Debt Restructuring: A Strategic Lever for E-commerce M&A Success in India

India’s e-commerce sector is a hotbed of mergers and acquisitions (M&As), with deal momentum surging post-2024 as startups consolidate and larger players pursue vertical integration. For senior leaders navigating this dynamic landscape, M&A preparation is critical to maximising value. A cornerstone of this process is debt restructuring, which optimises financial health and enhances valuation during an ecommerce sale. This article provides actionable insights, with a focus on debt restructuring, to customise M&A strategies for India’s e-commerce leaders, incorporating expertise from LawCrust.

Industry Context & Debt Restructuring in the E-commerce M&A Landscape

India’s e-commerce industry has seen robust M&A activity, with deal volumes rising 15% year-on-year post-2024. Startups consolidate to achieve scale, while larger players integrate vertically to capture market share. Key drivers include:

• Supply Chain Consolidation: Acquiring logistics or warehousing firms streamlines operations.
• Customer Acquisition: M&As expand reach, especially in Tier-II and Tier-III markets.
• Tech Integration: Buying niche tech platforms enhances AI, personalisation, or payment capabilities.
• Platform Synergy: Mergers create unified ecosystems, combining marketplaces, logistics, and fintech.

Debt restructuring is pivotal in M&A preparation, enabling buyers and sellers to optimise financial positions, reduce risks, and maximise deal value. A clean capital structure, achieved through financial restructuring, makes companies more attractive to acquirers.

1. Why Debt Restructuring Matters Before an Ecommerce Sale

Legacy debt, high-interest loans, and non-performing assets (NPAs) erode valuation and deter buyers. Poor debt management triggers:

• Risk Discounts: Buyers apply steeper discounts to offset high debt servicing costs.
• Stricter Diligence: Unresolved debt prompts rigorous scrutiny, delaying deals.
• Renegotiated Terms: High net debt forces sellers to accept lower valuations or unfavorable terms.

Effective debt restructuring enhances financial health by reducing net debt, improving EBITDA (often by 5-10%), and creating a clean capital structure. This signals financial discipline and operational efficiency, boosting buyer confidence during an ecommerce sale. LawCrust’s expertise in financial and legal structuring ensures seamless alignment with buyer expectations.

2. Key Debt Restructuring Strategies Pre-M&A

To customise M&A preparation, e-commerce firms should adopt targeted debt restructuring strategies:

• Consolidate High-Cost Loans: Merge high-interest loans (e.g., 14%) into lower-interest, longer-tenure facilities (e.g., 9%) to improve cash flow.
• Reclassify Short-Term Liabilities: Shift short-term debt to long-term liabilities to ease working capital pressure and enhance liquidity.
• Negotiate Debt Settlements: Resolve NPAs or secure partial write-offs to clean the balance sheet.
• Refinance with Mezzanine or Convertible Debt: Use hybrid instruments to align with buyer preferences and support flexible deal structuring.

These strategies strengthen financial positions, making the company more appealing in an ecommerce sale.

3. Legal, Financial, and Tax Implications

Debt restructuring involves navigating complex legal, financial, and tax landscapes:

• Legal Considerations: Secure lender consent for restructuring, adhere to covenants, negotiate inter-creditor agreements, and update Registrar of Companies (ROC) filings. Non-compliance risks derailing deals.
• Financial Implications: Debt restructuring improves metrics like return on capital employed (ROCE) and interest coverage ratios, enhancing buyer appeal during diligence.
• Tax Implications: Interest on restructured debt may be deductible under Section 36(1)(iii) of the Income Tax Act. Evaluate GST implications for asset transfers and Minimum Alternate Tax (MAT) impacts. Post-acquisition, restructured debt affects capital gains calculations.

LawCrust’s cross-functional expertise ensures compliance and alignment with buyer-side diligence, minimising risks in M&A preparation.

4. Timeline and Process for Restructuring

A structured timeline, starting 3-6 months before an ecommerce sale, ensures effective debt restructuring:

1. Internal Debt Audit (Weeks 1-4): Review all liabilities, including loans, vendor dues, and NPAs, to identify high-cost debt and covenant restrictions.
2. Lender Negotiations (Weeks 5-8): Secure favorable terms, consolidate loans, or settle NPAs with banks or NBFCs.
3. Board/Shareholder Approvals (Weeks 9-10): Obtain governance approvals for restructuring plans.
4. Legal Documentation (Weeks 11-12): Finalise agreements and update ROC filings.
5. Disclosure to Acquirers (Weeks 13-14): Share restructured financials transparently during due diligence.

Early M&A preparation minimises surprises, ensures smoother valuation modeling, and showcases disciplined debt management.

5. Strategic Benefits of Debt Restructuring in M&A

Strategic debt restructuring delivers tangible benefits:

• Improved Enterprise Value: Lower net debt and interest costs boost EBITDA, increasing valuation multiples (e.g., 2.5x to 3.5x revenue).
• Enhanced Negotiation Leverage: A clean capital structure empowers sellers to secure better terms.
• Increased Capital Efficiency: Improved ROCE and interest coverage ratios signal financial health.
• Buyer Confidence: Proactive debt management demonstrates risk mitigation, reducing diligence red flags.
• Asset-Light Valuation: Resolving NPAs enables IP-driven or asset-light valuation frameworks, appealing to global acquirers.

These benefits position companies for superior outcomes in ecommerce sales.

Illustrative Example

A mid-market D2C beauty brand, carrying ₹40 crore in short-term vendor debt at 13% interest, undertook debt restructuring as part of M&A preparation. They consolidated the debt into a long-term working capital line from an NBFC at 8.5%, reclassified ₹10 crore of short-term liabilities into a 3-year term loan, and settled ₹5 crore in NPAs. This cleaned their financial statements, improving EBITDA margins by 8%. A global e-commerce aggregator acquired them at a 3.2x revenue multiple (₹320 crore), a 20% premium over initial offers, driven by their robust financial restructuring.

Conclusion

Debt restructuring is a powerful value accelerator for e-commerce M&As in India. By optimising capital structures, resolving legacy debt, and aligning with legal and tax frameworks, companies enhance valuation, strengthen negotiation leverage, and build buyer trust. Founders and CFOs should initiate early M&A preparation, leveraging cross-functional teams in finance, legal, and technology, with support from experts like LawCrust, to ensure transparency and alignment. Strategic debt restructuring unlocks superior deal outcomes, positioning e-commerce firms for success in a competitive market.

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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• Email: inquiry@lawcrustbusiness.com