Mergers and acquisitions continue to be a favourite among companies for geographical expansion and to strengthen their services or products within the domestic market despite regulatory hurdles, according to a report ?New Dimensions in M&A Regulatory Framework? released by M&A consultancy firm Grant Thornton along with Assocham.

?M&A activity driven by growth hungry companies in a tepid environment, ageing western population and strong access to funding in organic growth by far is the fastest way of expansion with companies looking to access new geographies and build scale,? says Munesh Khanna, senior partner at Grant Thornton India Advisory Pvt Ltd.

India and China are the only two emerging nations that serious plans to expand overseas. Today, Indian promoters have acquisition on their agenda because they are focusing on driving value.

?Acquisitions can provide collateral benefits such as fresh intellectual property, new products and a new, ready-made client base, which helps drive the top-line,? says Siddhartha Nigam, partner – M&A at Grant Thornton India LLP.

The first four months of 2012 witnessed M&A deals worth $23 billion across 396 deals whereas in 2011, it was $54 billion across 1026 deals, according to the report.

A clear shift is being noted among the Indian promoters today in their behavioral pattern. They are more open to selling a part or whole of their stake to exit their businesses to the foreign players in return of attractive valuations.

Indian companies are expected to witness a massive phase of consolidation in the regulatory environment because of International Financial Reporting Standards (IFRS), eXtensible Business Reporting Language (XBRL) or the New Companies Bill.

Corporate governance has become an important factor for closure of M&A deals because of past cases like the 2G scam and Satyam Computer promoter fraud case. Investors have become more stringent about due diligence on transactions and promoter background checks.

Many M&A activities are led by PE firms looking to exit their old investments. A lot of action is expected in certain sectors like minerals and mining as Indian firms look to secure their resources through acquisitions abroad. Sectors like telecom will see definite consolidation due to rising number of telecom players in India and operating losses.

According to the report, this year?s Budget proposals especially the Vodafone issue could lead to re-pricing of deals and impact sentiments leading to delay in closures. The General Anti-Avoidance Rules or GAAR provisions are likely to impact cross border deals, PE or foreign institutional investments in India. Entrepreneurs and investors fear genuine business transactions falling under GAAR and unequal power distribution among them and the tax authorities.