Acquiree, also known as the target company, is the one that is being taken over by the acquirer company in a merger and acquisition transaction. It is usually the smaller of the two companies, until and unless it is a merger of two companies of equal stature.
Below is the diagram for a merger, wherein the acquirer takes over the acquiree and posts the transaction, the only acquirer remains.
While the below diagram shows how post-acquisition, both the acquirer and the acquiree continue to exists independently, but the acquirer has greater control.
Features of an Ideal Acquiree
- Smaller than Acquirer: Most of the time, the acquiree is smaller than the acquirer company because, in most of the merger and acquisition transactions, it is the bigger company taking over the smaller company. The smaller company doesn’t have enough financial resources to take over the bigger company. But this is not always the case, and there are exceptions everywhere.
- Value Addition: The purpose of any merger and acquisition transaction is to create some value for the entity created once the transaction is completed. This value addition is called ‘synergies’ of the transaction. If there are no synergies, then 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 what it is worth.
- Antitrust Qualification: Most of the time, the acquiree might not be so large that the Antitrust action is taken for the M&A transaction. It would be one where such actions are not there, and if they are there, their impact is negligible. 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.
- Non-Resistant: For a successful merger or acquisition, both the companies need to come to a consensus. When the takeover attempt is a hostile one, the acquiree might put up resistance in the form of one or many of the pre and post-take-over defenses. So it is ideal that the offer is non-resistant because resistance affects the success rate of the transaction.
- Profitable: The acquirer conducts a cost-benefit analysisCost-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. 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. 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., so that the transaction is worth entering into.
One of the most talked-about Mergers and Acquisition transactions in Facebook acquiring Whatsapp and Instagram. Both of these companies exist in their own name after the acquisition, but now Facebook owns a majority in these. So from these transactions, we can figure out that Facebook is the acquirer, and Whatsapp and Instagram are Acquirees in their respective transactions.
In 2009, Disney took over Marvel Entertainment for $4 billion. So Disney was the acquirer, and Marvel was the acquiree. Even now, marvel movies release and Marvel has retained its name, but now it is owned by Disney.
- Acquiree is the company that is taken over as part of the merger and acquisition transaction by the acquirer. This 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. 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. in most cases while the acquirer only prepares the stand-alone financial statements.
This article has been a guide to What is Acquiree & its Meaning. Here we discuss the features of an ideal acquiree candidate along with practical examples. You can learn more about from the following articles –