Navigating MSME Growth Through M&A: A Lawyer’s Insight

Great opportunities often lie in the intersection of innovation and challenge. In India, MSMEs and M&A are at that crossroads.

The MSME sector, contributing nearly 30% to India’s GDP, is often heralded as the backbone of the nation’s economy. Recent data reflects this importance, with MSME exports growing from ₹3.95 lakh crore in 2020-21 to an impressive ₹12.39 lakh crore in 2024-25. Simultaneously, the M&A market is experiencing a surge, driven by corporate restructuring, access to new markets, and the need to integrate supply chains. However, this convergence also brings a host of legal, strategic, and operational challenges, particularly in the context of MSMEs, which often operate under unique frameworks compared to larger corporations.
The Article

India’s Economic Transformation: MSMEs and M&A in Focus

India stands at a transformative juncture in its economic journey. On one hand, the dynamic growth of Micro, Small, and Medium Enterprises (MSMEs) is rewriting the rules of grassroots innovation and economic inclusion. On the other, the surge in Mergers and Acquisitions (M&A) activity is reshaping the corporate landscape, offering new avenues for strategic expansion. Together, these forces are creating a vibrant ecosystem full of opportunities—and challenges. MSMEs have long been celebrated as the backbone of India’s economy. Their contribution to the GDP stands at a substantial 30%, with their influence continuing to grow. Recent data shows MSME exports skyrocketing from ₹3.95 lakh crore in 2020-21 to an impressive ₹12.39 lakh crore in 2024-25. These numbers aren’t just statistics; they reflect the sector’s pivotal role in driving India’s economic progress and expanding its global footprint. Simultaneously, M&A activity in India is at an all-time high, driven by corporate restructuring, the need for supply chain integration, and the pursuit of new markets. While this presents fertile ground for collaboration and innovation, it also brings a unique set of challenges, especially when these transactions involve MSMEs, which often operate under informal or non-traditional frameworks.

The Role of MSMEs in M&A Transactions

For MSMEs, the increasing interest from larger corporations signals immense opportunities for growth and innovation. Many MSMEs excel in niche markets, offering innovative technologies, unique business models, and established customer bases. Acquisitions or mergers with these entities can provide larger companies with immediate access to new markets, streamlined supply chains, and operational efficiencies. However, the process is not without its complexities. MSMEs often lack standardized financial reporting and formalized business structures, which complicates due diligence and valuation. This is where a nuanced legal approach becomes critical. Lawyers and legal advisors play an indispensable role in helping businesses uncover hidden liabilities, assess compliance risks, and negotiate terms that protect the interests of all parties involved.

Legal Challenges and Opportunities

One of the most significant challenges in M&A transactions involving MSMEs is accurate valuation. While larger enterprises might have tangible assets and predictable revenue streams, MSMEs often derive their value from intangibles like brand reputation, customer loyalty, and innovative potential. Capturing and negotiating these aspects requires not just financial acumen but also legal foresight. Regulatory compliance is another area that demands attention. India’s legal framework, encompassing the Companies Act, Competition Act, and sector-specific regulations, necessitates careful navigation. Legal advisors must ensure that transactions are structured to minimize risk while adhering to all regulatory requirements. Robust contractual safeguards are also essential. Agreements must clearly define indemnities, warranties, and integration plans to prevent post-deal conflicts. For MSMEs, where operational knowledge often resides with the founders or a small management team, clauses addressing retention and non-compete agreements are critical to preserving value post-acquisition.

The Path Ahead for MSMEs and M&A

The intersection of MSME growth and M&A activity isn’t just a business story—it’s an opportunity to redefine India’s economic future. MSMEs are engines of creativity and resilience, often thriving in underserved markets or pioneering innovative solutions. Partnering with them through M&A provides larger companies with the agility and innovation they need to stay competitive in a fast-evolving global landscape. For legal professionals, this convergence is a chance to go beyond compliance and paperwork. It’s about fostering partnerships that drive mutual success, building trust between entities, and ensuring that the full potential of these collaborations is realized. By playing a strategic role, lawyers can help bridge the gaps between opportunity and execution, creating value that resonates far beyond the immediate transaction.

A Vision for India’s Growth

As India continues its journey towards becoming a global economic powerhouse, the synergy between M&A activity and MSME growth will play a defining role. This isn’t just about scaling businesses; it’s about empowering entrepreneurs, fostering innovation, and building an economy that thrives on collaboration. The challenges are significant, but so are the opportunities. With the right legal frameworks, strategic insights, and collaborative spirit, India can harness this potential to drive sustainable growth and prosperity. For those ready to embrace this moment, the future holds immense promise. Let’s work together to shape it.