Bargain Purchase

AAA

DEFINITION of 'Bargain Purchase'

Financial assets acquired for less than fair market value. In a bargain purchase business combination, a corporate entity is acquired by another for an amount that is less than the fair market value of its net assets. Current accounting rules for business combinations require the acquirer to record the difference between fair value of the acquired net assets and the purchase price as a gain in its income statement, thereby providing an immediate boost to the acquirer's equity.

INVESTOPEDIA EXPLAINS 'Bargain Purchase'

In the aftermath of the 2008 market crash, the enormous number of financial companies that were trading at huge discounts to their book value presented an unmatched opportunity for bargain purchases. Firms that were able to take advantage of these distressed priced companies and assets were able to add to their asset base at relatively little cost. However, only a limited number of financial companies were acquired in this manner.

RELATED TERMS
  1. Horizontal Acquisition

    The acquisition of one company by another in the same industry. ...
  2. Merger Of Equals

    The combination of two firms of about the same size to form a ...
  3. Hostile Takeover

    The acquisition of one company (called the target company) by ...
  4. Mergers And Acquisitions - M&A

    A general term used to refer to the consolidation of companies. ...
  5. Acquisition Premium

    The difference between the estimated real value of a company ...
  6. Wealth Management

    A high-level professional service that combines financial/investment ...
RELATED FAQS
  1. What is the difference between a write-off and a writedown?

    In terms of accounting, a write-down is performed to reduce the value of an asset to offset a loss or expense. A write-down ... Read Full Answer >>
  2. What are some good online resources for me to learn about Generally Accepted Accounting ...

    The two definitive authorities on developing and interpreting the U.S. generally accepted accounting principles, or GAAP, ... Read Full Answer >>
  3. What is the difference between earnings and revenue?

    The difference between a company's earnings and its revenue is revenue is the top line amount of money the company makes ... Read Full Answer >>
  4. What is the difference between earnings and income?

    The differences between earnings and income change depending on the context. Technically speaking, personal earnings are ... Read Full Answer >>
  5. How do you calculate shareholder equity?

    Shareholders' equity is listed on a company's balance sheet and measures its net worth. A company's shareholders' equity ... Read Full Answer >>
  6. What is the difference between earnings and profit?

    Earnings, specifically retained earnings, and profit are often used as synonyms in corporate finance, although they are different ... Read Full Answer >>
Related Articles
  1. Fundamental Analysis

    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.
  2. Investing Basics

    The Merger - What To Do When Companies Converge

    Learn how to invest in companies before, during and after they join together.
  3. Forex Education

    Mergers & Acquisitions: An Avenue For Profitable Trades

    When major corporate transactions have a big impact on the currency markets, you can benefit.
  4. Entrepreneurship

    Biggest Merger and Acquisition Disasters

    Find out which companies collapsed after merging.
  5. Active Trading Fundamentals

    Trade Takeover Stocks With Merger Arbitrage

    This high-risk strategy attempts to profit from price discrepancies that arise during acquisitions.
  6. Stock Analysis

    How To Analyze Netflix's Income Statements

    Learn how to read Netflix's income statement, calculate net income and interpret EPS to evaluate the company's current financial condition.
  7. Economics

    Calculating Net Realizable Value

    An asset’s net realizable value is the amount a company should expect to receive once it sells or disposes of that asset, minus costs from its disposal.
  8. Investing Basics

    Calculating Unlevered Free Cash Flow

    Unlevered free cash flow (UFCF) is the free cash flow of a business before interest payments.
  9. Taxes

    Understanding Write-Offs

    Write-off has different meanings depending on the context in which it is used, but generally refers to a reduction in value due to expense or loss.
  10. Economics

    What are Capital Goods?

    Capital goods are assets with a useful life of more than one year that are used for the production of income.

You May Also Like

Hot Definitions
  1. Radner Equilibrium

    A theory suggesting that if economic decision makers have unlimited computational capacity for choice among strategies, then ...
  2. Inbound Cash Flow

    Any currency that a company or individual receives through conducting a transaction with another party. Inbound cash flow ...
  3. Social Security

    A United States federal program of social insurance and benefits developed in 1935. The Social Security program's benefits ...
  4. American Dream

    The belief that anyone, regardless of where they were born or what class they were born into, can attain their own version ...
  5. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  6. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!