📌 Quick Answer: How is valuation done for mergers and amalgamation in India?
Merger and amalgamation valuation under Sections 230–232 of the Companies Act, 2013 requires an IBBI Registered Valuer to determine the share swap ratio (exchange ratio) between the transferor and transferee companies. The valuer applies multiple methods — Net Asset Value (NAV), Discounted Cash Flow (DCF), Comparable Companies Multiple (CCM), and market price analysis (for listed entities) — assigns weights, and arrives at a fair value per share for each entity. The ratio of these values determines how many shares of the surviving company are issued per share of the merging company. For listed companies, SEBI Circular SEBI/HO/CFD/DIL2/CIR/P/2023/16 requires additional safeguards including an independent fairness opinion. At Virtual Auditor, we have issued merger valuation reports accepted by NCLT Benches across Chennai, Mumbai, Bangalore, and Delhi — book a consultation to discuss your scheme.
📖 Definition — Merger (Amalgamation): A merger or amalgamation is the combination of two or more companies into a single entity. In Indian corporate law, this is effected through a “scheme of arrangement” or “scheme of amalgamation” sanctioned by the National Company Law Tribunal (NCLT) under Sections 230–232 of the Companies Act, 2013. The transferor company (merging entity) ceases to exist, and its assets, liabilities, and undertaking vest in the transferee company (surviving entity).
📖 Definition — Share Swap Ratio (Exchange Ratio): The share swap ratio determines the number of equity shares of the transferee company to be issued to shareholders of the transferor company in exchange for their existing shareholding. For example, a ratio of 2:3 means shareholders of the transferor receive 2 shares of the transferee for every 3 shares held in the transferor. The ratio must be fair to both sets of shareholders and is determined by an independent registered valuer based on the relative intrinsic values of the two companies.
📖 Definition — Scheme of Arrangement: A legal document filed with the NCLT that sets out the terms and conditions of the merger, including the share swap ratio, the appointed date (from which the merger takes effect for accounting purposes), the effective date (when the NCLT order is filed with the ROC), and the treatment of employees, contracts, and liabilities. The scheme must be approved by the requisite majority of shareholders and creditors of each company involved.
Section 230 of the Companies Act, 2013 is the foundational provision governing schemes of compromise or arrangement between a company and its creditors or members. While Section 230 covers a broader range of arrangements (including debt restructuring and capital reduction), it is the gateway provision through which merger and amalgamation schemes are presented to the NCLT.
Key procedural requirements under Section 230:
Section 231 grants the NCLT the power to intervene in cases where the scheme is not being implemented as sanctioned, or where the scheme needs modification. This section is relevant to merger valuations because it provides a mechanism for addressing post-sanction disputes about the implementation of the swap ratio or the treatment of fractional entitlements.
Section 232 deals specifically with mergers and amalgamations (as distinct from other types of arrangements under Section 230). It contains provisions unique to mergers:
Section 233 provides a simplified merger route for specific categories:
The fast-track route does not require NCLT involvement. Instead, the scheme requires approval from shareholders holding at least 90% of shares, no objection from creditors representing at least 90% of the total outstanding debt, and approval from the Regional Director (Central Government). The Official Liquidator must confirm that the merger is not prejudicial to shareholders or creditors. Even under the fast-track route, a valuation report from an IBBI Registered Valuer is necessary to support the swap ratio.
Section 247 of the Companies Act, 2013 mandates that valuation required under the Act must be made by a registered valuer meeting eligibility criteria prescribed under the IBBI (Registered Valuers) Regulations, 2018. For merger valuations involving the determination of share swap ratios, the valuer must be registered under the “Securities or Financial Assets” class. The valuer must be independent — they cannot be an officer or employee of the company, and they must not have a material interest in the company or the transaction. CA V. Viswanathan (IBBI/RV/03/2019/12333) is registered under the Securities or Financial Assets class and has conducted merger valuations for schemes involving companies across manufacturing, technology, financial services, and real estate sectors.
The NCLT Rules, 2016 prescribe the procedural framework for filing and hearing merger applications. Key rules relevant to valuation:
These rules prescribe additional requirements for merger schemes:
Regulation 37 of the SEBI LODR Regulations requires listed companies to file the draft scheme with the stock exchanges, which in turn submit it to SEBI for observations. SEBI examines the scheme for compliance with securities laws, fairness to public shareholders, and adequacy of disclosures. The stock exchanges provide their comments/observations within a prescribed timeline.
This circular (which consolidated and replaced earlier circulars on schemes of arrangement) prescribes the framework for listed company mergers:
SEBI requires that the valuation report for a listed company merger must:
Determining the share swap ratio requires valuing both the transferor and transferee companies independently and then computing the ratio of their per-share values. Unlike single-company valuations (where only one entity is valued), merger valuations require methodological consistency — the same methods must be applied to both companies, and the weights assigned to each method must be logically consistent.
The standard practice, recognised by NCLT Benches and SEBI, is to apply at least three of the following methods:
The NAV method values a company based on its balance sheet — total assets minus total liabilities, divided by the number of equity shares. For merger valuations, we use the adjusted NAV (also called the fair-value NAV), which revalues key assets and liabilities to their fair values rather than book values.
Adjustments typically include:
NAV is most relevant for asset-heavy companies (real estate, manufacturing, infrastructure) and least relevant for asset-light companies (technology, services, SaaS). In the weighting framework, NAV typically receives 20–40% weight for manufacturing companies and 5–15% for technology companies.
The DCF method values a company based on the present value of its projected free cash flows over a forecast period (typically 5–7 years), plus a terminal value representing value beyond the forecast period. For merger valuations, we construct independent DCF models for both the transferor and transferee companies.
Key parameters in the merger DCF:
DCF typically receives the highest weight in the swap ratio determination — 35–50% for operating companies with established cash flow histories, and even higher for companies with strong growth trajectories where the NAV understates value.
The CCM method values a company based on the trading multiples of comparable listed companies. The most commonly used multiples for merger valuation are:
The comparable set must be carefully selected — companies must be in the same or closely adjacent industry, of broadly similar scale, with similar growth and profitability profiles. We document the selection criteria and the reasons for including or excluding specific comparables. For Indian merger valuations, the comparable set typically includes both Indian listed companies and, where appropriate, international peers (with adjustments for country risk, currency, and regulatory differences).
The selected multiple is applied to the subject company’s trailing or forward EBITDA (or revenue) to derive the enterprise value. After deducting net debt and adding surplus assets, the equity value per share is calculated. CCM typically receives 15–25% weight in the overall framework.
For listed companies, the market price provides a direct, observable measure of equity value as perceived by the market. SEBI prescribes specific periods for computing the volume-weighted average price (VWAP):
For unlisted companies, market price analysis is not applicable. For mergers between a listed and an unlisted company, the market price method is applied only to the listed entity. This asymmetry must be carefully handled in the swap ratio calculation — the valuer must ensure that the methods applied to the unlisted entity are robust enough to produce a fair comparison.
After computing per-share values under each method, the valuer assigns weights to each method based on relevance to the specific companies and the specific transaction. The weighted average value per share is computed for each company, and the swap ratio is the ratio of these weighted averages.
| Method | Typical Weight — Manufacturing | Typical Weight — Technology | Typical Weight — NBFC / Bank |
|---|---|---|---|
| Net Asset Value (NAV) | 30% | 10% | 35% |
| Discounted Cash Flow (DCF) | 40% | 50% | 30% |
| Comparable Companies Multiple | 15% | 20% | 15% |
| Market Price (if listed) | 15% | 20% | 20% |
The weights must be consistent between the two companies in the merger. If DCF is given 50% weight for the transferor, it should also receive 50% weight for the transferee, unless there is a documented and compelling reason for asymmetric weighting (e.g., one company is a startup with no operating history, making DCF unreliable for that entity, while the other is a mature company where DCF is the most relevant method). Asymmetric weighting is scrutinised closely by NCLT and SEBI.
Consider a merger of Company A (transferor — an unlisted auto components manufacturer) into Company B (transferee — a listed auto components company). The boards of both companies have approved the scheme. An independent IBBI Registered Valuer is appointed to determine the swap ratio.
| Method | Equity Value (INR Cr) | Shares (Lakh) | Value Per Share (INR) | Weight |
|---|---|---|---|---|
| Adjusted NAV | 85 | 10.00 | 850 | 30% |
| DCF | 120 | 10.00 | 1,200 | 40% |
| CCM (EV/EBITDA) | 105 | 10.00 | 1,050 | 15% |
| Market Price | N/A (unlisted) | — | — | 0% |
| Weighted Average Value Per Share — Company A | 1,043 | |||
Weighted average = (850 x 30%) + (1,200 x 40%) + (1,050 x 15%) = 255 + 480 + 157.5 = INR 892.5. With the remaining 15% weight redistributed to NAV and DCF (since market price is not applicable), the adjusted weights become NAV 35.3%, DCF 47.1%, CCM 17.6%. Recalculated: (850 x 35.3%) + (1,200 x 47.1%) + (1,050 x 17.6%) = 300 + 565 + 185 = INR 1,050 per share (rounded).
| Method | Equity Value (INR Cr) | Shares (Lakh) | Value Per Share (INR) | Weight |
|---|---|---|---|---|
| Adjusted NAV | 450 | 25.00 | 1,800 | 30% |
| DCF | 625 | 25.00 | 2,500 | 40% |
| CCM (EV/EBITDA) | 550 | 25.00 | 2,200 | 15% |
| Market Price (VWAP 26 weeks) | 525 | 25.00 | 2,100 | 15% |
| Weighted Average Value Per Share — Company B | 2,185 | |||
Weighted average = (1,800 x 30%) + (2,500 x 40%) + (2,200 x 15%) + (2,100 x 15%) = 540 + 1,000 + 330 + 315 = INR 2,185 per share.
Swap Ratio = Value per share of Company A / Value per share of Company B = 1,050 / 2,185 = 0.4806.
Expressed as a ratio: approximately 48 shares of Company B for every 100 shares of Company A, or simplified to approximately 12 shares of Company B for every 25 shares of Company A.
In practice, the swap ratio is expressed in whole numbers or simple fractions for ease of implementation. The board may round the ratio to 1:2 (1 share of Company B for every 2 shares of Company A, i.e., 0.50) if the rounding is within the valuation confidence interval. The valuation report documents the computed ratio, the sensitivity range, and the basis for any rounding.
When the swap ratio does not produce whole-number share entitlements for every shareholder, fractional entitlements arise. The scheme typically provides for one of two treatments:
Under Indian Accounting Standards (Ind AS), a merger is accounted for as a “business combination” using the acquisition method (also called the purchase method). The key accounting steps are:
Mergers between entities under common control (e.g., merger of two group companies with the same promoter) are outside the scope of the acquisition method. Appendix C to Ind AS 103 requires the pooling of interests method for common control combinations. Under this method, assets and liabilities are recorded at their existing carrying amounts (not fair values), and no goodwill is recognised. The difference between the consideration and the carrying value of net assets is adjusted against reserves.
This distinction is significant for the valuation report. In a common control merger, the valuation report still determines the swap ratio (which affects the relative shareholding of each shareholder post-merger), but the accounting treatment does not involve fair value remeasurement. The valuer must be aware of whether the merger is a common control transaction and note the accounting implications in the report.
The Income Tax Act, 1961 defines “amalgamation” under Section 2(1B) with specific conditions that must be met for the merger to qualify as a tax-neutral amalgamation:
If these conditions are met, the following tax benefits apply:
The valuation report must address whether the Section 2(1B) conditions are met and the tax implications of the proposed swap ratio. If the scheme includes cash consideration (in addition to share swap), the cash component may trigger capital gains tax on the shareholders receiving cash.
Stamp duty on the order of the NCLT sanctioning the scheme varies by state. Some states levy stamp duty on the entire consideration (value of shares issued under the swap), while others levy it on the value of immovable property transferred. The Indian Stamp Act, 1899, as amended by the Indian Stamp (Amendment) Act, 2023, provides for a maximum stamp duty on amalgamation orders. The valuation report’s determination of property values directly affects the stamp duty liability.
Under the Central Goods and Services Tax Act, 2017, a merger by NCLT order is treated as a transfer of a going concern. Schedule II of the CGST Act treats the transfer of business as a going concern as a supply of services. However, the exemption under Entry 2 of Notification No. 12/2017-CT (Rate) provides that services by way of transfer of a going concern, as a whole or an independent part thereof, are exempt from GST. This exemption applies when the entire business (or an independently functioning part) is transferred. The valuation report must identify whether the transfer constitutes a going concern for GST purposes.
Mergers meeting the thresholds prescribed under Section 5 of the Competition Act, 2002 require prior approval from the CCI. The thresholds are based on the combined assets or turnover of the merging entities. As of the current regime:
CCI approval is typically obtained before the NCLT hearing. The CCI examines whether the merger would cause or is likely to cause an appreciable adverse effect on competition in India. The valuation report is part of the CCI filing (Form I or Form II) and the CCI may examine the swap ratio to assess whether the transaction structure creates competition concerns.
Section 234 of the Companies Act, 2013, read with Rule 25A of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016, permits cross-border mergers — both inbound (foreign company merging into an Indian company) and outbound (Indian company merging into a foreign company). The rules prescribe:
Cross-border merger valuations are significantly more complex due to currency conversion issues, differences in accounting standards (IFRS vs. Ind AS vs. local GAAP), country risk adjustments in discount rates, and regulatory requirements across multiple jurisdictions. Our practice coordinates with international valuation firms when issuing reports for cross-border mergers.
NCLT Benches have consistently held that the swap ratio must be fair to all classes of shareholders, not just the promoter groups. In several cases, NCLT has directed a fresh valuation where it found that the original valuation was not independent or did not adequately consider the interests of minority shareholders. The valuer must explicitly address the impact of the swap ratio on minority shareholders of both companies and include a sensitivity analysis showing how small changes in key assumptions affect the ratio.
The valuation date (the date as of which the fair values are determined) can significantly impact the swap ratio. If the financial performance of one company has deteriorated between the valuation date and the scheme hearing date, shareholders may argue that the swap ratio is stale. NCLT may require an updated valuation. Our practice uses a valuation date that is as close as practicable to the board meeting date (when the scheme is approved) and includes a representation that no material adverse change has occurred between the valuation date and the report date.
As noted earlier, the swap ratio must be based on standalone values, not post-merger synergy values. However, the board’s justification for the merger often emphasises synergies (cost savings, revenue enhancement, market access). The valuation report must clearly separate the standalone valuation (used for the swap ratio) from the synergy analysis (which justifies the transaction commercially). Some NCLT Benches have questioned whether the swap ratio implicitly includes synergies by examining the DCF projections — this is why we ensure that the DCF projections represent standalone performance without synergy assumptions.
The Income Tax Department is given notice of all merger schemes under Section 230 and may raise objections. Common objections include: the merger is a device for avoidance of tax (e.g., a profitable company merging with a loss-making company to set off accumulated losses under Section 72A), the appointed date is backdated to claim tax benefits, or the swap ratio is designed to benefit specific shareholders at the expense of the exchequer. The valuation report must address these concerns preemptively — particularly the commercial rationale for the merger and the arm’s length nature of the swap ratio.
The Regional Director files a report under Rule 8 of the NCLT Rules stating whether the scheme is in the public interest. The Regional Director may flag concerns about the valuation methodology, the independence of the valuer, or the adequacy of disclosures. Our practice ensures compliance with all disclosure requirements and maintains a standard of independence that exceeds the minimum regulatory requirements.
Fast-track mergers (holding-subsidiary or small company mergers) have a simplified procedural framework, but the valuation requirements are substantively the same. The key differences in valuation practice for fast-track mergers:
🔍 Practitioner Insight — CA V. Viswanathan
In my experience conducting merger valuations across manufacturing, technology, financial services, and real estate sectors, the single most common point of contention before the NCLT is the treatment of real estate assets in the NAV method. Many Indian companies — particularly those incorporated before 2000 — carry land and factory premises at historical cost that bears no relation to current market value. A factory site purchased for INR 10 lakh in 1985 may have a current market value of INR 50 crore. If one company in the merger has significant legacy real estate and the other does not, the NAV method produces a dramatically different result depending on whether assets are at book value or fair value. Our practice always uses the adjusted (fair-value) NAV, supported by an independent property valuation from an IBBI Registered Valuer (Land and Building class). This adds cost and time to the engagement but is non-negotiable for a defensible swap ratio. I have seen NCLT Benches direct fresh valuations specifically because the original valuation used book-value NAV without revaluing immovable property. The second most common issue is the independence of the valuer. In group restructurings, the same CA firm that audits both companies is sometimes appointed as the valuer. NCLT Benches have questioned this arrangement, and rightly so. Independence is not just a technical requirement — it is a credibility issue. We accept merger valuation engagements only where we have no ongoing audit, tax, or advisory relationship with either company or their promoter groups. This independence has been explicitly noted and appreciated by NCLT Benches in their sanction orders. Our merger valuation fees range from INR 1,50,000 for straightforward unlisted company mergers to INR 5,00,000 for complex multi-entity restructurings involving listed companies, cross-border elements, or IBC-related mergers. Given that a flawed valuation can delay the scheme by 6–12 months (if NCLT directs fresh valuation) or expose the companies to shareholder litigation, investing in a rigorous independent valuation is the most cost-effective decision in the entire merger process.
Under the Insolvency and Bankruptcy Code, 2016, a resolution plan may involve the merger or amalgamation of the corporate debtor with the resolution applicant or a third party. Such mergers are sanctioned by the NCLT under Section 31 of the IBC (resolution plan approval) and may additionally require compliance with Sections 230–232 of the Companies Act.
IBC-related merger valuations present unique challenges:
For a detailed analysis of IBC valuation, see our article on IBC Valuation.
| Service | Scope | Fee Range (INR) |
|---|---|---|
| Fast-Track Merger Valuation (Section 233) | Holding-subsidiary or small company merger, NAV + DCF | 75,000 – 1,50,000 |
| Unlisted Company Merger Valuation (Sections 230–232) | Multi-method valuation for two unlisted entities, swap ratio determination | 1,50,000 – 3,00,000 |
| Listed Company Merger Valuation | Full valuation with SEBI compliance, market price analysis, fairness opinion support | 3,00,000 – 5,00,000 |
| Multi-Entity Group Restructuring | Valuation of 3+ entities in a group restructuring, multiple swap ratios | 4,00,000 – 8,00,000 |
| Cross-Border Merger Valuation | Inbound/outbound merger under Section 234, FEMA compliance | 3,50,000 – 7,00,000 |
| IBC Resolution Plan Merger Valuation | Distressed entity valuation with IBC compliance | 2,50,000 – 5,00,000 |
All fees are exclusive of GST at 18%. Turnaround time is 15–20 working days for unlisted company mergers and 20–30 working days for listed company or cross-border mergers. Property revaluation fees (IBBI Registered Valuer — Land and Building) are charged separately at actuals. View detailed pricing or book a consultation.
A merger valuation report issued by our practice conforms to the IBBI Valuation Standards and SEBI requirements (where applicable). The report includes:
📋 Key Takeaways
The typical NCLT merger process takes 6–12 months from the date of filing the scheme to the date of the NCLT’s final order. Key timeline milestones include: filing the application (1–2 weeks), first hearing and directions (4–8 weeks), notice to creditors and shareholders (4–6 weeks), creditors/shareholders meetings (6–8 weeks), Regional Director report (4–8 weeks), final hearing (4–12 weeks), and order (2–4 weeks). The valuation report should be completed before the board approves the scheme, which precedes the filing. Listed company mergers take longer due to SEBI and stock exchange processes. Complex mergers with objections can take 18–24 months.
Yes. The NCLT has the power to refuse to sanction a scheme if it finds the swap ratio unfair or prejudicial to any class of shareholders or creditors. In practice, NCLT rarely substitutes its own swap ratio but may direct a fresh or revised valuation by a different independent valuer. The NCLT examines whether the valuation methodology is sound, whether the valuer is truly independent, and whether the swap ratio is within a reasonable range given the financial profiles of the companies. At our practice, we have never had a swap ratio rejected by the NCLT, which we attribute to rigorous methodology, documented independence, and comprehensive sensitivity analysis.
Yes, if either company holds significant immovable property (land, buildings, factory premises). The adjusted NAV method requires assets to be revalued at fair values, and immovable property valuation must be performed by an IBBI Registered Valuer under the “Land and Building” class. This is a separate registration from “Securities or Financial Assets.” Our practice coordinates with partner Land and Building valuers to ensure the property valuation is completed within the merger valuation timeline. The cost of property valuation is additional to the merger valuation fee.
The appointed date is the date from which the merger takes effect for accounting purposes. All assets, liabilities, income, and expenses of the transferor company from the appointed date onwards are treated as belonging to the transferee company. The appointed date is typically set as the first day of the financial year in which the scheme is filed (e.g., 1 April 2025 for a scheme filed in FY 2025-26). The valuation date and the appointed date need not be the same — the valuation date is typically later than the appointed date because the valuation is prepared after the appointed date. However, the valuer must ensure that the financial data used in the valuation is consistent with the appointed date.
Under Section 232(7), employees of the transferor company must continue in the transferee company on terms not less favourable. For ESOPs, the scheme typically provides that options granted by the transferor are substituted with equivalent options in the transferee, using the swap ratio to convert the number of options and adjust the exercise price. The valuation report should address the impact of outstanding ESOPs on the swap ratio — specifically, whether the valuation is on a fully diluted basis (including ESOP shares) or on a basic share count. We recommend fully diluted valuation for swap ratio purposes to avoid dilution surprises post-merger. For more on ESOP valuation, see our ESOP Valuation guide.
No. Under Section 247 of the Companies Act, 2013, valuation required under the Act must be done by a registered valuer. The NCLT requires a valuation report as part of the scheme documentation. Even for fast-track mergers under Section 233 (where NCLT involvement is not required), the Regional Director and Official Liquidator expect a valuation report to support the swap ratio. Proceeding without a proper valuation report risks rejection of the scheme, objections from the Regional Director, and potential shareholder litigation.
If the merging companies have different financial year-ends, the valuer must align the financial data to a common date. This is typically done by using the most recent audited financials for each company, supplemented by management-certified financial data for the intervening period. For example, if Company A has a March year-end and Company B has a December year-end, and the valuation date is 30 June 2025, the valuer uses Company A’s March 2025 audited financials and Company B’s December 2024 audited financials supplemented by management accounts for January–June 2025. The scheme typically requires both companies to align their financial year-ends post-merger.
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