Overview

Registered under the Companies Act, 2013, NBFCs are for non-banking financial companies. NBFC acquisition means acquiring or gaining control of NBFC by another company. To arrest the management of the target company, an NBFC has to go through the registration process under the Act. Financial services of NBFCs are under its wing. The financial services provided by NBFCs are asset financing, acquisition of shares, debentures, securities, bonds and stocks, lending as well as advances and investments in various commercial securities. The NBFC is not only limited to the previously mentioned points, but also extends to providing credit facility and working capital loans.

RBI is making efforts to smooth the road for NBFCs. Large NBFCs continue to be monitored and operated to keep pace with global standards.

There are two different avenues you can walk to start your business in NBFC -

• Incorporation of NBFC under the Companies Act
• NBFC acquisition of pre-determined business

Important moment of NBFC taken in recent times?

From time to time we keep reading about mergers and acquisitions in newspapers and tees. V. But keep watching. In the corporate world, mergers and acquisitions are creating a lasting impact in people's minds. RBI has framed rules and laws to make the process of acquisition of NBFC easier.

Non-banking financial company takeover revolves around two entities

• Target Company

  A familiar company is keeping an eye on the 'acquired' company known as Target Company.

• Acquirer Company

  A company that has the ability to acquire a target company is known as an aquirer company.

Type of NBFC Takeover

To touch new heights in today's rapidly emerging business world, the acquisition of NBFCs has become a widespread habit that companies are adopting.

NBFC takeovers can be of two types

• Hostile takeover

  The name hostile takeover is itself hinting at the term. A hostile takeover is a type of acquisition in which the acquirer or acquiring company uses various tactics to gain ownership of the target or target company without the node of the board of directors associated with that target company. During these types of acquisitions, entities are involved in reaching out to shareholders by placing a tender offer on their table, and do not hesitate to engage in a proxy fight to change management to accept the acquisition. For recipients, the board of directors of the target company’ support and approval doesn't matter at all.

• Friendly takeover

  A friendly acquisition is a scenario that calmly depicts the story of the acquisition of a target company by another company as the acquisition is subject to the assistance and approval of management and the board of directors. The shareholders of the target company said yes to the deal if they believe the price per share is better than the current market price. In general, a favorable acquisition is likely to occur when target companies are happy with the benefits that are oversigned during their prior analysis deadlines.

  The advantage of friendly acquisitions is not limited to just a better per share price, but is higher and beyond. Target companies get opportunities to promote the growth of their business. Apart from this, they can also explore different market segments. In short, a favorable acquisition is all about mutual consent.

Hostile takeover vs. Friendly takeover!

As it is common sense that consent brings peace and disputes and battles with disagreements, it is easy to understand the dominance of friendly takeover over hostile takeover.

• Unlike hostile acquisitions, in this type, target companies do not face troubling problems or issues.
• It is a type of acquisition in which the target company, as well as the acquirer, actively participate in considering the deal and prioritizing a sense of satisfaction for both.
• And last but not least, the added benefit of a better price per share.

Pros and Cons

Pros

• Increasing the profit of the target company
• Sales and revenue climbing up
• The scale of the economy showing positive and upward trend is
• Reduction in levels of competition and competitive pressure
• Extensive expansion of distribution channels

Oppo

• Rare management conflict
• In some cases, the amount paid during the acquisition is less than the actual value
• Two different companies joining hands, cultural clashes are sometimes unavoidable
• Low employee morale is evident
• After the merger, the masked liabilities of the target company may become problematic in the future

Due Diligence for Investigation to the Target Company

There is due diligence, background verification and a proper investigation and verified verification of the documents and facts producing a well-analyzed report, which will check the authenticity of the documents and events with an in-depth audit of the ground. Transactions of target companies.

One thing you should understand is that by doing due diligence of the target company, you will learn a lot about the target company and uncover many aspects that you can fail to know without going into any due diligence Huh.

Required Documents

Go through the financial records of previous years and check the financial statements which provide the financial information of the last three years. Further, it is mandatory to investigate pending cases against the company or claims related to indebtedness, if any. Such details could lead to a change in the decision related to the acquisition of NBFCs.

There are some documents which are expected to be inspected by RBI and various other officials. Please treat those documents as priority.

Additionally, inspect relevant documents that are presented during incorporation time or during the early days of the company. Here you have to check documents like GST, VAT, certificate of incorporation and other registration related documents.

You can go ahead and get a formal memorandum, and it must be approved with a specific token of money.

Gather information related to KYC of directors and promoters who have left the company and who are currently in the company.

How to change the name of the company while the acquisition of NBFC continues?

To initiate the process for name change, the acquaintance company will have to manage to reach the Ministry of Corporate Affairs and obtain name availability certificate only from there. After this, the informer will have to knock the doors of the RBI for default (NOD). With a notice of default, the company may attempt a name change.

Probe of NBFC Takeover

When it comes to checking the application, the Regional Office of the Department of Non-Banking Supervision takes charge. In the case of questions, service of notice will become an essential thing apart from determining the details in the notice. In other cases, the acquisition is easily approved.

After filing the application with the authorities, they take 3-4 months. Getting approval from the RBI end is a challenge in itself, as it requires a lot of effort. Several agencies are working day and night to deal with the RBI NBFC takeover, and have proved their mettle in this area. As we have got an experienced team, we, in the servzone family, can help you with the appropriate solution to meet your needs.

Carry off

The NBFC acquisition process is not as complex as registering a new NBFC company. RBI has made things better for those who are looking for acquisitions by simplifying the acquisition process. Despite the fact that the non-banking financial company acquisition process has recently started its journey in India, RBI has arranged things in such a way that the acquisition process has become simple and convenient.

When familiar with most of the information related to the transfer, it is possible to avoid process delays. NBFC is accelerating on the road of financial market. Considering this, the Reserve Bank of India has liberalized the governance requirements of the acquisition process. At the time of NBFC takeover, it is also possible to change the company name. We are providing A1 solutions to help you in whatever you can do regarding the acquisition of NBFCs.

Process for NBFC takeover

• Memorandum of Understanding The non-banking financial company acquisition process begins with a memorandum of understanding (MoU) for signing with the proposed company. It defines that both companies are ready to go into a takeover agreement. The acquiring company and the target company come on board of directors and sign the MoU. The MoU touches the needs and responsibilities of all companies. The moment the MOU is approved, the acquaintance company pays the token money to the target company.

   

• Pre-approval requirement of RBI is the most important step

  As the governance and control of the NBFC is in the hands of the RBI, its consent matters the most and it is necessary to obtain approval in these matters mentioned below

  1. At the beginning of the acquisition of the NBFC process, approval becomes mandatory.

  2. When the shareholding pattern sees a shift by making 26% of the payable capital of the corporation responsible for the transfer to another. The exception is at another point

  1. RBI has nothing to do with the fall in capital or the trading of shares as there is a competent court to deal with them.

  2. In situations when management changes and which changes 30% of the total number of directors.

• Publish Public Notice

  Public information must be published in two regional languages. The first language should be English, and the second should be published in a natural language over a period of 30 days after obtaining approval from RBI, calm your heel for objections, find intelligent solutions, and before proceeding, if If there are any, solve them.

• Set foot in formal agreement

  From here, both concerned parties can think about entering into a formal agreement, and they can now buy the acquisition stake / administration / transfer of shares / or the acquisition of the previously mentioned concerns.

• Publish other public information

  The requirement is to publish the second public information in two different regional languages. English should get weightage as the first language, while the second should be published in the English language. Before going into an agreement, public notice for pre-divided concerns for the purchase / transfer of shares / transfer or acquisition of shares must be posted before 30 days.

  Public information engages the following important things

  1. Intention to transfer or sell direction / ownership;

  2. Up to the point of reagent; And

  3. The purpose behind the act of sale or transfer of authority / ownership is

• One more step that follows the publication of public information

  1. This step talks about the liquidation of all the assets of the target company. In addition, all liabilities to be paid would be appropriate.

  2. The acquirer will see a fair balance in the bank in the name of the company. The calculation of this part considers the net worth as the base as it was on the day of acquisition.

• Get NOC from Creditors End

  The target company acquires the NOC from the shawl creditors before transferring the business.

• Asset Transfer

  Once the scheme is approved by the Reserve Bank of India without any objections, the property will be transferred. / />

• Entity Valuation in Contract with Rules

  As RBI has provided a set of rules and regulations, it may be possible to evaluate the entity after them. The discounted cash flow (DCF) method is the technique that assists the valuation process. It is a method known to illustrate the net present value of any unit.

Procedure

• Application

  Submit an application to the Regional Office of the Department of Non-Banking Supervision, under whose jurisdiction the registered office of the NBFC lies. With the application engraved on the company's letterhead, it is important to attach some valid documents as attachments. This application should get the approval of NBFC acquisition.

  The following documents are received as attached parts with the application

• Attachment

  1. Information related to the proposed shareholders and directors

  2. Information related to the requirement of source of funds for the acquisition of shares in NBFCs by the proposed shareholders

• Declaration is staged union / non-union

  Information regarding the proposed shareholders / any corporate body as well as an unincorporated body responsible for acceptance of deposits or minutes of the mentioned application for registration which went through the information through certificate (core) is. Rejection by RBI

• Banker's report required

  It is mandatory for the proposed shareholders and directors to have a banker's report.

• A declaration to express a criminal case

  Proposed shareholders and directors should come forward and confirm non-criminal background as well as declare non-guilty under Section 138 of the Negotiable Instruments Act.

• Financial Record for the last three years

  An annual report showing the financial statements of the last three years has to be attached.