Target Firm

DEFINITION of 'Target Firm'

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. Hostile Takeover

    The acquisition of one company (called the target company) by ...
  6. Acquisition Premium

    The difference between the estimated real value of a company ...
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. Stock Analysis

    The Top 10 Small-Cap Stocks for 2016 (ATI, ARCB)

    Discover the top 10 small-cap stocks expected to grow in 2016, complete with summaries and growth outlooks for each company and its expected price target.
  10. Economics

    Understanding Cost-Volume Profit Analysis

    Business managers use cost-volume profit analysis to gauge the profitability of their company’s products or services.
RELATED FAQS
  1. What content does a letter intent have to have?

    Letters of intent vary in purpose and content depending on the dealings between the involved parties. In a basic form, each ... Read Full Answer >>
  2. What's the difference between a merger and an acquisition?

    Mergers and acquisitions are two of the most misunderstood words in the business world. Both terms are used in reference ... Read Full 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 Full Answer >>
  4. Can working capital be depreciated?

    Working capital as current assets cannot be depreciated the way long-term, fixed assets are. In accounting, depreciation ... Read Full Answer >>
  5. Do working capital funds expire?

    While working capital funds do not expire, the working capital figure does change over time. This is because it is calculated ... Read Full Answer >>
  6. How much working capital does a small business need?

    The amount of working capital a small business needs to run smoothly depends largely on the type of business, its operating ... Read Full Answer >>
Hot Definitions
  1. Liquidation Margin

    Liquidation margin refers to the value of all of the equity positions in a margin account. If an investor or trader holds ...
  2. Black Swan

    An event or occurrence that deviates beyond what is normally expected of a situation and that would be extremely difficult ...
  3. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  4. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
  5. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
Trading Center