Target Firm

What is a 'Target Firm'

A target firm is a company which is the subject of a merger or acquisition attempt. A takeover attempt can take on many different flavors, depending on the attitude of the target firm toward the acquirer. If management and shareholders are in favor of the transaction, then a friendly and orderly transaction can take place. When there is opposition to the transaction, the target firm may attempt a variety of hostile actions hoping to thwart the takeover attempt.

BREAKING DOWN 'Target Firm'

Target firms are often acquired at a price in excess of their fair market value. This is rational when the acquiring firm perceives an additional strategic value to the acquisition, such as greater economies of scale. These economies do not always materialize however, since there can be additional hidden costs associated with the integration of two firms.

RELATED TERMS
  1. Takeover

    A corporate action where an acquiring company makes a bid for ...
  2. Continuity Of Interest Doctrine ...

    A doctrine which stipulates that a corporate acquisition can ...
  3. Yellow Knight

    A company that was once making a takeover attempt but ends up ...
  4. White Knight

    A white knight is an individual or company that acquires a corporation ...
  5. Acquisition Premium

    The difference between the estimated real value of a company ...
  6. Hostile Takeover

    The acquisition of one company (called the target company) by ...
Related Articles
  1. Stock Analysis

    The Biggest Risks of Investing in Rite Aid Stock (RAD,WBA)

    Read about some of the risks facing investors who buy into Rite Aid stock after a potential acquisition by Walgreens was announced.
  2. Stock Analysis

    The Biggest Risks of Investing in EMC Stock

    Read about some of the risks of investing in EMC now that its acquisition by Dell has been announced. There are issues with VMware and the firm itself.
  3. 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.
  4. Options & Futures

    Bloodletting And Knights: Medieval Investment Terms

    From bloodletting to ye olde black knights, things on Wall Street are getting downright medieval!
  5. Forex Education

    Mergers & Acquisitions: An Avenue For Profitable Trades

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

    Biggest Merger and Acquisition Disasters

    Find out which companies collapsed after merging.
  7. Options & Futures

    Pinpoint Takeovers First

    Use these seven steps to discover a takeover before the rest of the market catches on.
  8. Bonds & Fixed Income

    Trademarks Of A Takeover Target

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

    Comcast Acquires Dreamworks Animation for $3.8B (DWA, CMCSA)

    A quick look at what Comcast owns!
  10. Investing

    Mergers & Acquisitions Report: 2 Trends in the Market

    Learn what attracts buyers and sellers into today's M&A market, as well as what trends are emerging in 2016 by sector and location.
RELATED FAQS
  1. What content does a letter intent have to have?

    Review some of the standard language that ought to be included in a letter of intent between two parties in a business transaction. Read Answer >>
  2. What's the difference between a merger and an acquisition?

    Learn about the difference between mergers and acquisitions. Discover what factors may encourage a company to merge or acquire ... Read Answer >>
  3. 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 >>
  4. What is a good debt ratio, and what is a bad debt ratio?

    Learn about the factors that influence how investors and lenders evaluate the debt ratio for a company and why the answer ... Read Answer >>
  5. Can working capital be depreciated?

    Learn the difference between expensing and depreciation for current and long-term assets, and how working capital can be ... Read Answer >>
  6. Do working capital funds expire?

    Find out how and why a company's working capital can change over time, though the fund does not actually expire, and how ... Read Answer >>
Hot Definitions
  1. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  2. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  3. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
  4. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
  5. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
  6. Economies Of Scale

    Economies of scale is the cost advantage that arises with increased output of a product. Economies of scale arise because ...
Trading Center