What it is:
A target firm, also called an, is a company that is purchased by an .
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 balance sheet, it's likely that other companies are evaluating the company as a target. Some potential take the next step of purchasing , and if they purchase more than 5% of those shares, they must report the purchase to the Securities and Exchange if the target is a public company. This often triggers a flurry of trading activity in the target's stock.on its