Acquiree

Article byShraddha Sureka
Edited bySusmita Pathak
Reviewed byDheeraj Vaidya, CFA, FRM

Acquiree Meaning

The acquiree, also known as the target company, is the one taken over by the acquirer company in a merger and acquisition transaction. It is usually the smaller two companies unless it is a merger of two companies of equal stature.

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The company that is ready to acquire is an acquirer, while the one that is to be acquired in the process is an acquiree. When the acquirer acquires an acquiree company, acquisition occurs. Though the acquirer and acquiree are participants in the process, the former becomes supreme after acquisition.

Key Takeaways

  • The acquiree, also known as the target company, is the entity being acquired in a merger and acquisition transaction. 
  • Typically, the acquirer company is larger than the acquiree unless it is a merger between companies of equal size. 
  • Ideal acquiree characteristics include being smaller in size, providing value addition to the acquirer, and having no resistance from antitrust qualifications while being profitable. As a result of the transaction, the majority shareholding of the acquiree is transferred to the acquirer, leading to a change in control.
  • In significant cases, the acquirer must prepare consolidated financial statements, while the acquiree generally prepares stand-alone financial reports.

Acquiree Explained

Acquiree is the company that is taken over as part of the merger and acquisition transaction by the acquirer. It might continue or cease to exist after the transaction culminates, depending upon the nature of the transaction. In most cases, this brings synergies for the acquirer but is the smaller of the two companies forming part of the transaction in terms of its financial position.

The transaction results in a transfer of control of the majority shareholdingMajority ShareholdingA majority shareholder or controlling shareholder is an individual or a corporation that owns the majority of the company's stock (more than 50%) and therefore enjoys more voting power than other shareholders. These shareholders are in a position to influence the company's decisions.read more of the acquiree in the hands of the acquirer. And the acquirer is required to prepare consolidated financial statementsConsolidated Financial StatementsConsolidated Financial Statements are the financial statements of the overall group, which include all three key financial statements – income statement, cash flow statement, and balance sheet – and represent the sum total of its parents and all of its subsidiaries.read more in most cases. In contrast, the acquirer only prepares the stand-alone financial reports.

Below is the diagram for a merger, wherein the acquirer takes over the acquiree and posts the transaction. The only acquirer remains.

Acquiree Diagram

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While the below diagram shows how post-acquisition, both the acquirer and the acquiree continue to exist independently, but the acquirer has greater control.

Acquirer Diagram

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Features

Some of the traits exhibited by an acquiree company:

Acquiree

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  1. Smaller than Acquirer: Most of the time, the acquiree is smaller than the acquirer company because, in most of the merger and acquisition Merger And AcquisitionMergers and acquisitions (M&A) are collaborations between two or more firms. In a merger, two or more companies functioning at the same level combine to create a new business entity. In an acquisition, a larger organization buys a smaller business entity for expansion.read more transactions, it is the bigger company taking over the smaller company. The smaller company does not have enough financial resources to take over the bigger company. But this is not always the case, and there are exceptions everywhere.
  2. Value Addition: The purpose of any merger and acquisition transaction is to create some value for the entity created once the transaction completes. This value addition is the ‘synergies’ of the transaction. If there are no synergies, the transaction must at least break even; otherwise, it may lead to a winner’s curse where the acquirer may end up paying more than it is worth.
  3. Antitrust Qualification: Most of the time, the acquiree might not be so large that the antitrust actionAntitrust ActionAntitrust Acts are laws that regulate Mergers and Acquisitions to ensure that one player does not become too powerful among its peers, giving it the ability to pursue predatory business policies.read more is taken for the M&A transaction. It would be one where such measures are not there, and if they are there, their impact is negligible. However, when the companies need to give up their assets to merge and stay within the antitrust guidelines, the transaction may or may not be worth it, and the analysis can become highly complicated.
  4. Non-Resistant: Both companies must reach a consensus for a successful merger or acquisition. When the takeover attempt is hostileTakeover Attempt Is A HostileA hostile takeover is a process where a company acquires another company against the will of its management.read more, the acquiree might put up resistance in the form of one or many pre-and post-takeover defenses. So, it is ideal that the offer is non-resistant because resistance affects the success rate of the transaction.
  5. Profitable: The acquirer conducts a cost-benefit analysis Cost-benefit AnalysisCost-benefit analysis is the technique used by the companies to arrive at a critical decision after working out the potential returns of a particular action and considering its overall costs. Some of these models include Net Present Value, Benefit-Cost Ratio etc.read more when coming up with an offer price. The price offeredPrice OfferedOffering Price is the price that is decided by an investment banking underwriter when a company plans to go public list shares in the stock exchange for raising capital. This price is based on the future earning potential of the company, however, the price shouldn’t be too high then the shares might not be sold in full and if it is too low then the potential to raise more capital is lost.read more should be profitable to the acquirer over a reasonable investment horizonInvestment HorizonThe term "investment horizon" refers to the amount of time an investor is expected to hold an investment portfolio or a security before selling it. Depending on the need for funds and risk appetite, the investor may invest for a few days or hours to a few years or decades.read more, so that the transaction is worth entering into.

Examples

Let us consider the following examples to understand how an acquiree company works:

Example 1

One of Facebook’s most talked-about mergers and acquisition transactions is acquiring WhatsApp and Instagram. Both companies exist in their name after the acquisition, but now Facebook owns most of these. These transactions depict that Facebook is the acquirer, and WhatsApp and Instagram are acquirees in their respective trades.

Example 2

In 2009, Disney took over Marvel Entertainment for $4 billion. So, Disney was the acquirer, and Marvel was the acquiree. Marvel movies were released, and Marvel has retained its name, but now it is owned by Disney.

Acquiree Vs Acquirer

The difference between acquiree and acquirer are as follows:

  • In the mergers and acquisition (M&A) process, the acquirer is the company that wishes to acquire a company. On the other hand, the company to be acquired is an acquiree.
  • Once the acquisition occurs, the acquiree loses its identity completely, while the acquirer remains.

Frequently Asked Questions (FAQs)

1. What are the risks faced by an acquiree?

Acquirees face various risks when undergoing an acquisition, including potential disruption to business operations, integration challenges with the acquiring company, cultural clashes, loss of key talent, changes in management, financial risks, and the need to align with new strategic objectives and organizational structures.

2. Are acquisitions great for acquirees?

Acquisitions can have both advantages and disadvantages for acquirers. While acquisitions can offer opportunities for growth, access to new markets, synergies, and enhanced resources, they can also bring risks, such as integration challenges, cultural differences, loss of autonomy, and potential dilution of shareholder value. As a result, the success of an acquisition largely depends on factors like strategic fit, proper due diligence, effective integration planning, and execution.

3. What is meant by accounting standards for acquirees?

Accounting standards for acquirees refer to the specific guidelines and regulations that govern the accounting treatment and financial reporting requirements for entities that have been acquired. These standards ensure consistency and transparency in reporting the financial impact of acquisitions, including the recognition of assets, liabilities, goodwill, and related expenses.

Recommended Articles

This article is a guide to Acquiree and its meaning. Here, we explain the concept with examples, differences with the acquirer, and features. You can learn more about it from the following articles: –