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DEFINITION of 'Raider'

A raider, in business, is a private equity firm that seeks out failing and undervalued companies and tries to make a quick profit from them. Raiders buy big enough stakes in these companies to give them significant voting rights, which they use to push the company to take new measures to increase shareholder value, such as replacing top executives, restructuring the company or liquidating it. Modern-day raiders prefer to call themselves activist investors.

BREAKING DOWN 'Raider'

Raiders look to gain a controlling interest in undervalued or failing companies, which are vulnerable to hostile takeovers, takeovers or activist measures. Raiders typically want to make a quick killing and sell assets, rather than attempting to unlock long-term value by turning around operations and make the company more efficient, as many respectable private equity firms do.

Activist Investors Adopt Raiding Tactics

Raiders were particularly common in the United States, from the 1970s to the 1990s, before publicly traded corporations adopted takeover defenses like poison pills. But in recent years, private equity firms have pursued different tactics to their predecessors, in the guise of activist investors, who purchase a big enough share of a company's voting rights, to influence its board of directors and put public pressure on its management. However, some private equity firms still engage in asset stripping, when they take a company private, recapitalize it with additional debt, sell-off its most liquid assets and raid its coffers, in order to pay extra dividends to shareholders.

Raiders try to have well-defined exit strategies. This can include using their voting power to install handpicked directors to the board, positioning the company for a sale or merger or breaking up the target company and selling off its assets. And they have deep pockets and plenty of financial backing.

Consider a company with a market value of $100 million, no debt and $25 million in cash. This gives it an enterprise value of $75 million. If the market value of the company's tangible assets were $200 million, a raider might be tempted to mount a hostile bid in order to capture the huge gain that could be realized by selling off the assets.

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