What is the Process of Acquiring an NBFC? Types of NBFC Takeover

NBFC is the short form for Non-Banking Financial Company registered as per the provisions of the Companies Act of 2013. The meaning of NBFC Takeover is purchasing or acquiring control of an NBFC by another registered NBFC. The Reserve Bank of India (RBI) has made the process of taking over an NBFC easy as now it only takes 45 to 60 working days in the process.

What are the Types of NBFC Takeover?

To reach new heights in today's rapidly emerging world of business, the takeover of an NBFC has now become a widespread habit that is being adopted by the companies.

NBFC Takeover can be of two types:

• Hostile Takeover

The phrase hostile takeover is itself demonstrating. In a hostile takeover, the acquirer exercises diverse tactics to get hold of the target company's own without the nod of the director associated with the target NBFC. During such takeovers, organizations get to reach out to shareholders by giving them a tender, and there is no vacillation in indulging in a proxy altercation to change the administration to get the acquisition accepted. In this type of takeover, the acquirer does not necessarily require the support and approval of the target company's BOD.

• Friendly Takeover

A friendly takeover is a situation that illustrates the narrative of the acquisition of the target company serenely by another company as this takeover is done with the approval and assistance of the BOD and the management. The target companies' shareholders are in agreement with the deal only if they feel that the value per share is good to put side by side to the present market price. More often than not, a friendly takeover is likely to take place when the target company is satisfied with the resolution they have overseen during the prior analysis in the prescribed time frame.

The advantages of this type of takeover are not only limited to good per-share value, but there are additional benefits. The target NBFC gets opportunities to advance its growth.

The procedure of NBFC Takeover in India

Following are the steps of NBFC Takeover in India:

• Memorandum of Understanding (MoU)

The procedure for NBFC takeover triggers off from the MoU to get signed with the target company. It denotes that both the Target Company and acquirer company is ready to form an agreement of turnover. The directors of both companies must to properly sign the MoU.

• Preceding Approval of the Reserve Bank of India (RBI)

We know that Non-Banking Financial Companies are governed and administered by RBI. The approval of the Reserve Bank of India (RBI) is an essential step. Approval is necessarily required in the following scenarios:

1. When starting the procedure of taking over an NBFC, the Reserve Bank of India's approval becomes binding.

2. When the model of shareholding is changing by being responsible for transferring 26% of the paid-up capital of the company to others.

• Publication of the Public Notice

Publication of the public notice should be done in more than one regional language. The first language has to be English, and the second language has to be the regional language. The public notice should be published within 30 days after receiving approval from RBI.

• Formal Agreement

In this action, two concerned companies can consider entering into a proper takeover agreement, and now the companies can transfer the administration, transfer the shares, or mention concerns regarding a takeover.

• Publication of the Second Public Notice

The Publication of a second public notice should also be done in two regional languages. The first language has to be English, and the second language has to be the regional language same as the first public notice. The second public notice has to be published prior to 30 days to transfer of authority, transfer of shares.

• Obtain NOC from Creditors

Before the business and other related articles of business are transferred, the target company has to obtain a No Objection Certificate from the creditors of the company.

• Assets Transfer

After the approval of the takeover scheme by the RBI without raising objections, the assets of the company are transferred.

• Valuation of the Entity in Agreement with the Rules

The Reserve Bank of India has started a set of rules and regulations; the concerned entity's evaluation is made possible following rules and regulations set by RBI. The DFC method is a method that supports the evaluation process. It is a method that is known for depicting the present net value of the entity.

Conclusion

The meaning of NBFC Takeover is purchasing or acquiring control of an NBFC by another registered NBFC. The Reserve Bank of India has eased the process of taking over an NBFC as now it only takes 45 to 60 working days in the process. To enthral the target company's management, a Non-Banking Financial Company must go through the registration process under the principal Act.