A target firm is the company that has been chosen as a potential merger or acquisition possibility by an acquirer. The target itself does not have to be in agreement with this course of corporate action by the acquirer to still be considered the target. The attitude and response of the firm will determine whether or not the deal is considered hostile or friendly but this will not change the fact that it is still considered the target.
The definition however becomes more clouded when a merger takes place. In most circumstances, the form initiating the deal would be consider the acquirer, leaving the other party to be labeled the target. Sometimes, the larger of the two companies may be considered the acquirer. Even if the deal is termed a “merger of equals”, this is rarely the case and is solely a term often used in the official press release to placate one side or the other. Therefore, there is one party who ends up having a greater control of the surviving entity. As time moves, it is often assumed that the company with the subsequent greater control is considered the acquirer whilst the second party is referred to as the target.
For additional information, please refer to our acquirer glossary entry.
Target Firms and Shareholder Activists
In addition to attempted takeovers and mergers, the modern incarnation of the 1980’s style corporate raider is the shareholder activist. The rise of this shareholder class introduces a twist on what has traditionally been considered a “target” firm. These activists do not necessarily seek outright control of a firm. Rather, they seek to influence the corporate decision making in a way that dramatically increases shareholder value. Activists identify a firm which may be underperforming. After accumulating an influential stake in the firm, they then often seek board representation. When this is accomplished, the direction of the firm can be altered to maximize value. In this way, the “target” firm may possibly remain independent, but is subject to a degree of control from a major shareholder.
