What Is an Acquiree?
- An acquiree, also known as a target firm, is a company that is purchased under a corporate acquisition.
- Acquirees drive a hard bargain and will seldom sell unless the bid that's tabled is at a premium to its fair market value.
- During a takeover scenario, it's common to see the acquiree's share price quickly shift to reflect the price per share offered by the acquirer.
- Once the deal is completed, the acquiree's operating name and management team might disappear or be retained, depending on the wishes of the acquirer.
Understanding an Acquiree
Companies buy other companies for a number of reasons. The rationale could be achieving greater economies of scale, diversification, international expansion, boosting market share, increasing synergies or reducing costs. Other motivators include gaining new technology and reducing excess capacity and competition in the marketplace.
Generally, a would-be acquirer wants to purchase a majority of the voting shares of the acquiree, so it can gain operational control. After an acquisition, the buyer may opt to let the acquiree continue its operations unimpeded, or take steps to extract value from the business by cutting expenses or actively expanding its operations.
Paying a Little Bit Extra
Taking over a company almost always requires offering a price in excess of the target's fair market value. Acquirees will rarely easily let go of what they've built. Acquirers that see strategic value from merging its business with that of the acquiree will want to avoid scuppering a deal and burning bridges. Usually, they will take future potential into consideration when proposing an offer, paying a little bit extra to ensure the acquisition wins shareholder support and crosses the finish line.
Usually, the acquiree will see a short-term movement in the price of its shares to reflect the price per share offered by the acquirer.
Share Price Movements
The price per share agreed as part of a deal should immediately be reflected in the share price of the acquiree. As most targets are acquired at a premium, that means valuations usually surge once news circulates that a bid has been tabled. For example, if Company ABC is trading at $12 per share and has 100,000 shares outstanding when it's acquired for $2 million by Company XYZ, ABC's share price should then jump to approximately $20 per share ($2,000,000 ÷ 100,000 = $20).
The largest acquisition on record is the $190 billion takeover of Mannesmann by Vodafone AirTouch.
After a merger or acquisition, it is not uncommon for the acquiree to retain its operating name. An example includes online shoe retailer Zappos, which continues to trade under that name despite being acquired by Amazon (AMZN) in July 2009.
It's sometimes possible for an acquirer to adopt the acquiree's name. In 1998, NationsBank of Charlotte, North Carolina, acquired BankAmerica Corporation of San Francisco. Shortly after, the newly created and rebranded business began operating under the name Bank of America (BAC).
On other occasions, an acquiree's name is folded into the acquirer's name. That's what happened when United Airlines Holdings (UAL) acquired much of Pan American World Airway's (Pan Am) operational assets during the mid-80s into the early 90s.