Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Target Firm

What it is:

A target firm, also called an acquiree, is a company that is purchased by an acquirer.

How it works (Example):

Let's assume Company XYZ has developed a powerful new search-engine widget. Several search-engine companies may be interested in purchasing Company XYZ to keep Company XYZ's technology proprietary, and so Company XYZ may become a target firm.

Why it Matters:

It's not always easy to tell which companies are good targets, but if a company is struggling or it has a large amount of cash on its balance sheet, it's likely that other companies are evaluating the company as a target. Some potential acquirers will take the next step of purchasing shares, and if they purchase more than 5% of those shares, they must report the purchase to the Securities and Exchange Commission if the target is a public company. This often triggers a flurry of trading activity in the target's stock.