Acquisition Financial Model Preparation in India

Acquisition financial model preparation in India has changed more in 2026 than in the previous decade. Indian banks can now lend against a controlling stake, offshore lenders can fund control deals through external commercial borrowings, and the Income-tax Act 2025 has renumbered every tax rule a deal model touches. A buyer-side model that ignores these changes will misstate how much debt the deal can carry, what the target really costs and when the cash leaves. This guide sets out how to build the model, tab by tab, with each Indian rule wired in as an input rather than a footnote.

What is an acquisition financial model?

An acquisition financial model is a buyer-side spreadsheet that converts an agreed enterprise value into cash paid at close, links it to how the deal is funded, combines the acquirer and target statements after purchase price allocation under Ind AS 103, and tests whether the combined business can service its debt and earn a return above the acquirer’s cost of capital. Lenders, boards and auditors read the same file.

What must an acquisition financial model answer before a term sheet?

A buyer-side model exists to answer four questions before the term sheet is signed: what is the maximum price the acquirer can pay, how much of that price can be borrowed, what does the combined business look like for three to five years, and what happens to returns and covenants if the target underperforms. Every tab should trace back to one of these.

Most founders arrive with a valuation from the target’s advisor and a revenue synergy number from their own team. Neither is a model. The valuation answers what the seller wants; the model answers what the buyer can afford. The two numbers meet only in negotiation, and the buyer with the tighter model usually controls that conversation.

The four questions translate into four outputs the board pack should carry:

1. A walk from headline enterprise value to cash paid at close, with every adjustment sourced.
2. A sources and uses table that balances to the rupee and respects lender caps.
3. Pro forma combined statements for at least three financial years (April to March), post purchase price allocation.
4. A returns and covenant page: internal rate of return, payback, earnings accretion or dilution, and debt service coverage under downside cases.

For the process side of a deal (letter of intent, diligence, definitive agreements), see our guide to mergers and acquisitions in India. This article stays with the numbers.

How is acquisition financial model preparation structured in India?

Acquisition financial model preparation in India works best as two standalone three statement models (acquirer and target) feeding a deal layer, with Indian regulatory limits held on a single inputs tab so any change in law updates every output. Hardcoded numbers inside formulas are the most common reason lenders reject a model.

If the acquirer does not yet have a clean integrated model, build that first; our page on three statement financial model services covers the base build. The deal layer then sits on top.

Table 1: Recommended tab architecture for an Indian acquisition model

Tab	Purpose	Key Indian inputs held here
Inputs and regulatory limits	Single source for every assumption	Bank finance cap, ECB eligibility, FEMA deferral cap, stamp duty rate, tax rates, CCI thresholds
Acquirer standalone	Three statement model, FY basis	Section 186 investment headroom, existing loan covenants
Target standalone	Three statement model rebuilt from diligence	Normalised EBITDA, working capital peg, carried forward losses
Purchase price	Enterprise value to equity value walk	Net debt definition, locked box leakage, earn-out, deferred consideration
Sources and uses	Funding of the deal	Acquisition loan, bridge, ECB, acquirer equity, seller paper
Purchase price allocation	Ind AS 103 fair value step-ups	Intangibles, deferred tax, goodwill
Pro forma combined	Combined P&L, balance sheet, cash flow	Synergy phasing, integration costs, eliminations
Debt schedule	Repayment, interest, covenants	Debt to equity, DSCR, cash sweep
Returns and sensitivities	IRR, accretion, payback, scenarios	Price, synergy, rate and FX sensitivities
Checks and dashboard	Integrity checks and one-page deal summary	Balance sheet balances, sources equal uses, covenant flags, regulatory breach flags

Two design rules matter more than any formula. First, keep the target model on the target’s own accounting policies until the allocation tab; aligning policies early hides adjustments diligence needs to see. Second, run every period on the Indian financial year, April to March, even if the target reports on a calendar year. Lender covenants, advance tax and Companies Act filings all key off the financial year.

Scenario switches and sensitivity grids follow the same mechanics as any other model, set out in our guide to scenario and sensitivity model development.

How do you get from enterprise value to the cash paid at close?

The purchase price tab converts the headline enterprise value into equity value by deducting net debt and debt-like items, adjusting for working capital against an agreed peg, and then splitting the equity value into cash at close, deferred consideration and earn-out. Only the cash at close portion drives the day-one sources and uses.

A typical walk runs as follows:

• Enterprise value (agreed multiple times normalised EBITDA)
• Less: borrowings, including related party loans and unpaid interest
• Less: debt-like items (unpaid statutory dues, unfunded gratuity and leave encashment, deferred revenue where the buyer bears the cost of delivery, disputed tax demands the buyer will inherit)
• Plus: cash and cash equivalents, net of trapped cash
• Plus or minus: working capital above or below the normalised peg
• Equals: equity value
• Split into: cash at close, deferred consideration, earn-out, escrow or holdback

The debt-like items line is where Indian deals move most. Unprovided gratuity, GST input credit that diligence finds unsupported and income tax demands under appeal are routinely argued as debt-like. Each needs its own row with a source reference to the diligence report, not a single plug.

Locked box or completion accounts?

Under a locked box, price is fixed on a past balance sheet date and the model must track permitted and prohibited leakage to closing. Under completion accounts, price is trued up after close, so the model needs a post-close adjustment line and a cash reserve for it. Indian sellers increasingly ask for locked box in competitive processes; buyers should model leakage at the sell-side estimate and at a stressed number.

How should deferred consideration, earn-outs and escrow sit in the model?

Each deferred element needs its own row with an amount, a payment date and a probability, so the model can show cash at close, expected total cost and maximum total cost separately. Earn-outs are carried at expected value in the base case and at maximum in the lender case, since a lender sizes debt service on the worst cash outflow.

Where either party is a non-resident, two FEMA limits become model inputs. Rule 9(6) of the Foreign Exchange Management (Non-debt Instruments) Rules 2019 caps all deferred, escrowed and earn-out consideration at 25% of total consideration, payable within 18 months of the transfer agreement; there is no approval route above either ceiling, so the model should flag a breach as a structure that must change. Rule 21 pricing guidelines mean a non-resident buying from a resident cannot pay below fair value, and a resident buying from a non-resident cannot pay above it, so the purchase price input should be checked against the fair value report on the same tab.

The legal and tax mechanics of these instruments are covered in our guides to earnouts in Indian M&A and escrow arrangements in share deals. The model only needs to capture their cash timing and caps.

Cash, shares or a swap: how does the consideration mix change the model?

The consideration mix decides whether the acquirer’s cost shows up as cash out, as dilution, or both. Cash deals stress the sources side and debt service; share deals stress ownership and earnings per share; most mid-market Indian deals blend the two to keep the seller invested and the acquirer’s debt within lender limits.

Table 2: How consideration mix changes model inputs

Consideration	Model lines affected	Indian rule to wire in	Main model risk
All cash	Sources and uses, debt schedule, interest	Section 186, Companies Act 2013; RBI acquisition finance caps	Covenant headroom in year one
Acquirer shares (unlisted acquirer)	Share count, cap table, EPS or per-share value	Section 62(1)(c), Companies Act 2013, read with Rule 13, Companies (Share Capital and Debentures) Rules 2014; registered valuer report for non-cash consideration	Dilution priced off an acquirer valuation the seller will contest
Acquirer shares (listed acquirer)	Share count, EPS accretion, exchange ratio	SEBI (Issue of Capital and Disclosure Requirements) Regulations 2018, preferential issue pricing	Exchange ratio set off a floor price, not negotiated value
Cross-border share swap	Share count, FX, FEMA reporting	FEMA NDI Rules 2019 swap provisions; ODI rules where an Indian party receives foreign shares	Pricing on both legs must meet fair value rules
Mixed cash and shares	All of the above	All of the above	Seller’s tax on the share leg with no cash to pay it

A share-for-share deal is still a transfer for the seller, so capital gains tax arises on the share leg without cash to fund it. Sellers usually ask for enough cash to cover that tax, which sets a floor on the cash portion. Model it from the seller’s side before proposing an all-share deal. For cross-border swaps, see our note on the FDI-ODI swap following Budget 2024.

How do sources and uses work under the 2026 RBI and ECB acquisition finance rules?

The sources and uses table lists every rupee the deal needs and every rupee that funds it, and the two sides must balance. From 2026, Indian banks may fund up to 75% of acquisition value for eligible acquirers, and control acquisitions are a permitted end-use for external commercial borrowings. Both changes widen the sources side, but each comes with eligibility tests the model must check.

What the February 2026 bank directions allow

The Reserve Bank of India (RBI) issued amendment directions on 13/02/2026 to the RBI (Commercial Banks, Credit Facilities) Directions 2025 and the RBI (Commercial Banks, Concentration Risk Management) Directions 2025, after consulting on a draft Capital Market Exposure framework released on 24/10/2025. The features that change the model are:

• Eligible acquirers are listed and unlisted non-financial companies, their existing non-financial subsidiaries, or a step-down special purpose vehicle.
• The acquirer (or its controlling company) needs net worth of at least ₹500 crore and profit after tax in each of the previous three financial years; an unlisted acquirer also needs an investment grade rating of BBB- or above.
• Acquirer and target cannot be related parties under the Companies Act 2013.
• Control must be obtained in one transaction or inter-connected transactions completed within 12 months of the acquisition agreement; top-ups by an existing controller qualify only if they cross 26%, 51%, 75% or 90% of voting rights.
• Banks may finance up to 75% of acquisition value; a listed acquirer may take secured bridge finance for the remaining 25% if it has an identified repayment source within 12 months.
• For an unlisted target, acquisition value is the lower of two independent valuations; for a listed target, one independent valuation under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 2011.
• Security is the acquired shares or compulsorily convertible debentures, unencumbered, plus a mandatory corporate guarantee from the acquirer, its parent or group holding entity.

Two points are unsettled and should carry a visible flag in the model. Commentators report different effective dates for the bank framework (01/04/2026 in some notes, 01/07/2026 in others, with early adoption allowed). The draft’s post-acquisition debt to equity cap of 3:1 on the combined balance sheet is widely reported, but whether it survived into the final directions should be confirmed against the RBI text before a lender term sheet relies on it.

What the February 2026 ECB amendments allow

The Foreign Exchange Management (Borrowing and Lending) (First Amendment) Regulations 2026, notified on 16/02/2026, permit ECB proceeds to fund acquisition of control in listed and unlisted companies, and reduce the minimum average maturity to three years. Minority stakes and incremental top-ups below control remain outside the permitted end-use. Foreign owned and controlled companies continue to face the downstream investment rule that they cannot use Indian borrowings for acquisitions, a constraint our guide to downstream investment rules under FEMA covers in detail.

A worked sources and uses table

The example below is illustrative. Assume an unlisted acquirer meeting the bank eligibility tests buys 100% of a domestic private target in a share purchase at an equity value of ₹150 crore, refinances ₹20 crore of target bank debt and pays transaction costs.

Table 3: Illustrative sources and uses (₹ crore)

Uses	₹ crore	Sources	₹ crore
Equity purchase price	150.00	Bank acquisition finance (75% of ₹150 crore)	112.50
Refinance of target bank debt	20.00	Acquirer internal accruals	67.02
Advisory, diligence and legal costs (estimate, 3% of price)	4.50
Stamp duty on share transfer (0.015%)	0.02
Minimum cash left in target	5.00
Total uses	179.52	Total sources	179.52

Three checks belong directly beneath this table. Is the bank tranche within 75% of acquisition value as the lender will compute it (lower of two valuations, not the negotiated price)? Does the refinance tranche need a separate facility, since acquisition finance is sized on the share price? Does the acquirer’s investment sit within its section 186 headroom under the Companies Act 2013 (60% of paid-up capital, free reserves and securities premium, or 100% of free reserves and securities premium, whichever is higher), and if not, has the model scheduled the special resolution?

Should acquisition debt sit in an SPV or the operating company?

Where acquisition debt sits decides how the model services it. Debt in the acquirer’s operating company is serviced from the acquirer’s own cash flow. Debt in a holding SPV has no operating cash of its own, so the model must move cash up from the target as dividends, and that route carries tax and timing costs the model has to show.

The model for an SPV structure needs three extra schedules:

1. Dividend upstreaming. The target pays dividends to the SPV out of distributable profits under section 123 of the Companies Act 2013, so a target with accumulated losses cannot pay any until they are absorbed. The SPV can claim the inter-corporate dividend deduction under section 148 of the Income-tax Act 2025 (formerly section 80M) to the extent it distributes onward; otherwise dividends received are taxed in its hands.
2. Interest deductibility. SPV interest has little taxable income to offset, so the tax shield the acquirer expects may not arise until the SPV and target merge. Interest paid to a non-resident associated enterprise is also limited to 30% of EBITDA under the interest limitation rule (formerly section 94B; reported as section 177 of the 2025 Act, confirm before citing).
3. Debt push-down by merger. Many sponsors plan to merge the SPV into the target after close so debt and cash flows sit in one entity. A scheme under sections 230 to 232 of the Companies Act 2013, or the fast-track route under section 233 where eligible, takes months; model the pre-merger and post-merger periods separately and do not assume the merged tax position from day one.

The 2026 RBI directions require a corporate guarantee from the acquirer, its parent or group holding entity even where debt sits in an SPV, so the guarantee should appear as a contingent liability in the acquirer’s model.

For the separate question of whether growth capital should come from debt or equity, see our guide to debt vs equity financing model preparation.

Which Indian tax, FEMA and competition rules change the model inputs?

Indian rules enter the acquisition model as rates, limits and timing switches on the inputs tab. The Income-tax Act 2025 applies from 01/04/2026, so every tax reference in a model built today should cite the new section, with the 1961 Act equivalent alongside for diligence periods before that date.

Table 4: Regulatory inputs that change model outputs

Rule	Where it enters the model	Effect if missed
Section 92(2)(m), Income-tax Act 2025 (formerly section 56(2)(x)), read with Rule 57, Income-tax Rules 2026	Purchase price tab: buyer’s tax if shares are bought below fair market value	Deemed income in the buyer’s hands on the shortfall
Successor to section 50CA of the 1961 Act	Seller’s computation; affects seller’s price floor	Seller taxed on fair market value, not price received
Section 119, Income-tax Act 2025 (formerly section 79)	Target tax schedule: carried forward losses	Losses lapse on change of more than 49% voting power in a closely held target
Goodwill not depreciable for tax (Finance Act 2021, effective AY 2021-22)	PPA and tax schedule	Overstated tax shield on goodwill
Stamp duty, 0.015% on transfer of securities (Indian Stamp Act 1899, as amended by Finance Act 2019)	Uses side	Minor for shares; material if structure moves to asset purchase
Rules 9(6) and 21, FEMA NDI Rules 2019; Form FC-TRS within 60 days	Purchase price and deferral schedule	Pricing breach or deferral beyond 25% or 18 months
Section 5, Competition Act 2002; deal value threshold ₹2,000 crore (from 10/09/2024); target de minimis exemption	Timeline and conditions precedent	Closing delayed by Competition Commission of India approval
SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 2011	Listed targets: open offer for 26% at 25% trigger	Uses side understated by the open offer amount

The loss lapse is the line founders most often miss. A loss-making target bought outright fails the 51% voting power continuity test, so its brought forward business losses cannot shelter future profits. The model should show the target’s tax line with and without those losses, and price should reflect the version without them. The February 2025 draft Bill’s wording on beneficial ownership caused confusion; the enacted Act restored the “beneficially held” language of the 1961 Act, but confirm how section 119 reads before relying on group-internal reshuffles to preserve losses. Treatment of the startup relief carried in the old section 79 should likewise be checked against the enacted text.

On competition clearance, the target-level de minimis exemption (assets up to ₹450 crore or turnover up to ₹1,250 crore, MCA notification dated 07/03/2024) removes most mid-market domestic deals from Competition Commission of India (CCI) filing, but the ₹2,000 crore deal value test can still catch them if the target has substantial business operations in India. These thresholds are periodically revised; verify against the current notification.

Withholding on payments to non-resident sellers carried over from section 195 of the 1961 Act into the 2025 Act; confirm the new section number and treaty rate for the seller’s jurisdiction before modelling net cash out.

How do you build pro forma combined statements after purchase price allocation?

Under Ind AS 103, the acquirer measures identifiable assets and liabilities of the target at fair value on the acquisition date; the excess of consideration over net identifiable assets is goodwill. The model must allocate price to intangibles, compute deferred tax on the step-ups, and carry the resulting amortisation into the combined P&L.

Companies on Ind AS apply Ind AS 103 and consolidate under Ind AS 110; companies on Indian GAAP follow AS 14 for amalgamations and AS 21 for consolidation, with different goodwill treatment. Which framework applies depends on listing status, net worth and group links, set out in our guide to Ind AS applicability for private companies. The model should hold a switch for the accounting framework rather than assume Ind AS.

How are deal costs and financing fees treated?

Deal costs split three ways, and each lands in a different place in the model:

• Advisory, diligence and legal fees for the acquisition are expensed in the P&L under Ind AS 103 when incurred, not added to goodwill. Show them as a one-time item below adjusted EBITDA.
• Arrangement and upfront fees on acquisition debt are deducted from the loan’s carrying amount and amortised through interest expense using the effective interest method under Ind AS 109.
• Stamp duty and share issue costs on any acquirer shares issued as consideration are deducted from equity.

GST at 18% applies to most advisory and legal fees. Whether input credit is available depends on whether the acquirer makes taxable supplies against which the credit can be used; an SPV with no outward supplies usually cannot use it, so the model should carry GST as a cost in an SPV structure (estimate; confirm with the GST advisor for the specific entity).

The allocation tab usually carries these lines:

1. Book net assets of the target at closing.
2. Fair value step-ups: customer relationships, brand, technology, order backlog, non-compete, property.
3. Deferred tax liability on step-ups at the target’s applicable rate, since the tax base does not step up in a share purchase.
4. Contingent consideration (earn-out) at fair value, with later changes through P&L.
5. Goodwill as the residual, tested annually for impairment, not amortised under Ind AS.

Early allocation is an estimate. Hold it as a range and say so in the board pack; a valuer’s final allocation often arrives months after close. For the reporting work that follows close, see MIS consolidation after acquisition.

Synergies and integration costs

Model synergies on their own schedule, phased by quarter, each with an owner and a cost to achieve. Cost synergies (procurement, overlapping headcount, rent) should carry 70% to 100% realisation in the base case; revenue synergies should start at zero in the lender case and appear only in the management case. One-time integration costs, including severance, system migration and rebranding, belong in the cash flow even when they are excluded from adjusted EBITDA.

How do you test whether the deal pays back?

A deal pays back if the combined business earns a return above the acquirer’s cost of capital, keeps debt service coverage above lender minimums in a downside case, and does not dilute earnings per share beyond what the board has accepted. The returns tab should show all three side by side, under base, downside and severe cases.

The core outputs:

• Deal IRR and payback period on the acquirer’s equity contribution.
• Return on invested capital of the target against the acquirer’s weighted average cost of capital, by year.
• Earnings per share accretion or dilution for listed acquirers, with and without purchase price allocation amortisation.
• Debt service coverage ratio and net debt to EBITDA by quarter against covenant levels.
• Headroom: how far EBITDA can fall before the first covenant breaks.

How is accretion or dilution calculated?

Pro forma EPS equals the acquirer’s standalone net profit, plus the target’s net profit, plus after-tax synergies, minus after-tax interest on new debt, minus after-tax interest income lost on cash used, minus after-tax amortisation of acquired intangibles, all divided by the acquirer’s existing shares plus any new shares issued. Accretion or dilution is pro forma EPS divided by standalone EPS, minus one.

Two related outputs belong on the same page. Breakeven synergies are the after-tax synergies needed to make year one EPS neutral; if that number exceeds the cost synergies the integration plan can deliver, the deal is dilutive on any realistic case. Show EPS with and without purchase price allocation amortisation, because Indian listed acquirers often present cash EPS to analysts, and the board should see both.

For an unlisted acquirer, EPS matters less than value per share. Replace the accretion page with a per-share value bridge: acquirer equity value before the deal, plus value created (target value plus synergies minus price minus costs), divided by post-deal share count.

What price should the model say is too much?

The model should state a walk-away price, not just test the agreed one. Triangulate it from three views on the same tab: a standalone discounted cash flow of the target without synergies, trading and transaction multiples for comparable Indian companies, and the maximum price at which the deal still meets the acquirer’s IRR hurdle with cost synergies only. Where shares are part of consideration, add a contribution analysis showing each side’s share of combined revenue, EBITDA and profit against its share of post-deal ownership. Our guide to how startup valuation works in India covers the valuation methods themselves.

Inbound acquirers: currency and reporting switches

A foreign acquirer buying an Indian target needs the model in two currencies. Keep the target’s operating model in ₹, convert at a forward rate curve held on the inputs tab, and show returns in the acquirer’s reporting currency with a rupee depreciation sensitivity. Indian rupee depreciation against the US dollar has averaged around 3% to 4% a year over the past decade (estimate; verify against RBI reference rate data for the chosen period), which alone can move a five-year USD IRR by several percentage points.

Table 5: Sensitivities a lender and board will ask for

Sensitivity	Typical range	What it reveals
Purchase price	Plus or minus 10%	Walk-away price at target IRR
Target EBITDA	0% to minus 25%	Covenant headroom
Interest rate on acquisition loan	Plus 100 to 200 basis points	Debt service under rate stress
Synergy realisation	0% to 100%	How much of the price depends on synergies
Closing date slip	One to two quarters	Cash cost of delay, CCI or FEMA timing

If the deal clears its hurdle only with revenue synergies in, the board is paying the seller for value the acquirer will create. That is a negotiation point, not a modelling one, and the model should make it visible.

Before sharing the model with a lender or the seller’s advisors, run it through the checks in our guide to financial model validation before a data room.

Common mistakes that cost founders time and money

Modelling the negotiated price as the bank’s acquisition value. Lenders size acquisition finance on the lower of two independent valuations for an unlisted target. If the agreed price is above that, the equity gap is larger than the model shows. Build the bank tranche off a separate valuation input.

Keeping target losses in the tax line. A full buyout of a closely held target triggers the section 119 lapse. Projecting the target’s tax at nil because of losses overstates free cash flow and supports a higher price than the deal can bear.

Ignoring FEMA deferral limits on earn-outs. A three-year earn-out to a non-resident seller breaches Rule 9(6) of the NDI Rules. Restructure as deferred price within 25% and 18 months, or as a separate employment or services arrangement priced on its own terms, before the model goes to the board.

Treating integration cost as a footnote. Severance, IT migration and duplicate rent in the first 12 months often equal 10% to 20% of year one cost synergies in mid-market deals (Treelife engagement estimate, not a published benchmark). Leaving them out flatters year one DSCR exactly when lenders test it.

Forgetting ESOPs. Accelerated vesting, cash-outs or rollovers of the target’s ESOP pool change both the uses side and the share count. Our note on ESOP treatment during an acquisition sets out the options; each needs a model line.

Acquisition financial model preparation checklist

Use this list before the model leaves the deal team:

• Inputs tab holds every regulatory limit, with source citation and date.
• Purchase price walk ties to the draft share purchase agreement definitions of net debt and working capital.
• Bank tranche sized on lender acquisition value, not negotiated price; eligibility tests shown.
• ECB tranche, if any, tested for control end-use and three year average maturity.
• Section 186 headroom calculated; special resolution scheduled if needed.
• Target tax line run without carried forward losses where section 119 applies.
• FEMA pricing and deferral checks pass, where a non-resident is involved.
• CCI and SEBI open offer applicability tested.
• Purchase price allocation shown as a range, with deferred tax on step-ups.
• Synergies on their own schedule with cost to achieve; revenue synergies excluded from lender case.
• Covenant headroom shown under a 25% EBITDA downside.
• Checks tab shows zero errors: balance sheet balances in every period, sources equal uses, cash never negative, interest circularity switch works.
• Deal costs split between P&L, debt and equity under Ind AS 103 and Ind AS 109.
• SPV structures show dividend capacity under section 123 and the guarantee as a contingent liability.
• Walk-away price and breakeven synergies stated on the summary page.
• Every unconfirmed number flagged in the file.

Frequently asked questions on acquisition financial model preparation

Q: Is the buyer taxed if it buys shares below fair market value?

A: Yes, potentially. Section 92(2)(m) of the Income-tax Act 2025, the successor to section 56(2)(x), taxes the recipient on the shortfall between fair market value under Rule 57 of the Income-tax Rules 2026 and the price paid, above the statutory threshold. Get the valuation before agreeing price.

Q: Can a profitable acquirer use the target’s tax losses?

A: Usually not in a full buyout. Section 119 of the Income-tax Act 2025 (formerly section 79) disallows brought forward losses of a closely held company where shareholders holding 51% of voting power on the last day of the loss year do not continue to hold it. Model the target’s tax without those losses.

Q: How long does acquisition financial model preparation take?

A: Typically three to five weeks for a mid-market domestic deal. One to two weeks goes to rebuilding the target model from diligence, one week to the deal layer and allocation, and the rest to lender and board iterations. Cross-border deals add FEMA valuation lead time.

Q: What documents are needed to start?

A: Three years of audited financials for both companies, the target’s current year management accounts, the diligence report, the draft term sheet or share purchase agreement, existing loan agreements of both companies, the target’s cap table including ESOPs, and any lender term sheet for acquisition finance.

Q: Can a non-resident seller receive deferred or earn-out consideration?

A: Yes, within limits. Rule 9(6) of the FEMA NDI Rules 2019 caps deferred, escrowed and earn-out consideration at 25% of total consideration within 18 months. There is no approval route above either limit, so the deal must be restructured.

Q: Can an Indian bank fund the purchase of shares in a private company?

A: Yes, from 2026, for eligible acquirers. Under the RBI amendment directions of 13/02/2026, listed and unlisted non-financial companies meeting net worth, profit and (for unlisted acquirers) rating tests can borrow up to 75% of acquisition value to obtain control. NBFCs and AIFs are excluded as acquirers.

Q: Can ECB be used to acquire an Indian company?

A: Yes, where control is acquired. The FEMA (Borrowing and Lending) (First Amendment) Regulations 2026 permit ECB proceeds for control acquisitions of listed and unlisted companies. Minority stakes are not a permitted end-use.

Q: How should a family-owned acquirer structure the buying entity?

A: Through an operating company or a step-down SPV that meets lender eligibility at the controlling company level. Model the guarantee the bank will require from the parent or group holding entity, and check related party rules under the Companies Act 2013 before choosing the vehicle.

Q: Does a DPIIT-recognised target get any relief on loss lapse?

A: Possibly. The 1961 Act carried a relief for eligible startups where all original shareholders continued; whether and how it carries into section 119 of the 2025 Act should be confirmed against the enacted text before the model relies on it.

Q: What happens to the model if the deal does not close?

A: Broken deal costs (advisory, diligence, bank commitment fees) hit the acquirer’s P&L in the year incurred. Hold them as a separate scenario so the board sees the cost of walking away against the cost of overpaying.

Q: What does the seller’s side of the model look like?

A: The seller models net proceeds after capital gains tax, ESOP payouts, transaction costs and escrow holdbacks. Long-term capital gains on unlisted shares held over 24 months are taxed at 12.5% without indexation for transfers on or after 23/07/2024. A buyer who understands the seller’s net number negotiates structure, not only price.

Q: Are acquisition advisory fees added to goodwill?

A: No. Under Ind AS 103 acquisition-related costs are expensed when incurred. Arrangement fees on acquisition debt are amortised through interest under Ind AS 109, and share issue costs reduce equity.

Q: Can a holding SPV deduct interest on acquisition debt?

A: Only against taxable income it has. Until the SPV merges with the target or earns taxable income, the interest shield may be unused, and interest paid to a non-resident associated enterprise is capped at 30% of EBITDA under the interest limitation rule.

Q: Does a promoter group acquisition change the bank funding position?

A: Yes. Bank acquisition finance is not available where acquirer and target are related parties under the Companies Act 2013, so intra-group or promoter-linked acquisitions need to be funded from equity, internal accruals or other debt.

Q: Is CCI approval needed for a mid-sized domestic acquisition?

A: Often not. The target-level de minimis exemption removes most deals where the target has assets up to ₹450 crore or turnover up to ₹1,250 crore, but the ₹2,000 crore deal value threshold under section 5 of the Competition Act 2002 can still apply. Verify thresholds against the current notification.