DEFINITION of 'Backflip Takeover'

An uncommon type of takeover in which the acquirer becomes a subsidiary of the acquired or targeted company, with business after the takeover conducted in the name of the acquired company. A backflip takeover gets its name from the fact that it runs counter to the norm of a conventional acquisition, where the acquirer is the surviving entity and the acquired company becomes a subsidiary of the acquirer.
While the acquired company's assets are subsumed into the acquiring company, control of the combined entity is generally in the hands of the acquirer.
 

BREAKING DOWN 'Backflip Takeover'

 
While companies may consider a backflip takeover for a number of valid reasons, a common motive for such a structure is much stronger brand recognition and goodwill for the target company than the acquirer in their major markets.
 
Often, the acquirer may be struggling with problems of its own. For instance, the acquirer may be a hitherto sizeable and successful company that has had its image tarnished by one or more negative issues such as a large product recall, well-publicized product deficiencies, accounting fraud and so on. These issues may significantly impede its future business prospects, leading it to consider other options for its long-term survival and success. One of these options is to acquire a rival company that has complementary businesses and sound prospects, but which needs significantly more financial and operational resources to expand than it could raise on its own.
 
For example, DullCo is a large company that has fallen on relatively hard times because the massive recall of one of its biggest-selling products has hurt its finances and caused large-scale customer defections. Management decides that its brand has suffered irreparable damage, and decides to use its financial resources – which are still substantial – to acquire smaller and fast-growing rival Hotshot Inc. DullCo’s management also decides that business after the completed takeover will be conducted under the Hotshot name, which will be the surviving entity, with DullCo becoming a Hotshot subsidiary.
 
Why would Hotshot’s management want to sell out to a larger, struggling competitor? Probably because Hotshot’s executive team believes it can use DullCo’s huge resources to expand faster than it could on its own. Hotshot’s management is also very likely to bargain for a substantial presence on the Board of Directors and management of the combined entity.

RELATED TERMS
  1. Busted Takeover

    A highly leveraged corporate buyout that is contingent upon the ...
  2. Hostile Takeover Bid

    An attempt to take over a company without the approval of the ...
  3. Takeover

    A corporate action where an acquiring company makes a bid for ...
  4. Takeover Bid

    A type of corporate action in which an acquiring company makes ...
  5. Bargain Purchase

    Financial assets acquired for less than fair market value. In ...
  6. Acquirer

    1. The firm which is purchasing a company in an acquisition. ...
Related Articles
  1. Small Business

    What is a Takeover?

    A takeover happens when one company makes a bid to acquire a target company.
  2. Investing

    Pinpoint Takeovers First

    Use these seven steps to discover a takeover before the rest of the market catches on.
  3. Investing

    Warding Off Hostile Takeovers

    The purpose of this article is to provide a general overview of hostile corporate takeovers, while highlighting a general course of action against such activity. This article provides basic information ...
  4. Investing

    Trademarks Of A Takeover Target

    These tips can lead you to little companies with big prospects.
  5. Investing

    What Happens To The Stock Prices Of Two Companies Involved In An Acquisition?

    When one firm buys another, the effect is predictable. The acquiring company’s stock falls in value, while the target company’s climbs.
  6. Investing

    What Investors Can Learn From M&A Payment Methods

    How a company pays in a merger or acquisition can reveal a lot about the buyer and seller. We tell you what to look for.
  7. Small Business

    How To Profit From Mergers And Acquisitions Through Arbitrage

    Making a windfall from a stock that attracts a takeover bid is an alluring proposition. But be warned – benefiting from m&a is easier said than done.
  8. Investing

    Mergers And Acquisitions: Understanding Takeovers

    In the dramatic world of M&As, battleground terms meld with bizarre metaphors to form the language of the game.
  9. Investing

    Reverse Takeover

    Learn more about this type of takeover and how companies use it to avoid IPOs.
  10. Insurance

    Key Players In Mergers And Acquisitions

    Strategic acquisition is becoming a part of doing business. Discover the different types of investor groups involved.
RELATED FAQS
  1. What happens to the stock prices of two companies involved in an acquisition?

    When a firm acquires another entity, there usually is a predictable short-term effect on the stock price of both companies. ... Read Answer >>
  2. Under what circumstances might a company decide to do a hostile takeover?

    Learn about why companies use a hostile takeover to gain control of another company, and understand the different methods ... Read Answer >>
  3. What's the difference between a merger and a hostile takeover?

    Understand the difference between a merger and a hostile takeover, including the different ways one company can acquire another, ... Read Answer >>
  4. What is the difference between a hostile takeover and a friendly takeover?

    Learn about the difference between a hostile takeover and a friendly takeover, and understand how proxy fights and tender ... Read Answer >>
  5. What is the difference between an acquisition and a takeover?

    There is no tangible difference between an acquisition and a takeover; both words can be used interchangeably - the only ... Read Answer >>
Hot Definitions
  1. Federal Direct Loan Program

    A program that provides low-interest loans to postsecondary students and their parents. The William D. Ford Federal Direct ...
  2. Cash Flow

    The net amount of cash and cash-equivalents moving into and out of a business. Positive cash flow indicates that a company's ...
  3. PLUS Loan

    A low-cost student loan offered to parents of students currently enrolled in post-secondary education. With a PLUS Loan, ...
  4. Graduate Record Examination - GRE

    A standardized exam used to measure one's aptitude for abstract thinking in the areas of analytical writing, mathematics ...
  5. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  6. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
Trading Center