Family Power in Indian Takeovers: From Limitation to Renewal
Family ownership has long anchored India’s corporate sector, but minor regulatory tweaks could make its takeover market more open without undermining business stability.
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Jyoti Dixit, VES Business School
Poonam Singh, IIM Mumbai
SDG 9: Industry, Innovation and Infrastructure
Institutions: Securities and Exchange Board of India (SEBI) | Ministry of Corporate Affairs
When mergers and acquisitions are open and competitive, they do more than change ownership; they rewire the economy for growth. Capital shifts to its most productive use, corporate governance sharpens, and innovation accelerates. The result is better returns for investors, stronger companies, and a more dynamic market.
In India, this promise has only been partly realised. More than nine in ten of its publicly listed companies are controlled by founding families or closely related owners. Such concentrated control makes it harder for outsiders to acquire companies, even when a change in ownership could unlock value. Yet this structure has also been a source of stability, enabling long-term planning and resilience to weather economic shocks.
The problem has been compounded by the Substantial Acquisition of Shares and Takeovers Regulations, introduced by the Securities and Exchange Board of India (SEBI) in 2011. Intended to protect minority shareholders by ensuring fair pricing in takeovers, the framework has paradoxically strengthened the grip of controlling families.
India now needs a recalibration of policy that keeps family businesses strong while ensuring the market for corporate control remains open.
The Puzzle of the Untouched Family Firm
Globally, companies with large cash reserves tend to draw takeover bids: bidders can either use that cash to fund the acquisition or invest it for higher returns. In India, this pattern holds true, but only for firms without dominant family ownership.
As family shareholding increases, takeover interest falls sharply, to a point where the family owns more than half the company. This indicates controlling shareholders are reluctant to sell or dilute ownership until their grip is secure, even if the offer is financially attractive. Once control is secure, the family may be more open to deals that bring strategic benefits without threatening its position. This effect is called “entrenchment,” - owners digging in to keep control.
The Role of the 2011 Takeover Code Reforms
India’s takeover framework is set by the SEBI and in 2011, it underwent a major overhaul. The stated aim was to strengthen the hand of minority shareholders or small investors without control when takeovers happen.
Key changes included raising the minimum size of a mandatory open offer, so that when a buyer acquired a large enough stake to trigger it, all shareholders had a greater chance to sell at the same price as major investors. The limit on “creeping acquisitions” was also raised, allowing promoters to increase their stake gradually each year without a full open offer.
In countries where ownership is dispersed, such reforms can level the playing field. But in India, where most companies are already tightly controlled, they often had the opposite effect of entrenching incumbent owners and reducing takeover pressure. In practice, the reforms made it easier for promoters, as controlling shareholders are known in India, to strengthen their position without triggering a full takeover offer.
What the Data Tells Us
An analysis of 4,029 listed companies between 2003 and 2019, using SEBI filings and Centre for Monitoring Indian Economy (CMIE) data, shows striking results.
For non-family firms, high cash holdings increased the likelihood of a takeover, matching the global norm. But for family firms with more than 20 percent ownership, the pattern reversed: the more cash they held, the lower the chance of being acquired. The sharpest drop in takeover likelihood appeared when family ownership crossed roughly 40 percent.
The data also show that firms with higher price-to-book ratios, where the stock market values them well above their accounting worth, were more frequent takeover targets. This suggests bidders are willing to pay for growth potential, not just for undervalued assets, hinting at a limited supply of attractive targets.
These relationships held across deal types, whether they involved a change of control, a consolidation of existing holdings, or an outright acquisition. Even when partial acquisitions were excluded, the pattern stayed the same.
From a Defensive Posture to a Competitive Edge
The take here is not to dismantle family control of Indian businesses. Family-led firms have played a vital role in building industries, sustaining communities, and steering companies through economic turbulence. But rules and incentives should allow for ownership to change hands when doing so benefits all shareholders, rather than keeping the market for corporate control largely closed.
Several policy adjustments could strike that balance. Reducing the annual limit for creeping acquisitions would make it harder for controlling shareholders to quietly consolidate power without offering to buy out minority investors. Quicker and more transparent disclosure of any increase in promoter holdings would enable markets to react in real time. Giving minority shareholders a right to request board consideration of a credible takeover bid would help ensure that all offers are properly evaluated.
Transparency on large cash reserves could also make companies more accountable. A “use it or explain it” rule could require companies holding cash far beyond its operational needs to publish a plan to invest or return it to shareholders within a set time frame. Such steps would not force families to give up control but would ensure that idle capital is put to work, turning a defensive posture into a competitive edge.
Renewal Worth Pursuing
India’s family-controlled firms are among its strongest and most enduring business institutions. They have deep local knowledge, strong brand loyalty, and the ability to think in decades rather than quarters. By refining takeover rules and increasing transparency, India can preserve these advantages while opening up more space for competitive acquisitions.
Such a shift would free capital to flow to its most productive uses, spur innovation, and ensure minority shareholders a fairer share of the value their companies create. In a fast-growing economy, control should rest on performance, not regulation or tradition and that’s the renewal India needs.
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The discussion in this article is based on authors’ research published in Global Business Review. Views are personal.