Frenzied activity in the Indian M&A market: Vultures are gathering to oust defaulting promoters from their perch

The last round of M&A frenzy was in a pre-Insolvency and Bankruptcy Code 2016 milieu, involving friendly and hostile takeovers often at the risk of inviting winner’s curse which is inevitable when the acquirer overpays in his keenness to acquire, come what may. Vultures, both Indian and foreign, are gathering and hovering over the IBC resolution process, smelling opportunities to make a killing—buying stressed assets of defaulting companies through the acquisition of controlling interest for a song, inflicting in the process huge haircuts on the harried banks nursing mindboggling non-performing assets. A sweetener has also been added for the ones taking over the controlling interest of such companies—exemption from the rigor of Section 79 of the Income Tax Act which says that if a closely-held company wants to set off its accumulated losses, 51 percent of the shares carrying voting rights must have been in the same hands on the last day of the financial year in which such loss was incurred as well as on the last day of the financial year in which the set-off is claimed. The burst of activity is not only good news for investment bankers, it’s also helping to rid the Indian financial system of bad debt and modernise a retail sector that serves 1.3 billion people, according to a report in Bloomberg.