Why Cross-Border M&A Due Diligence Is Different
In a domestic Indian M&A transaction, due diligence focuses on financial performance, legal title, litigation risk, and commercial contracts. In a cross-border M&A transaction — where the target has foreign investors, overseas subsidiaries, cross-border service arrangements, or international employees — the due diligence scope expands significantly to cover FEMA compliance, Transfer Pricing positions, DTAA treaty benefits, and international regulatory approvals.
The consequences of inadequate cross-border DD are material: FEMA violations discovered post-closing create compounding costs that were not priced into the acquisition; undisclosed TP adjustments become the acquirer’s liability; and regulatory approvals not obtained pre-closing can restrict post-acquisition integration.
FDI Compliance Due Diligence
Every historical FDI round must be reviewed:
- FC-GPR filing status: Was FC-GPR filed within 30 days of every share allotment to a foreign investor? Late or missing FC-GPRs are FEMA violations — quantify the LSF or compounding cost
- SAFE note and convertible instrument conversions: Were all conversion events treated as FDI allotments with corresponding FC-GPR filings?
- Pricing compliance: Were all historical FDI allotments made at or above the FMV certified by a SEBI Merchant Banker?
- FLA Return history: Has the Annual Return on Foreign Liabilities and Assets been filed every year since the first FDI event?
- Sectoral compliance: Is the current FDI structure (sum of all foreign holdings) within the applicable sector cap? The 100% FDI insurance update is relevant for any insurance-sector targets.
- Land-border country compliance: If any investor from China, Pakistan, or other land-border countries holds shares, was DPIIT government approval obtained?
ODI Compliance Due Diligence
If the target has overseas subsidiaries or has made any ODI:
- Form OI Part I filing status: Was Form OI filed before or at the time of every ODI remittance?
- APR compliance: Has the Annual Performance Report been filed for every overseas entity in every year since ODI was first made?
- Financial commitment utilisation: Is the current total ODI (equity + loans + guarantees) within 400% of the target’s net worth?
- Round-tripping analysis: Is there any structure that might be characterised as round-tripping — overseas investment that ultimately returns to India as FDI?
Transfer Pricing Due Diligence
- Form 3CEB/Form 48 filing history: Confirm filed for every year in which the target had international AE transactions above ₹1 crore
- Open TP assessments: Identify any pending or concluded TP assessments and the amounts under dispute
- APA status: Does the target have an APA in place? If so, review the covered transactions and roll-back provisions.
- Documentation quality: Review the TP documentation for current and preceding 3 years — does it reflect economic reality or is it formulaic?
- Management fees and intra-group services: Are all management fee arrangements documented with service delivery evidence?
- Guarantee fees: Has the target charged arm’s length fees for any cross-border guarantees it has provided?
Regulatory Approvals Required for Completion
Depending on the transaction size and sector, the following regulatory approvals may be required before closing:
- Competition Commission of India (CCI): Required if combined turnover in India exceeds ₹2,000 crore or combined global assets exceed USD 1 billion
- SEBI approval: Required for acquisitions of listed companies or entities in SEBI-regulated sectors
- Sectoral regulator approvals: IRDAI for insurance, TRAI for telecom, RBI for banking and NBFCs, DPIIT for restricted FDI sectors
- RBI: For outbound mergers under Section 234, or for acquisitions involving significant FDI above sector caps
- NCLT: For mergers and demergers structured under the Companies Act
| 📞 Talk to SilverSix Consultant
SilverSix Consultant provides FEMA and regulatory due diligence support for M&A transactions — working alongside investment banks and law firms to ensure cross-border compliance gaps are identified and quantified before deal close. Contact us: [contact@silversix.pro] | [+91 81602 78403 |