Understanding The Different Types Of Mergers: A Legal Overview

Introduction

This blog aims to present a basic overview of different types of mergers through the lens of Indian legal provisions, that govern the concept of mergers. Before we delve into the major categories of mergers, it is important to have a basic understanding about the concept of mergers in the Indian Law. Primarily, a merger is a legal consolidation between two or more companies into a single entity; i.e., it is a process or a corporate strategy of combining two or more companies in order to form a new company together in an expanded form, wherein both the separate companies that were previously existing, will cease to exist upon the occurrence of the merger between them, as the companies now intend to operate as another new company.

Such a transaction is initiated between companies when a particular company finds a huge advantage in merging with another company, such advantages or objectives sought might include; increased shareholder value, potential expansion of operations, possibility to include new markets, eliminate competitions or ability to increase efficiency. In India, mergers are governed and are expected to align by the provisions of Companies Act, 2013, and authorized bodies such as National Company Law Tribunal and Competition Commission of India serve as legal mechanisms to scrutinize mergers, in order to ensure legal and market compliance. This being said, let us now delve into the core of this blog, whereby the various types of mergers are discussed in brief, below.

Classification of Mergers

1. Horizontal Merger

Horizontal merger refers to the merger that happens between companies that operate in the same industry and offers similar kind of products or services. These horizontal mergers are closely monitored under the Competition law as they may lead to reduction in competition, increase in market share and creation of monopolies, i.e., given the fact that they were companies operating in the same industry, handling similar products/services, meaning that companies which were competing previously have now been consolidated into a new entity together, which would automatically lead to reduction of competition in that particular market, and two such companies expanding their functions and efficiency might lead to creation of a monopoly market, which has its own effects, considering other companies operating in that industry. Such horizontal mergers are required to be notified to the CCI for approval, as provided under the Sections 5 & 6 of the Competition Act, 2002, if they have crossed the specified asset or turnover threshold.

Example: Vodafone India and Idea cellular merged in 2018, to become India’s largest telecom company.

1. Vertical Merger

This type of merger happens between two companies, working in the same industry, but are involved in different stages of the production or supply chain of the same product or service. In example, one of the companies could be involved in production of the product and other could be concerned with the logistics/distribution of the same product. Such merger purports to attain increased profitability, and mainly to reduce operational costs by facilitating more accessible and easy approach of operations. Also, such vertical mergers contribute to various beneficial synergies such as operational synergy, managerial synergy etc. Whereas, the legal risk involved in vertical mergers are – foreclosure of supply or access to markets for competitors. Therefore, the CCI ensure to examine that the proposed vertical integration may lead to input or customer foreclosure.

Example: Reliance Retail’s merger with distribution/logistics businesses to control upstream and downstream activities.

• Conglomerate Merger

This is a different type of merger which deals with merging companies which are engaged in business activities that are unrelated to each other, whereby the products/services are unrelated and are concerned with different consumer bases. These companies do not have any sort of overlapping business activities and they are typically not competitive against each other, as the industry they are involved in are totally different from each other. Conglomerate mergers might be categorized as pure or mixed, depending on whether the merging companies are from completely related backgrounds or if they involve certain related business aspects, respectively. Such mergers are initiated with the objective to grow and diversify their operations across different sectors, to gain new market shares, to build scope for cross-selling opportunities through efficient synergies. These mergers typically attract limited antitrust issues unless the conglomerate gains undue influence or cross-subsidization.

1. Concentric Merger

Concentric Mergers are also known as congeneric mergers, this kind of mergers occur between companies that exist in the same industry, but produce different products/services yet complementary ones. i.e. Though the kind of products or services that the business is engaged with, differs, in most of the cases it is ensured that such concerned products are complementary to each other, which are distinct yet related, thus facilitating the merger. It is done so to enable the possibility of those products to be sold together or cross – sold to the same customer base, utilizing the expanded demand established through the merger. Concentric merger helps retain the shared customer base, and also paves way for further broadening the scope of products/ser vices provided, which in turn helps strengthen the so created brand. Legally, competition issues are minimal in congeneric mergers, whereas the merged entity might undergo a scrutiny if in case, the merger results in excessive influence over a specific market segment.

1. Reverse Merger

A reverse merger, also known as a Reverse Takeover (RTO) or Reverse IPO occurs when a private company merges into a public company (often a dormant company), in order to gain public-listing status, thus eliminating the need of undergoing the formal and time-consuming IPO (Initial Public Offering), thereby taking control and gaining stock exchange listing. Being a popular method abroad, this strategy allows the private company to become publicly traded more quickly, cheaply, and with few regulatory hurdles than a full-fledged IPO. It is mandatory that reverse mergers must comply with SEBI (LODR) and Companies Act disclosure norms, in India. It is also important to note that, on a general note many startups and SMEs choose this route to access markets faster. While proceeding with reverse mergers, the process of valuations, assessing minority shareholder rights and ensuring transparency are said to be of crucial considerations.

Key Legal Concerns in Business Mergers

• Due Diligence: Legal, financial, and operational inquiries to uncover liabilities.
• Valuation: Reasonable valuation based on established techniques (DCF, NAV, etc.).
• Shareholder Protection: Entails getting the shareholders’ approvals and protecting minority interests.
• Creditors’ Interests: Creditors may oppose the scheme in NCLT.
• Tax implications: Tax neutrality in some cases of merger under the Income Tax Act, 1961.
• Stamp Duty: State-specific stamp duty is charged on merger orders.
• Regulatory Filings: SEBI, RBI, RoC, and CCI notices and disclosures.

Conclusion

While the study of mergers with respect to its application and processes in the commercial realm entails a vast spectrum of information, this blog has hopefully provided a basic understanding of certain main categories of mergers alongside its legal implications. Mergers are complex legal and commercial transactions that must necessarily navigate a multifaceted regulatory landscape, in order to ensure legal compliance, transparency and stakeholder fairness which are critical to a successful merger.

In today’s business ecosystem, a legally sound and successful merger strategy is not merely a growth option, but a necessity.

REFERENCES

• The Companies Act 2013, ss 230–234
• Competition Act 2002, ss 5, 6
• Avtar Singh, Company Law, EBC
• T Ramappa, Competition Law in India: Policy, Issues, and Developments
• ClearTax, Mergers and Acquisitions in India – Meaning, Examples, Difference, (last updated Apr. 2025), https://cleartax.in/s/mergers-and-acquisitions.
• ClearTax, Vertical Merger, https://cleartax.in/glossary/vertical-merger (last visited June 21, 2025).
• Competition Comm’n of India, Merger Review Guidelines (2022), https://www.cci.gov.in/sites/default/files/whats_newdocument/Merger-Review-Guidelines-CCI.pdf.
• Ministry of Corp. Affs., Report of the Committee on Cross Border Mergers (2017), https://www.mca.gov.in/Ministry/pdf/Report_Committee_CrossBorderMergers_13042017.pdf
• & Exch. Bd. of India, FAQs on SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, https://www.sebi.gov.in/sebi_data/faqfiles/mar-2021/1615888743202.pdf (last visited June 21, 2025).