M&A Series | Explained: PayU Billdesk deal

In our previous posts/newsletters we have covered the PayU Billdesk deal.

We have received queries on our previous post published on LinkedIn, as referenced above.

Hence, in today’s newsletter, we aim to explain in a Q&A format; the different types of acquisitions in the M&A deal space starting with the PayU Billdesk deal as an example.

Answer – Section 2(1)(b) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 defines the term ‘acquisition’ to mean:

“directly or indirectly, acquiring or agreeing to acquire shares or voting rights in, or control over, a target company”

An acquisition of can be made in the following ways:

• Acquisition by Share Purchase – Acquisition of shares of the target company by the buyer;
• Slump Sale – Acquisition of the entire business of the target company as a going concern with all its assets and liabilities for a lump sum consideration;
• Business Transfer – Acquisition of selected handpicked assets and liabilities of the target company by the purchaser.

Answer – In any macro economy, mergers and acquisitions are essential ladders the corporate world has, to grow exponentially and mature quickly by taking advantage of various strategic business collaborations and structures.

As any deal or transaction involves collaborating with existing market players that could potentially have an effect on market dynamics and generally involves big dollars, please note that these deals/transactions require express written consent by the parties to the transaction to key terms that are recorded in legally binding documents; and therefore M&A deals are highly negotiated mostly to ensure:

• no future liability arises, which was not previously disclosed or disclosed in full;
• that the agreements to the transaction are efficiently drafted to avoid any potential future dispute; and/or
• to provide for a dispute resolution mechanism/structure within the transaction documents, in the event a deadlock or dispute; and/or
• Protection mechanism in the way of fall away rights/break -away fee for the affected party in case of a material adverse effect.

Answer – The PayU BillDesk deal is a very good example of a horizontal integration.

A horizontal integration mostly occurs between two business in the same industry or competing businesses (in the PayU Billdesk case – being the online payments industry) which are at the same or similar level in the industry (both PayU and Billdesk are considered bigger players in the fintech industry for online payment processing in India).

Other notable examples of horizontal integrations are acquisition of Instagram by Facebook, Disney and its acquisitions of competing entertainment companies, including Pixar Animation Studios, Marvel Entertainment, and Lucasfilm.

The common benefits of a horizontal integration include increased market share, competition reduction, advantages of economies of scale, etc.

Answer – Whilst every M&A deal is unique in relation to the industry, parties involved etc., as such these deals are highly negotiated between the parties to the transaction especially (as explained in the answer for Question 2 above), basis the findings of the various due diligences conducted by the advisors to the transaction, on the target company.

However, there are a few standard conditions that are typical for any M&A deal in India and these include, fulfilment of the conditions precedent and conditions subsequent, material adverse effect, lock-in period of the securities, restriction on transfer of shares, representations and warranty, indemnity etc.