From Space Oddity to IN-SPACe: Navigating Mergers and Acquisitions in India’s Space Sector

[Aishwarya and Aditya are students at Rajiv Gandhi National University of Law and National Law University Jodhpur.]

The space sector in India has undergone extensive transformation over the last decade. Historically, it was a restricted sector, not open to private entities. Private involvement, if any, was limited to supplying parts and materials to the Indian Space Research Organization (ISRO). However, in June 2020, private sector participation was formally permitted with the establishment of the Indian National Space Promotion and Authorisation Centre (IN-SPACe). In-SPACe is an autonomous, single-window agency under the Department of Space, that has been tasked with coordinating private sector involvement in space activities. 

Furthermore, the Indian Space Policy that was introduced in 2023, created a level playing field for private players while ensuring strategic coordination. In February 2024, the Union Cabinet approved 100% FDI in satellite manufacturing and operations and upto 74% FDI under the automatic route. This liberalization has eased entry barriers, spurring greater private and foreign participation. India’s space industry with its cost-effective and innovation-driven environment presents attractive opportunities for foreign players. These developments have collectively opened the sector to cross-border mergers and acquisitions (M&A), enabling foreign entities to acquire stakes in the Indian space sector. 

The authors in this blog first explore the role of cross-border M&A in the space sector in light of these developments. Thereafter, they analyze the Norms, Guidelines, and Procedures (NGP) released by IN-SPACe and their impact on the current M&A landscape. This is followed by the authors’ recommendations, based on a brief comparative analysis of regulations in the US and EU.

Implications and Opportunities for Cross Border M&A in Space Sector 

M&A in the space sector is primarily driven by the need to pool technological capabilities and market knowledge to manage risks and costs of innovation and enable strategic expansion. Primarily, given the capital-intensive nature of the space industry, M&A serves as a critical avenue for gaining access to funding required for R&D, manufacturing and ancillary operations. 

Small startups often struggle with limited access to advanced technology and necessary components which require significant investment. This makes them attractive acquisition targets for larger firms that are always seeking to diversify and expand their space capabilities or enter niche segments. These acquisitions are frequently driven by goals of market consolidation to reduce competition, increase market share, and achieve economies of scale.

Analysis of Implications of NGP on Potential M&A Deals in Space Sector 

The NGP guidelines outline the space activities requiring prior authorization, along with the eligibility criteria and conditions applicable to Indian and foreign entities (Applicants) seeking to operate in the sector. They also prescribe the post-authorization obligations for Applicants which include disclosure requirements and monitoring mechanisms. Against this backdrop, the blog analyses how the NGP framework impacts and shapes the M&A landscape within India’s evolving space sector. 

Non-transferrable authorization 

Under Chapter 3 (point 4) of the NGP, any entity that has been granted authorization by IN-SPACe must inform the agency within 48 hours of ‘any’ change in ‘management and control’, shareholding pattern, partnership, or trust. IN-SPACe retains sole discretion to reject applications, revoke or issue fresh authorizations in such cases. Consequently, authorizations are non-transferable to third parties without prior approval from IN-SPACe.

In the context of Indian companies pursuing M&A transactions, the obligation to report any change in ‘management and control’ can create significant regulatory hurdles. This broad requirement may trigger a regulatory review by IN-SPACe. Thus, acquirers must not only demonstrate their own compliance with authorization criteria but also thoroughly assess the target company’s past adherence to NGP regulations to avoid discrepancies that could delay authorization or result in its denial. 

Additionally, there is no appeal mechanism to challenge the denial of authorization, which increases the burden on the acquiring party to ensure complete procedural and regulatory compliance in the initial application. Given these complexities, investors and companies may increasingly prefer minority acquisitions to avoid triggering a transfer of ‘control’. 

Fresh authorization in case of transfer of ‘control’ to non-Indian entities

Under Chapter 3 (point 18), any entity that has been granted authorization by IN-SPACe would require fresh authorization in the event of ‘any’ change in 'management and control' in shareholding partnership, or trust structure resulting in the transfer of 'control' to a non-Indian entity, i.e., where the applicant is no longer under Indian management and control.

In case of pending fresh authorization, there could be prolonged gaps or delay which may affect closing timelines of M&A and increase transaction costs. Moreover, there is uncertainty surrounding IN-SPACe's decision-making process, as the agency retains sole discretion to reject, or revoke authorizations, which creates persistent deal risks. 

Resultantly, share purchase agreements or merger agreements may need to include specific conditions precedent that require the buyer or seller to obtain necessary approvals from IN-SPACe. Furthermore, a dynamic ‘material adverse change’ clause would be essential to address any risks associated with potential authorization refusals, as the target company’s valuation could be adversely impacted in the event of delays or denials in obtaining fresh authorization.

This framework encourages foreign entities to adopt a selective approach when pursuing M&A opportunities, which in turn minimizes regulatory, financial, and operational risks for Indian companies. 

Recommendations and Way Forward

In this section, authors borrow practices from foreign jurisdictions and transpose it to Indian context. They provide recommendations for potential changes in the NGP and space regulations which may allow to fully utilize the benefits of recent policy changes brought by the government.

Introduction of threshold-based disclosure for change or transfer of ‘control’ in M&A transactions

Under the NGP, the requirement to report ‘any’ change in ‘management and control’ is broadly framed, placing a disproportionate burden on entities undergoing minor or insignificant internal changes in ‘control’. In contrast, Luxembourg’s national space law, being the first such legislation in the EU, requires disclosure of significant shareholders and any change in control based on defined thresholds of >10%, 20%, 30%, and 50%. 

Accordingly, it is suggested that India, under the NGP, qualifying thresholds (e.g., >10%, 20%, 30%, 50%) should be introduced for transactions involving Indian entities, triggering mandatory disclosure and approval. These statutory thresholds would enable IN-SPACe to track and evaluate deals involving significant changes in ownership or control and assess whether such transactions could lead to abuse of dominance or foreclosure of market access, without unduly burdening less material transactions. This approach would also address antitrust concerns, which are increasingly relevant in M&A transactions in the space sector due to its highly consolidated nature and implications for national security, international relations, and geopolitical stability.

Introduction of clean teams 

Clean teams consist of neutral independent individuals who are granted access to review highly sensitive and confidential information, such as existing contracts, outstanding bids, or proposals, without breaching information barriers. In jurisdictions like the United States, clean teams are frequently used to mitigate antitrust concerns while preserving strict information firewalls, including from third-party auditors or compliance regulators.

IN-SPACe could adopt a similar approach by appointing a dedicated group of neutral experts to such clean teams during the M&A review process. This would limit the risk of sellers having to reveal excessive or competitively sensitive information to buyers, while maintaining fair competition and minimizing conflicts of interest. Additionally, while making decisions to revoke, amend, reject, or issue fresh authorizations, IN-SPACe can take into consideration the clean team’s independent assessment. This would not only reduce the timeline for authorizations but also effectively serve as a pre-clearance protocol. 

Furthermore, the effectiveness of clean teams would be enhanced when paired with statutory thresholds for reporting changes in control (e.g., >10%, 20%, 30%, 50%). While these thresholds would help IN-SPACe flag transactions that warrant deeper antitrust scrutiny, clean teams could conduct proportionate, risk-based evaluations to ensure such scrutiny is targeted and timely. In cases where concerns persist, remedies such as partial divestiture to address competition risks or conflict of interests can be explored, without derailing the entire transaction.

Introduction of novation agreements 

Novation agreements allow the transfer of contractual obligations from one entity to another, so that the acquiring entity in an M&A transaction can assume the responsibilities of the target company. In the US, entities in the space sector often execute novation agreements to ensure continuity of operations and compliance with existing agreements.

In the Indian context, a novation agreement may be executed in cases where there is a transfer of ‘control’ or a change in management between two entities that already hold separate authorizations from IN-SPACe. This approach would streamline intra-sector transactions while preserving regulatory oversight.

Conclusion

In conclusion, recent developments in the space sector have opened numerous opportunities for mergers and acquisitions, with foreign entities like SpaceX and Blue Origin showing interest in emerging Indian boutique firms such as Agnikul and Pixxel, as well as the commercial space market. This reflects India’s potential to leverage its extensive space expertise, supported by regulatory reforms that promote greater commercialization and facilitate mergers and acquisitions.