Navigating Blind Spots: Why Consumer Goods Firms Overlook Liabilities in M&A Due Diligence

India’s consumer goods sector, valued at over $110 billion in 2025, is a vibrant engine of economic growth. It encompasses fast-moving consumer goods (FMCG), packaged food, direct-to-consumer (D2C), personal care, and home care sub-segments. This dynamic landscape drives significant merger and acquisition (M&A) activity. However, many firms overlook liabilities during due diligence, risking financial and operational setbacks. This article, informed by a hybrid consulting lens (management, finance, legal, and technology), explores why consumer goods companies in India frequently overlook liabilities in M&A and offers actionable strategies to mitigate these risks ultimately ensuring deal success for senior leaders.

Industry Context & M&A Trends: The Risk to Overlook Liabilities

The Indian consumer goods sector is a cornerstone of the economy, projected to grow at a 7–9% CAGR through 2030. This growth is driven by urbanisation, rising incomes, and digital adoption. FMCG giants dominate the market. Meanwhile, D2C brands are gaining ground due to their agility, niche positioning, and digital-first strategies.

The sector’s M&A landscape is notably robust. For instance, large players like Hindustan Unilever have acquired D2C startups, while regional brand roll-ups have consolidated fragmented markets. Moreover, cross-border deals are targeting India’s expanding consumer base. Family-run businesses, which often lack formal governance, and digital-first brand integrations are further fuelling M&A momentum.

Nevertheless, the complexity of these transactions spanning regulatory, cultural, and operational challengesv creates ample opportunities for firms to overlook liabilities, threatening both deal value and post-merger synergy.

1. Why Firms Overlook Liabilities in M&A Due Diligence

• Consumer goods firms often overlook liabilities due to several interconnected factors:

1. Speed of Deal Execution: Competitive pressures push firms to close deals quickly. Consequently, they truncate due diligence, causing them to overlook liabilities like tax disputes or regulatory non-compliance.
2. Aggressive Valuation Strategies: Over-optimistic valuations, especially for high-growth D2C brands, lead acquirers to downplay risks. They often assume that liabilities will be offset by future profits.
3. Competitive Bidding Pressure: In high-stakes bidding wars, firms may overlook liabilities in order to present attractive offers, prioritising speed over thorough risk assessment.
4. Assumption-Based Diligence: Rather than conducting real-time scrutiny, many firms rely on incomplete data or outdated assumptions, which increases the risk of overlooking liabilities.

2. Key Areas Where Firms Overlook Liabilities

• There are recurring domains in which consumer goods companies tend to overlook liabilities:

1. Unreported Tax Exposures: Unresolved GST litigation, transfer pricing issues, or Permanent Establishment risks in cross-border deals can lead to hefty penalties.
2. Environmental Non-Compliance and ESG Violations: Non-adherence to Central Pollution Control Board (CPCB) regulations or ESG mandates may result in both fines and reputational damage.
3. Consumer Complaints and Product Liability Risks: Unresolved consumer grievances, product recalls, or mislabelling particularly in packaged food and D2C segments pose serious legal and financial risks.
4. Labour Law Issues: Legacy firms often carry Provident Fund (PF) or Employee State Insurance Corporation (ESIC) backlogs. In addition, they may misclassify contract employees, triggering regulatory penalties.
5. Intellectual Property (IP) Gaps: Unclear IP ownership such as trademarks, patents, or brand assets can lead to post-deal disputes, especially in D2C firms with informal documentation processes.

3. Legal and Financial Blind Spots That Cause Firms to Overlook Liabilities

Fragmented record-keeping in family-owned or regional firms often obscures their financial and legal health. As a result, it becomes easier to overlook liabilities. Opaque vendor contracts and limited audit trails can conceal contingent liabilities, such as unpaid dues or regulatory non-compliance.

Furthermore, limited domain-specific legal diligence particularly involving FSSAI, labour codes, or ESG frameworks exacerbates the issue. Evaluating contingent liabilities like pending lawsuits and off-balance-sheet risks becomes particularly challenging. This is especially true for D2C brands, which may lack robust governance. These blind spots collectively increase the risk of firms overlooking liabilities, leading to post-transaction surprises.

4. Hybrid Consulting Lens: Strategic Risk Mitigation to Avoid Overlooked Liabilities

To avoid overlooking liabilities, consumer goods firms must adopt a multidisciplinary approach to due diligence. This includes integrating legal, financial, technological, and management strategies:

• Legal Strategy

1. Robust Checklists: Develop customised due diligence checklists covering FSSAI compliance, CPCB norms, GST records, labour codes, and ESG adherence. This helps ensure no liabilities are overlooked.
2. Specialised Expertise: Engage legal experts who are deeply familiar with India’s consumer goods sector to identify and mitigate sector-specific risks.

• Financial Strategy

1. Stress-Test Working Capital: Scrutinise liquidity positions, inventory levels, and receivables to expose hidden financial vulnerabilities.
2. Review Tax Assessments: Additionally, investigate all pending tax notices and GST litigation to accurately quantify financial exposure.
3. Validate IP and Goodwill: Leverage IP consultants to confirm ownership and appraise the value of trademarks, patents, and other brand assets.

• Technology & Operations Strategy

1. AI-Powered Analysis: Use AI-driven tools to scan contracts and compliance records for anomalies. This significantly improves both speed and accuracy.
2. Vendor Risk Mapping: Analyse vendor networks to surface any operational or financial red flags thus reducing the chance of overlooking liabilities.
3. Compliance Flagging: Implement automated systems that flag regulatory breaches, especially concerning FSSAI and CPCB mandates.

• Management Strategy

1. Extend Deal Timelines: Allocate sufficient time for operational and cultural due diligence. This ensures alignment between acquirer and target processes.
2. Cross-Functional Teams: Build diligence teams comprising legal, financial, and operational experts. Their combined insights help assess and mitigate risks holistically, ensuring liabilities are not overlooked.

Illustrative Examples of Overlooked Liabilities in Consumer Goods M&A

• Missed Liability Case

In 2024, an FMCG firm acquired a D2C personal care brand based on its digital footprint. Unfortunately, rushed due diligence caused the firm to overlook liabilities tied to unresolved GST claims. Subsequently, tax authorities imposed penalties exceeding ₹50 crore. Integration delays followed, diminishing expected synergies and deal value. This case highlights the high cost of cutting corners during diligence.

• Successful M&A Diligence

A packaged food company, eyeing a regional snack brand, engaged a hybrid consulting team for pre-deal assessment. They quickly flagged FSSAI labelling violations and potential ESG gaps. Consequently, the acquirer renegotiated the deal and reduced the purchase price by 15%. As a result, future penalties were avoided, and integration progressed smoothly.

Conclusion: Prevent the Risk to Overlook Liabilities

In India’s competitive consumer goods sector, M&A presents significant growth opportunities. However, overlooking liabilities during due diligence can erode deal value, disrupt operations, and damage reputations.

To safeguard investments, leadership teams must tackle root causes such as hurried timelines, valuation pressures, and insufficient expertise. By leveraging AI tools, forming cross-functional diligence squads, and customising M&A frameworks, firms can drastically reduce the likelihood of overlooking liabilities.

With LawCrust’s hybrid consulting expertise across legal, financial, and operational dimensions, organisations can confidently navigate blind spots and unlock the true potential of every transaction.

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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