Raising Capital for FMCG Mergers: Navigating India’s Dynamic Consumer Goods Sector

India’s Fast-Moving Consumer Goods (FMCG) sector is a cornerstone of the economy, driving significant growth through its scale and adaptability. For senior leaders, raising capital for mergers and acquisitions (M&A) is critical to strengthening market presence in this competitive landscape. This article explores the challenges of raising capital for FMCG mergers and offers strategic solutions supported by LawCrust’s integrated legal-financial-tech expertise to unlock value in India’s consumer goods sector.

Industry Overview & M&A Context

India’s FMCG sector, projected to reach $220 billion by 2025 with a 14.9% CAGR, is the fourth-largest contributor to GDP. It spans packaged foods (19%), personal care (50%), home care (31%), and beverages. While urban areas contribute 65% of sales, rural markets still account for 35%, offering substantial growth headroom.

In recent years, consolidation has been reshaping the consumer goods space. M&A deals are enabling companies to expand their brand portfolios and enter untapped geographies. For instance, Tata Consumer’s ₹1,100 crore acquisition of Capital Foods in 2023 underscores this trend. Raising capital is pivotal to such efforts as it funds competitive bidding, deal execution, and post-merger integration in a fragmented and fast-evolving market.

1. Recent Developments Influencing M&A Financing (As of June 2025)

• Several policy, market, and investor trends are reshaping how companies approach raising capital for FMCG mergers:

1. PLI Scheme 2025 Extensions: The $1.46 billion Production-Linked Incentive (PLI) scheme for food processing has accelerated capex, making FMCG firms more attractive M&A targets. Consequently, capital access for such acquisitions has improved.
2. Inflation and Cost Stabilisation: Retail inflation, which moderated to 2.92% in April 2025, and the stabilisation of raw material prices have enhanced earnings predictability. As a result, companies now find it slightly easier to support valuations when raising capital.
3. ESG Norms in Deal Structuring: New Environmental, Social, and Governance (ESG) mandates such as Extended Producer Responsibility (EPR) and CPCB packaging norms have increased compliance costs. Therefore, companies need to factor in these obligations when structuring their capital strategies.
4. Shift in PE/VC Outlook: With $43 billion invested in 2024, private equity and venture capital firms have become more selective. Rather than chasing growth alone, they now prioritise profitability and synergy realisation raising the bar for raising capital.
5. Budget 2025 Measures: The “Sabka Vikas” theme in Budget 2025-26 includes enhanced MSME support, import duty recalibrations, and M&A-friendly tax treatments. These reforms, in turn, make it more conducive to pursue consolidation with strategic funding.
6. Capital Market Trends: India’s capital markets saw 268 IPOs raising $19.5 billion in 2024. Although public markets remain vibrant, the underdeveloped bond market (just 17% of GDP) limits debt options pushing M&A players toward private credit and structured equity for raising capital.

2. Key Challenges in Raising Capital for FMCG Mergers

• Despite the tailwinds, several headwinds continue to affect how companies raise capital for FMCG M&A deals:

1. Valuation Pressures: The fragmented nature of the market drives inflated valuation multiples. As a result, raising capital becomes more difficult, especially when synergy projections are vague.
2. Earnings Normalisation Post-COVID: Following pandemic highs, earnings have normalised. Consequently, deal multiples have contracted, putting pressure on capital efficiency and premium pricing.
3. Working Capital and Debt Issues: Many target firms in FMCG struggle with working capital blockages or existing debt burdens. Hence, acquirers must raise additional capital not just for acquisition but also for restructuring.
4. Investor Scepticism: Private equity and venture capital players are increasingly cautious. They often question synergy assumptions, integration plans, and demand projections leading to hesitancy in deploying capital.
5. Limited Financing Vehicles: Mid-size deals in the sector often fall through financing gaps. Traditional lenders focus on large-cap borrowers, while private credit ecosystems remain relatively nascent.
6. ESG and Compliance Hurdles: New compliance demands from regulators like FSSAI, CPCB, and GST increase deal costs and reduce predictability. This adds complexity to capital planning.

3. Strategic Lens on Overcoming Capital Challenges in FMCG M&A

In light of these challenges, leaders must adopt multifaceted strategies for raising capital effectively. LawCrust’s hybrid consulting framework integrating legal, financial, and technology support offers actionable solutions:

• Deal Structuring Solutions

1. Staggered Payments and Earn-Outs: Companies can reduce upfront capital burdens by linking part of the acquisition cost to future revenue milestones. For example, a leading snacks firm recently used this approach to acquire a regional brand.
2. Minority Investments with Call Options: Instead of outright acquisitions, phased strategies starting with a minority stake and embedded call options enable controlled capital outlay over time.
3. IP-Linked Monetisation: Leveraging intangible assets like brand trademarks or royalty streams can partially fund acquisitions, thereby boosting capital efficiency.

• Financing Pathways

1. Private Credit and PE Co-Investment: Given that private credit investments reached $9.2 billion in 2024, mid-cap FMCG firms are increasingly exploring this route. PE co-investment models also diversify capital sources while reducing dilution.
2. Strategic Partnerships: Collaborations such as cross-border JVs or channel partnerships for instance, Amazon’s 2025 quick commerce push can provide capital as well as distribution muscle.
3. Bond Issuances and NBFC Debt: While the bond market remains shallow, select corporates have turned to structured NBFC debt or venture debt to bridge funding gaps.

• Due Diligence Levers

1. Hybrid Due Diligence: Combining legal, compliance, and tech evaluations streamlines cost and risk assessments. LawCrust’s integrated diligence model has helped multiple FMCG players secure capital faster.
2. Digital Maturity Assessment: Evaluating a target’s digital and e-commerce capabilities helps justify valuations especially when attracting tech-aligned capital sources.

• Regulatory and Legal Strategy

1. Pre-Clearance of Hurdles: Early identification and resolution of regulatory risks such as FDI approvals or FSSAI licensing accelerate timelines and reduce investor uncertainty.
2. Anti-Trust Planning: Engaging with the Competition Commission of India (CCI) in advance ensures smoother execution for large deals, avoiding delays in capital deployment.

Illustrative Examples

• Snacks Company Acquisition: A mid-sized Indian snacks company raised capital via private debt, with an earn-out clause tied to post-deal revenue. LawCrust’s legal team structured an IP escrow while the finance team ensured timely vendor payments and post-merger efficiency.
• Personal Care D2C Merger: A personal care D2C brand secured equity and mezzanine debt to acquire a niche competitor. Post-acquisition, digital marketing ROI improved by 2x, affirming the capital-raising strategy’s effectiveness and enhancing investor confidence.

Conclusion

Raising capital is no longer a transactional challenge it is a strategic enabler of growth in India’s competitive FMCG sector. By adopting flexible deal structures, exploring alternative financing channels, and investing in thorough due diligence, companies can overcome traditional hurdles.

With LawCrust’s integrated support across legal, financial, and technology verticals, business leaders can confidently navigate regulatory complexity, investor expectations, and capital inefficiencies—ultimately unlocking the full potential of FMCG M&A in India’s consumer goods landscape.

About LawCrust

LawCrust Global Consulting Ltd. delivers cutting-edge Hybrid Consulting Solutions in Management, Finance, Technology, and Legal Consulting to ambitious businesses worldwide. Recognised for our cross-functional expertise and hybrid consulting approach, we empower startups, SMEs, and enterprises to scale efficiently, innovate boldly, and navigate complexity with confidence. Our services span key areas such as Investment Banking, Fundraising, Mergers & Acquisitions, Private Placement, and Debt Restructuring & Transformation, positioning us as a strategic partner for growth and resilience. With an integrated consulting model, fixed-cost engagements, and a virtual delivery framework, we make business transformation accessible, agile, and impactful.

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