A roll-up acquisition is a growth strategy in which a company acquires multiple smaller businesses operating in the same fragmented industry and merges them into a larger platform entity. This approach allows businesses to achieve economies of scale, expand their customer base, strengthen bargaining power, and enhance operational efficiency. In India, while this model is gaining popularity in sectors such as healthcare, logistics, technology, and retail, its execution requires meticulous planning and compliance with multiple legal, regulatory, and taxation frameworks.

In this article, CA Manish Mishra talks about Roll-Up Acquisitions: Scaling Through Strategic Consolidation.

Roll-Up Acquisitions

In a roll-up acquisition model, the acquiring company often supported by private equity funding purchases multiple small to mid-sized businesses in the same industry over a short period. The primary aim is to consolidate these fragmented market players into a single, unified corporate structure, unlocking scale benefits and market leadership.

Reduce Market Fragmentation

Many industries in India, such as healthcare services, logistics, or specialty manufacturing, are highly fragmented with numerous small players. By acquiring and merging these companies, the roll-up creates a more concentrated market, eliminating redundant competition and enabling consistent service or product standards.

Achieve Cost Efficiencies

Consolidation allows shared procurement, combined marketing budgets, streamlined supply chains, and integration of administrative functions like HR, finance, and IT. These economies of scale lower per-unit costs, increase operational margins, and improve bargaining power with suppliers and distributors.

Increase Market Share

Acquiring multiple players quickly expands the customer base and geographical coverage. Instead of growing organically over years, a roll-up can secure significant market share in a short span, positioning the entity as an industry leader capable of influencing pricing and market trends.

Enhance Brand Value and Valuation Multiples

Integrating businesses under a strong unified brand enhances customer trust, strengthens marketing impact, and attracts larger contracts. Investors and potential buyers often value market leaders more highly, so the combined entity may achieve higher valuation multiples compared to the sum of individual companies.

Difference from Standalone Acquisitions

While a standalone acquisition focuses on purchasing and integrating a single target, a roll-up is a strategic series of acquisitions aimed at building a platform company. The integration plan in a roll-up is more complex, involving simultaneous or phased mergers, brand unification, system harmonisation, and regulatory compliance for multiple transactions.

Legal Framework in India

Companies Act, 2013

Roll-up acquisitions involving mergers or amalgamations are governed by Sections 230–232 of the Companies Act, 2013. The process typically includes:

• Drafting a Scheme of Arrangement.

• Board and shareholder approval.

• Filing an application with the National Company Law Tribunal (NCLT).

• Obtaining creditor consent and regulatory clearances.

• NCLT sanction and filing with the Registrar of Companies.

For certain small companies and start-ups, Section 233 allows a simplified merger process. If the roll-up involves foreign entities, Section 234 applies, subject to FEMA and RBI approvals.

Competition Law: CCI Approvals

Under the Competition Act, 2002, combinations that meet specified asset or turnover thresholds must be notified to the Competition Commission of India (CCI).

• Traditional thresholds capture large-value deals based on assets and turnover.

• The Deal Value Threshold (DVT), introduced in 2023, mandates CCI clearance if the transaction value exceeds ₹2,000 crore and the target has substantial business operations in India.

• The Green Channel Route is available for combinations with no horizontal, vertical, or complementary overlaps.

In roll-ups, where acquisitions may involve competitors or complementary players, antitrust scrutiny is a key consideration.

SEBI Regulations for Listed Entities

If the roll-up involves acquiring a listed company, the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (“Takeover Code”) apply.

• Acquisition of 25% or more voting rights or control triggers a mandatory open offer for at least 26% of the target’s shares.

• Mergers involving listed companies must also comply with SEBI’s Master Circular on Schemes of Arrangement, requiring stock exchange approval, valuation reports, fairness opinions, and enhanced disclosures.

Sector-Specific Approvals

Certain regulated industries require sectoral regulator consent before ownership changes:

• NBFCs: RBI approval for acquisition/transfer of 26%+ equity or control change.

• Insurance: IRDAI approval for significant share transfers.

• Telecom: DoT approval for licence transfers or mergers.

• Banking, Defence, Broadcasting: Specific regulator clearance is mandatory.

Foreign Direct Investment (FDI) & FEMA Compliance

Foreign investment in roll-ups must comply with the FDI Policy and Foreign Exchange Management Act, 1999 (FEMA) regulations.

• Sectoral caps and automatic/government routes vary.

• Press Note 3 (2020) requires government approval for investors from countries sharing a land border with India.

• Acquisitions involving foreign subsidiaries also trigger compliance under the Overseas Direct Investment (ODI) Rules, 2022.

Taxation & GST Implications

• Share Purchase: No GST; capital gains tax applies under the Income-tax Act.

• Slump Sale: Defined under Section 2(42C) and taxed under Section 50B based on net worth.

• Demerger: Tax-neutral if Section 2(19AA) conditions are met.

• GST: Transfer of a going concern is exempt under Notification No. 12/2017-CTR.

Stamp Duty Considerations

Post-2020 amendments, stamp duty on securities transfers is uniform nationwide and collected through depositories or exchanges. Business transfer agreements remain subject to state-specific stamp duties, which can significantly impact transaction costs in multi-target roll-ups.

Data Protection Compliance

The Digital Personal Data Protection Act, 2023 requires companies to ensure purpose-specific consent, secure processing, and lawful cross-border transfers. Roll-up transactions involving consumer data must align privacy policies, update consents, and strengthen data governance before integration.

Insolvency Transactions

Under the Insolvency and Bankruptcy Code, 2016, acquiring assets through NCLT-approved resolution plans under Section 31 grants immunity from past liabilities. Section 29A restricts certain promoters and related parties from bidding for distressed companies in a roll-up strategy.

Transaction Documentation

Include Conditions Precedent for CCI, RBI, SEBI, IRDAI, and FDI Approvals

In a roll-up acquisition, various regulatory approvals may be required before closing the deal:

• CCI: Clearance under merger control provisions of the Competition Act, 2002.

• RBI: Approval for NBFC acquisitions or foreign investment transactions under FEMA.

• SEBI: Open offer obligations or scheme approvals for listed entities.

• IRDAI: Consent for ownership changes in insurance companies.

• FDI Approvals: Government or automatic route permissions as per sectoral caps.

These conditions precedent (CPs) are clauses that make closing the deal contingent on securing these approvals, protecting parties from non-compliance risks.

Have Realistic Long-Stop Dates

The long-stop date is the final deadline by which all CPs must be fulfilled and the transaction closed. In India, regulatory approvals especially from CCI, sector regulators, or under the government route for FDI can take months. Setting realistic dates avoids premature contract termination or unnecessary renegotiations and gives enough time for compliance.

Incorporate Covenants to Prevent “Gun-Jumping”

Gun-jumping occurs when merging entities start integrating operations or exchanging sensitive information before receiving CCI approval. This is prohibited under the Competition Act and can lead to penalties. Transaction documents should have covenants restricting premature operational control transfer, joint marketing, or strategic coordination before regulatory clearance.

Include Material Adverse Change (MAC) Clauses

A MAC clause allows a party to withdraw or renegotiate if significant adverse events occur between signing and closing such as regulatory changes, economic crises, major lawsuits, or loss of key contracts. In roll-ups, MAC clauses are vital for safeguarding the acquirer’s position in case the business environment or target’s performance deteriorates unexpectedly.

Post-Closing Integration

Successful roll-ups require more than just legal completion:

Amend the Company’s MOA/AOA

Once the consolidation is complete, the company’s Memorandum of Association (MOA) and Articles of Association (AOA) must be updated to reflect the new business structure, object clauses, share capital, and governance provisions. This ensures legal alignment with the merged entity’s operational scope and compliance with the Companies Act, 2013.

Transfer or Reissue Licences

Any licences or permits held by the acquired companies such as GST registrations, FSSAI licences, factory licences, or sector-specific permits must be transferred or reissued in the name of the surviving entity. This avoids legal interruptions in operations and ensures that the consolidated business can continue functioning without regulatory breaches.

Assign IP Rights and Novate Contracts

Intellectual property (IP) assets like trademarks, copyrights, patents, and domain names should be formally assigned to the consolidated entity. Similarly, contracts with customers, suppliers, and service providers must be novated to transfer rights and obligations. This secures ownership and prevents contractual disputes post-merger.

Integrate Employees with Continuity of Service Benefits

All employees from the acquired companies should be integrated into the new entity’s HR structure while maintaining continuity of service, salary structures, and statutory benefits like provident fund (PF) and gratuity. This not only ensures compliance with labour laws but also helps retain talent and maintain workforce morale.

Harmonise Compliance, Governance, and Operational Systems

The merged entity must align its compliance calendars, governance policies, IT systems, accounting software, reporting formats, and standard operating procedures (SOPs). This creates operational consistency, reduces duplication, and improves efficiency across all business units, making the roll-up strategy deliver its intended synergies.

Conclusion

Roll-up acquisitions offer a powerful pathway to achieve rapid market expansion, operational efficiency, and enhanced enterprise value. In India, success hinges on meticulous sequencing of legal and regulatory processes, early competition law evaluation, timely sector-specific and FDI approvals, and strategic integration planning. Organisations that map a comprehensive, compliant roadmap from the start are best equipped to execute seamless consolidations and realise the full potential of their roll-up strategy.

Frequently Asked Questions (FAQs)

Q1. What is a roll-up acquisition?

Ans. A roll-up acquisition is a strategy where a company acquires multiple smaller businesses in the same fragmented industry and consolidates them into a larger entity. This enhances operational efficiency, market reach, and valuation by leveraging economies of scale and reducing competition.

Q2. Which laws govern roll-up acquisitions in India?

Ans. The key laws include:

• Companies Act, 2013: Mergers and amalgamations (Sections 230–232).

• Competition Act, 2002: CCI merger control and Deal Value Threshold (DVT).

• SEBI Regulations: Takeover Code and Scheme of Arrangement rules for listed companies.

• FEMA & FDI Policy: Governing foreign investment.

• Sector-specific laws for regulated industries.

Q3. What is the role of the Companies Act in roll-up acquisitions?

Ans. Sections 230–232 of the Companies Act regulate schemes of arrangement and mergers. This involves drafting the scheme, obtaining board, shareholder, and creditor approvals, notifying regulators, and securing NCLT sanction before filing with the Registrar of Companies.

Q4. When is CCI approval required in roll-up deals?

Ans. CCI approval is needed if the asset/turnover thresholds in Section 5 are met or if the transaction crosses the Deal Value Threshold of ₹2,000 crore and the target has substantial operations in India. Overlapping businesses often require full filings to assess competition impact.

Q5. What is the Deal Value Threshold (DVT)?

Ans. Introduced in 2023, DVT requires CCI approval if a transaction’s value exceeds ₹2,000 crore and the target has substantial business operations in India, even if the older asset or turnover thresholds are not met.

Q6. Do SEBI regulations apply to roll-ups?

Ans. Yes, if a listed company is involved. Under the Takeover Code, acquiring 25% or more voting rights or control triggers an open offer. SEBI’s Scheme of Arrangement rules also require stock exchange NOC, valuation reports, and enhanced disclosures for listed mergers.