Why Indian Deal Pricing No Longer Rests with Bankers

The Securities and Exchange Board of India has signalled to India’s dealmakers that the person who signs the valuation is no longer the banker who brings the deal.

In a pair of rule changes notified in December, SEBI has shifted key pricing power in takeovers and employee stock schemes from merchant bankers to independent registered valuers, while recasting its expectations of merchant bankers themselves.

What has changed is that under the SEBI Substantial Acquisition of Shares and Takeovers Amendment Regulations, 2025, the regulator has formally adopted the concept of a “valuer” by directly importing the definition from Section 247 of the Companies Act, 2013.

For open offer pricing under Regulation 8, references to the merchant banker certifying price determination are replaced with the requirement for an independent registered valuer. SEBI has provided a nine-month transition window for ongoing merchant banker-led assignments to close.

In a separate notification, SEBI has amended its norms on employee compensation, so that ESOP and sweat equity valuations now rest with independent registered valuers rather than merchant bankers.

Earlier, merchant bankers handled valuations for a range of share-linked benefits, which kept them close to sensitive pricing decisions across listed companies. SEBI’s move reflects an old concern that the same investment banker was often structuring, marketing, and valuing the very transaction for which it stood to earn fees. 

By shifting SAST pricing and ESOP valuation to independent registered valuers, SEBI is aligning itself with the Companies Act valuation regime, which brings entry exams, registration, and discipline for valuers into a single national framework.

There is a strategic logic here. If every regulated large equity transaction in India, from control deals to stock options, eventually rely on the same pool of registered valuers, SEBI and the Ministry of Corporate Affairs can scrutinise one common regulatory framework rather than chasing multiple standards across ESOP, M&A, and related-party transactions.

There is another significant development, too. SEBI’s overhaul of the merchant banker regulations introduces a comprehensive capital adequacy framework, requiring Category I entities to maintain a net worth of at least ₹500 million and Category II entities at least ₹100 million.

On top of that, every merchant banker must maintain a liquid net worth of at least 25% of the minimum net worth at all times, and underwriting obligations are capped at 20 times this liquid net worth. SEBI has also set minimum revenue continuity thresholds. Category I merchant bankers must clock at least ₹125 million of revenue from permitted activities over the three preceding financial years. Category II entities are required to earn at least ₹25 million, with exemptions for firms that manage only specified debt and structured instruments. 

The regulator’s signal is clear. SEBI would rather have fewer, better-capitalised firms carrying risk in India’s primary markets than a long tail of thinly capitalised players that chase mandates without balance sheet muscle.

This has implications for pricing power. For years, an acquirer looking to launch an open offer or a company designing a generous ESOP pool could rely on a merchant banker’s valuation as both a shield and a sword in negotiations.

Now, that pricing defence will rest with an independent registered valuer, whose obligations are governed by the Companies Act and who can be questioned by both SEBI and company law authorities.

SEBI reserves the right, under Regulation 8, to require, at the acquirer’s expense, a valuation by an independent registered valuer if it believes the price determination in an open offer warrants a second look. That creates a credible threat point in disputed or low-ball offers, because the regulator can effectively call in a separate valuation view that will be hard for courts or tribunals to ignore.

The immediate effect will likely be subtle. While control deals will still clear if promoters and financial buyers agree on a number, the paper trail underpinning that number is now more standardised and contestable.

For merchant bankers, the trade is clear. They lose a recurring stream of valuation mandates but gain regulatory clarity to house multiple fee-based activities under one entity, provided these sit within or outside any financial sector regulator’s purview, on defined terms.

The new capital and revenue thresholds will likely accelerate quiet consolidation as smaller firms decide whether to upgrade their balance sheets or retreat into narrower advisory niches that demand less capital.

Registered valuers, particularly chartered accountants who already built practices under Section 247, stand to gain steady work across ESOPs, sweat equity, and SAST-linked valuations.

The real test will be whether their reports stand up in the first contested open offer or employee compensation dispute, convincing a sceptical market that this new valuation class deserves its growing clout.

With this move, minority investors will now have a clear answer to “who valued this”. If the old model put too much trust in the banker who brought the deal, the new model bets that a regulated valuer will be a cooler head and a slightly duller pen, which may be precisely what hot markets need.