How An Acquiree Works

An acquiree is a firm or company that is purchased in an acquisition or during a merger. In a takeover situation, the acquiree is also called a "target firm." Companies purchase other companies for so many different reasons. The rationale behind buying an acquiree could be international expansion, greater economies of scale, boosting market share, diversification, increasing synergies, or cutting costs. Other motivators for purchasing an acquiree include reducing excess capacity, gaining new technology, and competition in a large marketplace.

Acquirees are famous for driving hard bargains. So taking over almost always requires proposing a price above the business's fair market value for any potential buyer. As expected, acquirees will hardly let go of what they've built over the years so quickly.

An acquirer who sees a strategic value from having a merger with an acquiree will avoid ruining a deal and burning bridges. Usually, the acquiree is the boss during a bargain. A potential buyer will consider possible future potential when making an offer, paying extra to ensure the acquisition wins shareholder support and ends up successful.

Example of an Acquiree

Now that you know how an acquiree works, let's consider Kim's yogurt company as an example. Say you own Kim's yogurt company and you are looking to sell and gain market share. You may find a larger acquiring company with complementary marketing and distribution channels or a company with an easily recognizable brand and goodwill that your entity can leverage. In this case, your company is the acquiree, while the buyer is the acquirer.

You can sell your company (the acquiree) or consider a merger with the acquirer. However, you have the bargaining power as an acquirer also has goals that purchasing your yogurt company can help him achieve. Suppose you successfully sell your yogurt company to the acquirer whose brand recognition your company can leverage — the acquirer can decide to let you operate unimpeded or not.

Some of the other reasons you may be looking to put your company out as an acquiree include placing better management, financing an expansion, diversifying product and service offerings, or even securing leadership succession.

Significance of an Acquiree

There are various reasons why acquirees choose to sell their companies or consider strategic and capital-raising alternatives. There are many deal structure possibilities to accommodate different objectives. With the aid of a good mergers and acquisitions (M&A) advisor, the owner of an acquired company will search for a structure that meets their objectives.

Generally, an acquiree would sell a bulk of the voting shares to a potential acquirer so the purchasing firm can gain operational control. Once an acquisition pulls through, the acquiree may go on with operations without being interrupted by the buyer. The acquirer can take steps to secure value from the newly bought business by cutting expenses or expanding operations.