largest media conglomerates in India.

The two corporations have taken a step closer to a multibillion-dollar merger. Sony Pictures Entertainment put $1.575 billion towards the acquisition. The grand merger was completed in 2021 when the Board of Directors approved a non-binding term sheet with Sony Pictures Network India (SPNI). A non-compete agreement had been signed by the parties involved.

In the year 2021, the second biggest profitable merger in India was between Vodafone and Idea. The combined company is worth $23 billion. Despite the fact that the acquisition created a telecom behemoth, the two businesses pushed Reliance Jio and the pricing war began. The Idea-Vodafone India merger was a success, with Vodafone owning 45.1 percent of the merged company and Aditya Birla owning 26 percent. Vodafone India owns the rest of the company.

The Arcelor Mittal merger in 2006 is the third example of a great merger. Mittal Steel had made an initial proposal of $23 billion for Arcelor, which was later upped to $38.3 billion. Steel output in the worldwide market grew by 10% as a result of the agreement.

Promising mergers that were never able to form a functioning organization

Even if the above instances appear to be positive, there have been promising mergers that failed to form an effective organization.

The merging of HDFC and Max Life, for starters. This merger began in 2016 and lasted through the year 2017. Max Life is India’s fourth-largest private insurance firm. It is a joint venture between Max Financial Services and Mitsui Sumitomo Insurance Company, a Japanese firm that has a 26% share in the company globally. HDFC Standard Life Insurance was a previously unlisted joint venture between (HDFC) Housing Development Financial Corporation Limited, which held 61.5 percent of the shares, and Standard Life Aberdeen PLC, which held 35 percent of the merger of Standard Life and Aberdeen Asset Management, with the remaining shares held by others.

The intended merger was not permitted by the relevant authorities and the Insurance Development Authority of India, which resulted in the collapse (IRDAI). A merger between an insurance firm and a non-insurance company is likewise prohibited under Section 35 of the Insurance Act.

The planned merger between IDFC and Shriram Finance in 2017 was the second most well-known failure. A merger between a non-banking financial institution (NBFI) and an infrastructure firm was suggested. Shriram Limited, a publicly-traded company at the time of the merger, had an ownership pattern of 33.77 percent held by promoters, 5.58 percent held by domestic institutional investors, and 5.58 percent held by foreign institutional investors (22.42 percent). 

Dynasty Acquisitions Ltd (FPI) and Piramal Enterprise Limited are two of the investors. Shriram Group is a conglomerate based in India. Shriram Capital is the holding company for Shriram City Union Finance Ltd and Shriram Transport Finance Company Ltd, both of which are publicly traded. The primary reason for the deal’s collapse was that some of IDFC’s investors requested a 60% premium because they were afraid of losing their swap holdings.

The third instance is of Reliance Communication and Aircel combined. In the year 2016, the merger was started. Reliance Communication Ltd is a listed corporation in which the Promoter and Promoter group own 59 percent, Foreign Institutional Investors own 10.09 percent, Domestic Institutional Investors own 9.84 percent, and others own 27.07 percent. Aircel was owned by two companies, Maxis Communications and Sindhya Securities & Investments, which held a 74 percent and a 26 percent interest in the company, respectively.

The collapse was caused by strong opposition from creditors and the China Development Bank, as well as strong opposition from the National Company Law Tribunal (NCLT). Furthermore, the process was exceedingly time-intensive, and lastly, the tax levy was extremely exorbitant.

Steps that could be followed for sustainability

An effective and sustainable cross-border transaction needs careful planning, rigorous due diligence, and meticulous pre and post-deal execution by the executives. The following are some of the points that executives and transaction participants should think about during a cross-border merger and acquisition:

  • Ensure that the transaction thesis and objectives guide the whole M&A process.
  • Adapt the negotiation approach and playbook as needed to avoid global difficulties.
  • Preventing handoff misses by combining pre-deal due diligence with pre-close preparatory activities.
  • The agreement arrangement should be such that it achieves the key objectives.
  • Mention the entire integration scope, method, and plan for accomplishing both start and end-state objectives openly.
  • Customize a worldwide integration program that includes representatives from both the target and the acquirer for key work streams and regions/countries.
  • Pay great attention to detail-oriented pre- and post-close integration planning, with dependencies and essential paths clearly stated.


Despite various disadvantages, businesses choose to pursue mergers and acquisitions. Following an acquisition, organizations find it simpler to manage day-to-day activities such as planning, staffing, controlling, directing, forecasting, and so on.

Experienced and knowledgeable and experienced businesses are first and foremost capable of handling the deal, which leads to optimal synergy and sustainability as they improve their negotiating skills and gain a better grasp of the target. However, cross-border mergers and acquisitions might have considerable difficulties due to local regulations, taxation, and cultural differences and thus, might not be sustainable.

It has become difficult for some Indian companies to repay their borrowed capital. The same is true of the prerequisites for starting a business.

To compete against the big shot corporations in this competitive environment, mergers and acquisitions are necessary. Only a handful of them goes on to be huge successes. The majority of the transactions are predatory in nature and begin when the purchasing business performs very well. Therefore, it is concluded that cross-border mergers and acquisitions are sustainable only when the purchasing business performs well and knows how to handle the merged company. It varies from company to company, but an overall analysis demonstrates that if the management of the company is done effectively and efficiently then the business is likely to sustain. 


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