DEFINITION of Sleeping Beauty
A sleeping beauty is a company that is considered prime for a takeover but has not yet been approached by an acquiring company. A company may be considered a sleeping beauty for a variety of reasons, including large cash reserves, undervalued real estate, undervalued share price, attractive assets or strong growth and earnings potential. A takeover, or acquisition, is typically characterized by the purchase of a smaller company by a larger firm. The acquiring company generally offers a cash price per share, thereby purchasing the target outright for its own shareholders.
BREAKING DOWN Sleeping Beauty
In relation to mergers and acquisitions (M&A), a sleeping beauty is a company that is "sleeping;" that is, one that is ripe for a takeover to achieve its full potential. A sleeping beauty might be a new company that has great potential but has not yet been noticed, or it could be an established company that has not been managed well and is, therefore, not maximizing its potential. A sleeping beauty essentially lies in wait until a takeover occurs, at which point the company theoretically would be able to live up to its potential.
Analysts, investors and hedge funds will often speculate on what companies or even sectors are making for attractive potential. A good investor can spot value where others can't or simply don't see it. Often, particular companies or industries can have potential value unlocked because of factors that are external to their business models. As an example, in May 2018, the U.S. Supreme Court struck down a 1992 federal law effectively banning commercial sports betting in most states. This decision opens the door to legalizing sports gambling on a more mainstream level. Speculators may now discover some sleeping beauties ready to take some of Reno and Las Vegas, Nevada's action in the sports wagering space.