Bridging the Divide: Navigating Valuation Disputes in India’s Tech M&A Landscape

India’s Information Technology (IT) sector is a global powerhouse, driving a surge in mergers and acquisitions (M&A) across IT services, Software-as-a-Service (SaaS), artificial intelligence (AI), machine learning (ML), cybersecurity, and cloud infrastructure. In 2024, tech M&A deal values exceeded $12 billion, with a 20% year-over-year increase, fueled by private equity (PE) firms, venture-backed startups, and global tech consolidators. The IT M&A lifecycle spanning target scouting, due diligence, valuation modeling, negotiation, and legal closure involves stakeholders like strategic buyers, PE investors, founders, and legal and financial advisors. Amid this vibrant landscape, valuation disputes frequently arise, driven by differing outlooks, valuation metrics, and risk appetites, creating buyer-seller conflict and pricing disagreements.

Recent Trends Fueling Valuation Disputes (Mid Outlook)

As of mid-2025, India’s IT M&A market reflects dynamic trends shaping Pricing disagreements. A rebound in US and EU tech budgets post-Q1 2025 has accelerated mid-market IT M&A, with deal sizes between $50 million and $500 million. PE-led platform roll-ups dominate cybersecurity and cloud infrastructure, consolidating fragmented markets. SaaS and IP-led acquisitions thrive in Tier 1 cities like Bengaluru and Hyderabad, as well as Global Capability Centers (GCCs).

Valuation disputes have spurred increased adoption of earn-outs and contingent pricing models to address pricing disagreements. The Securities and Exchange Board of India (SEBI)’s stricter IPO and disclosure norms push product companies toward M&A exits, amplifying legal complexities around IP rights, due diligence gaps, and deal structures. These factors heighten buyer-seller conflict, requiring strategic navigation to close deals successfully.

1. Key Reasons Behind Valuation Disputes in Tech M&A

Valuation disputes in IT M&A stem from multiple factors, complicating negotiations:

• Revenue Quality Disagreements: Buyers prioritise recurring revenue (e.g., SaaS subscriptions), while sellers emphasise project-based income, leading to divergent valuation multiples and pricing disagreements.
• Disparities in Growth Projections: Buyers apply conservative discount rates, while sellers project aggressive growth, fueling Pricing disagreements.
• IP Value Uncertainty: Disputes arise over proprietary technology versus open-source stacks, with buyers questioning IP defensibility.
• Client Concentration Risks: Reliance on a few anchor clients increases perceived risk, triggering Pricing disagreements as buyers discount pricing.
• Talent Dependencies: High attrition risks or dependence on key personnel create uncertainty, exacerbating buyer-seller conflict.
• Regulatory Issues: Compliance with the Digital Personal Data Protection (DPDP) Act or export restrictions alters risk profiles, sparking valuation disputes.
• Founder vs. Investor Expectations: Founders seek premium valuations, while investors prioritise internal rate of return (IRR), driving pricing disagreements.

2. Strategic Implications: A Hybrid Consulting Perspective

• Valuation Strategy for Buyers

Buyers can mitigate valuation disputes with proactive strategies:

1. Conduct Robust Due Diligence: Scrutinise IP ownership, customer churn, and annual recurring revenue (ARR) stability to address potential pricing disagreements early.
2. Use Tiered Deal Terms: Combine base payments with earn-outs tied to performance metrics, aligning future value with current pricing to resolve valuation disputes.
3. Protect Downside Risks: Implement indemnity caps, escrow accounts, and representation warranties to safeguard against post-deal surprises.

• Valuation Strategy for Sellers

Sellers can strengthen their position to minimise valuation disputes:

1. Prepare Pre-Deal Audits: Conduct financial, technical, and legal audits to reduce buyer skepticism and defend pricing expectations.
2. Benchmark Peer Multiples: Use industry-standard multiples to justify valuations and counter pricing disagreements.
3. Strengthen GTM Playbooks: Showcase robust go-to-market strategies and product-market fit to support higher valuations and reduce buyer-seller conflict.
4. Share Transparent KPIs: Provide clear performance metrics to align expectations and mitigate valuation disputes.

3. Legal and Deal Structuring Techniques

Strategic deal structuring bridges pricing disagreements:

• Hybrid Equity-Cash Models: Combine cash and equity to align buyer-seller interests and resolve valuation disputes.
• Conditional Tranches: Link payments to milestones like client retention or platform migration to address uncertainties driving valuation disputes.
• Define Material Adverse Clauses: Clearly outline clauses to prevent post-signing conflicts over valuation disputes.
• Secure IP and Employee Transitions: Ensure airtight IP assignment and employee retention clauses to protect deal value.

Illustrative Examples

Real-world cases highlight how valuation disputes shape IT M&A:

• A cloud-native DevOps firm’s acquisition stalled due to valuation disputes over IP reuse rights. A post-legal audit clarified IP ownership, enabling a restructured deal with milestone-based payouts, resolving buyer-seller conflict.
• A mid-tier SaaS firm faced pricing disagreements over growth projections. Shifting to a three-year earn-out model tied to EBITDA and talent retention bridged valuation disputes, ensuring deal closure.
• In a large-scale IT M&A, due diligence exposed undisclosed customer churn, leading to renegotiated deal terms that adjusted pricing to reflect risks, mitigating valuation disputes.

Conclusion

Valuation disputes are a persistent yet manageable challenge in India’s dynamic IT M&A landscape. Proactive due diligence, realistic expectation setting, and strategic deal structuring enable buyers and sellers to overcome pricing disagreements and buyer-seller conflict. By aligning on transparent KPIs, leveraging hybrid deal terms, and addressing legal complexities, stakeholders can achieve successful IT M&A outcomes, driving growth in this vibrant sector.

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