On the regulatory landscape, September 2024 saw a series of key notifications under the Competition Act, 2002, which revamped the merger control regime. These updates, inter alia, introduced new deal value thresholds, shortened the timeline for merger control reviews, and codified green channel rules, all of which are expected to streamline the process.

However, not all M&A deals follow through, highlighting the importance of understanding the reasons behind deal failures and the challenges that arise. While the first part of this article examined the main causes of M&A deal failure (read it here), the focus now shifts to the current trends, challenges, and overall viability of M&A deals.

The article will mainly focus on the practical difficulties that often lead to deal breakdowns and delays. The success or failure of M&A deals is increasingly influenced by a range of factors, from unexpected economic shifts and cultural mismatches to regulatory obstacles and integration challenges.

This piece aims to provide an overview of how evolving market dynamics and operational challenges impact the outcomes of M&A deals in today’s business environment.

Challenges to Consider

Power Struggle

It is pertinent to note that management plays an important role in the conclusion of the M&A process. However, conflicts between the management teams of merging entities—particularly regarding power, leadership, and cultural differences—can significantly hinder effective communication and integration, ultimately disrupting the merger.

Example: Sony India and Zee Entertainment Enterprises

The merger between Sony Pictures Networks India (SPNI) and Zee Entertainment Enterprises Limited (ZEEL), initiated in 2021, faced delays until 2024 due to various challenges, including disagreements and regulatory issues.[2] With Sony holding a majority stake, the merged entity was projected to become a media powerhouse, competing with Netflix and Amazon. However, one of the primary obstacles leading to the collapse of the deal was a disagreement over leadership.

Initially, Punit Goenka, ZEEL’s MD and CEO, was set to lead the new entity. Yet, Sony pushed for NP Singh to assume the role, especially in light of an investigation into Goenka regarding alleged fund misappropriation. While the Securities Appellate Tribunal (SAT) later lifted the SEBI ban on Goenka, the leadership conflict persisted. Goenka ultimately offered to step down, although he disagreed with Singh taking charge of the merged entity.

Political Influence

The existent political power on the media spectrum can affect M&As by raising concerns on the independence of media, regulatory challenges, and concerns arising from the potential conflict of interest. A politically connected company acquiring a media entity can lead to biased reporting, substantial government intervention, and political influence of oppositions, damaging the reputation of the company and affecting the market abruptly.

Example: Adani Group’s Acquisition of NDTV

A recent example is the acquisition of NDTV by the Adani Group, wherein the Adani Group aimed to increase its media presence by acquiring a majority and controlling stake in NDTV. One of the challenges faced in this deal was the strong opposition by the political leaders and major political influence affecting the company’s operations and business deals for future endeavours. This deal was also termed a bitter takeover battle between NDTV and the Adani Group.[3]

Divergent Business Model

Divergent business models affect M&A deals negatively by creating challenges in integration as differing approaches to revenue generation, customer targeting, and operational processes may lead to inefficiencies. This misalignment can lead to conflicting strategies and difficulties in achieving synergies, hindering M&A success.

Example: Microsoft’s Acquisition of Nokia’s Mobile Phone Business

Looking to boost its presence in the smartphone business, Microsoft acquired Nokia’s mobile business for $7.2 billion in 2013. However, the acquisition ultimately resulted in a significant tax write-off. The two companies faced challenges in aligning their strategies due to differing approaches to product development, marketing, and innovation.[4] While Nokia specialised in hardware, Microsoft’s strength lay in software, creating a gap that required both cultural integration and strategic alignment. Unfortunately, ongoing cultural friction hindered efforts to bridge this divide.[5]

Legal Battles

M&A deals are often badly impacted by pending litigations as they cause uncertainty and delay in the process. Sometimes, the deals are called off as regulatory bodies or courts would approve or challenge the transaction, making the integration process complex and degrading the corporate reputation.

Example: Amazon’s Opposition to Reliance-Future Retail Deal

For instance, the acquisition of parts of Future Group by Reliance Retail, announced in 2020, faced intense legal opposition from Amazon, which had a stake in Future Retail. Amazon claimed the deal violated a non-compete clause, leading to multiple court cases and regulatory delays. This also led to significant financial difficulties, including heavy debt and operational issues, making the integration more difficult.[6]

CCI Approval

The Competition Commission of India (CCI) plays a major role in M&A transactions by analysing whether a transaction would reduce market choice or create monopolies, in order to ensure that market competition is unaffected.

In addition, the CCI may also hold back or cancel a transaction if issues are brought up during scrutiny, requiring restructurings, and impose restrictions to protect competition. This could lead to delays and increased costs. Further, modification of the terms of the deal would impact the transaction’s success and the market’s perception.

Example: Reliance Industries and Walt Disney

A major challenge in the proposed $8.5 billion merger between Reliance Industries and Walt Disney in 2024 was regulatory scrutiny from the CCI, which raised concerns regarding the combined entity’s control over the cricket broadcast rights, leading to reduced competition in the market. This raised significant antitrust concerns, leading the CCI to issue a private notice to both companies seeking explanations and additional information, causing delays in the process.[7] The Commission ultimately gave approval after certain modifications, including a bar on the bundling of OTT ad slot sales for the IPL, ICC, and BCCI cricketing rights for the balance tenure of the existing rights.[8]

Way Forward

In summary, the dynamic nature of M&As in India necessitates that businesses be proactive, strategic, and flexible in order to overcome the real-world obstacles that frequently prevent deals from closing. These issues require active diligence and prompt legal resolution. Further, businesses can minimise disruptions and streamline the process by carrying out comprehensive due diligence, making sure that cultural compatibility is maintained, and effectively managing legal and regulatory risks.

Additionally, navigating the increasingly complex M&A environment requires focusing on long-term value creation, coordinating leadership teams, and cultivating investor confidence, optimising synergies and adopting a strategic approach that strikes a balance between current difficulties and long-term expansion, laying the base for long-term success.