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Acquiree: Definition, Impact on Share Prices, and Post-Acquisition Considerations

Last updated 03/20/2024 by

Alessandra Nicole

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An acquiree, commonly referred to as a target firm, is a company that is purchased in a merger or acquisition. Acquirees often demand a premium over their fair market value, and their share prices typically surge post-acquisition. The management and operational fate of the acquiree post-acquisition depends on the acquirer’s strategy.

Understanding an acquiree

In the finance industry, mergers and acquisitions (M&A) play a pivotal role in corporate strategy. An acquiree, also known as a target firm, represents the entity that is being acquired in such transactions. This strategic move is driven by various motives, including achieving economies of scale, diversification, international expansion, or gaining access to new technology. Acquirers typically seek to obtain a majority of the target’s voting shares to gain operational control and influence decision-making processes.

Paying a little bit extra

One fundamental aspect of acquiring a company is the premium paid over its fair market value. Acquirees are often reluctant to part ways with their businesses unless offered a price that exceeds their perceived value. Acquirers, recognizing the importance of securing shareholder support and completing the acquisition successfully, may opt to pay a premium. This premium is not only a reflection of the strategic value perceived by the acquirer but also serves to incentivize shareholders to accept the offer.

Share price movements

Following the announcement of a merger or acquisition deal, the share price of the acquiree typically experiences significant movement. As most acquisitions involve paying a premium, the market reacts by adjusting the target company’s valuation. Investors anticipate the potential benefits of the transaction, leading to a surge in the acquiree’s share price. This phenomenon highlights the market’s perception of the deal’s value and the strategic rationale behind it.

Special considerations

Post-acquisition, the fate of the acquiree’s name and management team can vary based on the acquirer’s strategy and objectives. Some acquirers may choose to retain the acquiree’s brand and management structure to capitalize on its existing reputation and expertise. In contrast, others may integrate the acquiree into their operations or rebrand it entirely to align with their corporate identity. These decisions are influenced by factors such as industry dynamics, competitive landscape, and synergies between the two entities.
Here is a list of the benefits and the drawbacks to consider.
  • Acquirees drive a hard bargain and will seldom sell unless the bid is at a premium to its fair market value.
  • Acquirers paying a little bit extra can ensure successful acquisition and shareholder support.
  • Share prices of acquirees often surge post-acquisition, reflecting the offered price per share.
  • Acquiring a company usually involves paying a premium, which may impact the acquirer’s finances.
  • Failed acquisitions can result in wasted resources and damage to the acquirer’s reputation.

Frequently asked questions

What factors influence the premium paid for an acquiree?

The premium paid for an acquiree is influenced by various factors, including its strategic importance to the acquirer, potential synergies, competitive bidding, and prevailing market conditions.

How do acquirees affect shareholder value?

Acquirees can impact shareholder value positively through potential synergies, increased market share, and enhanced competitiveness. However, if acquisitions fail to deliver expected results, shareholder value may decline.

What are the potential risks associated with acquiring a company?

Acquiring a company entails risks such as integration challenges, cultural differences, regulatory hurdles, and financial strain. Additionally, overpaying for an acquiree or misjudging its strategic fit can lead to adverse outcomes for the acquirer.

Key takeaways

  • Acquirees, or target firms, are companies purchased in mergers or acquisitions.
  • Successful acquisitions often involve paying a premium over the acquiree’s fair market value.
  • Share prices of acquirees typically surge post-acquisition, reflecting the offered price per share.
  • The fate of an acquiree’s name and management team post-acquisition varies based on the acquirer’s strategy.

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