Achieving Fair Pricing in India’s Consumer Goods Mergers

India’s consumer goods sector, a powerhouse spanning fast-moving consumer goods (FMCG), direct-to-consumer (D2C) brands, packaged foods, personal care, and home care, is witnessing a surge in mergers and acquisitions (M&A). As of June 2025, achieving fair pricing in these transactions is critical for senior leaders and decision-makers aiming to maximise value and ensure sustainable growth. This article explores the M&A landscape, recent trends impacting fair pricing, negotiation challenges, strategic frameworks, and real-world case studies, emphasising the need for a hybrid consulting approach integrating management, finance, legal, and technology expertise with insights from firms like LawCrust.

Industry Context: Mergers and Fair Pricing in Consumer Goods

India’s consumer goods sector, projected to reach USD 220 billion by 2025 with a CAGR of 14.9%, is a hotbed for M&A activity. The sector includes FMCG giants like Hindustan Unilever, ITC, and Nestlé India, alongside D2C disruptors such as Mamaearth and Yoga Bar. From April 2000 to June 2024, the food processing segment alone attracted USD 12.8 billion in foreign direct investment (FDI), signalling robust investor confidence. Notable deals include Reliance Retail’s acquisition of Lotus Chocolate and ITC’s phased 100% acquisition of Sproutlife Foods (Yoga Bar).

Mergers are driven by strategic imperatives:

• Cost Synergies: Streamlining supply chains and reducing operational redundancies.
• Distribution Consolidation: Expanding reach, particularly in rural markets contributing 35% of FMCG revenue.
• Access to Innovation: Acquiring D2C startups to leverage digital-first models and target younger demographics.
• Category Expansion: Entering high-growth segments like health and wellness, as seen in Hindustan Unilever’s investments in OZiva and Wellbeing Nutrition.

These drivers highlight the importance of fair pricing to balance acquirer and target expectations while aligning with market dynamics.

1. Recent Trends Influencing Fair Pricing in Mergers

Several developments are reshaping how fair pricing is determined in consumer goods M&A:

• Funding Corrections and Due Diligence: Post-2023 funding corrections have tightened valuation scrutiny. Acquirers prioritise normalised EBITDA and cash flow sustainability to ensure fair pricing reflects realistic financial health.
• FMCG Inflation and Margin Compression: Rising raw material and logistics costs have compressed margins, impacting valuations. Acquirers adjust pricing to account for these pressures, ensuring Equitable valuation aligns with profitability projections.
• Tax and FDI Norm Shifts: The Union Budget 2025–26 emphasises rural development, potentially reducing GST rates on processed foods to 5%. Relaxed FDI norms (100% in single-brand retail, 51% in multi-brand retail) lower regulatory risk premiums, supporting Equitable Valuation.
• AI/ML in Valuation: AI-driven financial modelling enhances precision in revenue forecasting and risk assessment, enabling acquirers to achieve fair pricing grounded in data-driven insights.
• ESG Considerations: Strong ESG compliance commands premium valuations, while non-compliance risks penalties. These factors increasingly influence fair pricing benchmarks, balancing financial and reputational value.

2. Challenges in Negotiating Fair Pricing

Negotiating Equitable valuation in consumer goods M&A presents several hurdles:

• Revenue Recognition Disparities: Differing accounting standards between FMCG giants and D2C startups complicate revenue validation, impacting fair pricing calculations.
• D2C Valuation Complexities: Many D2C brands rely on high customer acquisition costs with unproven profitability, creating valuation disputes.
• Valuing Intangibles: Subjective assets like brand equity, R&D pipelines, and consumer trust challenge Equitable valuation agreements.
• Growth Assumption Gaps: Urban markets drive 65% of FMCG revenue, but rural demand grows faster. Misaligned projections create pricing friction.
• Regulatory Risks: Ongoing Central Pollution Control Board (CPCB) and Food Safety and Standards Authority of India (FSSAI) reforms introduce compliance uncertainties, necessitating risk premiums in fair pricing.

3. Strategic Frameworks to Customise Fair Pricing in M&A

Hybrid consulting frameworks, blending management, finance, legal, and technology expertise, are essential for negotiating Equitable valuation. Firms like LawCrust provide integrated solutions to address these complexities.

• Pre-deal Diagnostics

1. Financial Analysis: Use normalised EBITDA, working capital adjustments, and debt-like item reviews to establish a baseline for Equitable valuation
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2. Cross-functional Alignment: Ensure tech, legal, and finance teams align on IP ownership, litigation status, and data room hygiene to mitigate risks.

4. Negotiation Tactics

• Anchor Pricing: Set benchmarks using sector-specific multiples (e.g., EV/EBITDA, EV/Revenue) to ground negotiations in market realities.
• Structured Earn-outs: Tie earn-outs to gross margin improvements or market share gains to align interests and achieve Equitable valuation over time.
• Scenario Analysis: Model FMCG market volatility, inflation impacts, and GST shifts to anticipate pricing scenarios.
• Legal Tools: Employ indemnity caps, representations and warranties, and price adjustment clauses to protect both parties and ensure fair pricing.

• Valuation Adjustments

1. ESG Factors: Adjust for compliance penalties or incentives, reflecting their impact on long-term value.
2. Integration Costs: Account for tech migration, workforce alignment, and distributor harmonisation expenses.
3. Synergies: Factor in backend consolidation, brand cross-leverage, and retail shelf access to justify fair pricing.

Case Studies: Customising Fair Pricing in Real Transactions

• Case Example 1: Food & Beverage Merger

A merger between a packaged foods company and a regional player achieved fair pricing through a three-tier earn-out model. The structure tied payouts to seasonality-adjusted revenue targets and shelf penetration in Tier 2 towns, ensuring alignment with market dynamics and securing mutual value.

• Case Example 2: FMCG and Personal Care Merger

A legacy FMCG firm merging with a personal care D2C startup faced challenges valuing IP and navigating pending CPCB approvals. A 15% price renegotiation, supported by legal guardrails like indemnity clauses and regulatory risk adjustments, ensured fair pricing that satisfied both parties.

Conclusion: The Future of Fair Pricing in M&A

Achieving fair pricing in India’s consumer goods mergers demands a hybrid consulting approach that integrates management, finance, legal, and technology expertise. Senior leaders must move beyond finance-led valuations to embrace cross-functional strategies, leveraging firms like LawCrust to navigate complexities. By addressing due diligence, regulatory risks, and market dynamics, decision-makers can secure fair pricing that drives sustainable growth and long-term value creation.

Are you ready to embrace this customised approach for your next consumer goods merger?

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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