BROWSE

Backflip Takeover

What is 'Backflip Takeover'

An uncommon type of takeover in which the acquirer becomes a subsidiary of the acquired or targeted company, with business after the takeover conducted in the name of the acquired company. A backflip takeover gets its name from the fact that it runs counter to the norm of a conventional acquisition, where the acquirer is the surviving entity and the acquired company becomes a subsidiary of the acquirer.
While the acquired company's assets are subsumed into the acquiring company, control of the combined entity is generally in the hands of the acquirer.
 

Explaining 'Backflip Takeover'

 
While companies may consider a backflip takeover for a number of valid reasons, a common motive for such a structure is much stronger brand recognition and goodwill for the target company than the acquirer in their major markets.
 
Often, the acquirer may be struggling with problems of its own. For instance, the acquirer may be a hitherto sizeable and successful company that has had its image tarnished by one or more negative issues such as a large product recall, well-publicized product deficiencies, accounting fraud and so on. These issues may significantly impede its future business prospects, leading it to consider other options for its long-term survival and success. One of these options is to acquire a rival company that has complementary businesses and sound prospects, but which needs significantly more financial and operational resources to expand than it could raise on its own.
 
For example, DullCo is a large company that has fallen on relatively hard times because the massive recall of one of its biggest-selling products has hurt its finances and caused large-scale customer defections. Management decides that its brand has suffered irreparable damage, and decides to use its financial resources – which are still substantial – to acquire smaller and fast-growing rival Hotshot Inc. DullCo’s management also decides that business after the completed takeover will be conducted under the Hotshot name, which will be the surviving entity, with DullCo becoming a Hotshot subsidiary.
 
Why would Hotshot’s management want to sell out to a larger, struggling competitor? Probably because Hotshot’s executive team believes it can use DullCo’s huge resources to expand faster than it could on its own. Hotshot’s management is also very likely to bargain for a substantial presence on the Board of Directors and management of the combined entity.


Further Reading


The Effects of FDI on Economic Growth in Central and Eastern Europe: Mergers & Acquisitions, and Greenfield Investment
lup.lub.lu.se [PDF]
… Fostering privatization and market economy approach opened gates for partnerships, takeovers, and new subsidiaries … Page 13. The Effects of FDI on Economic Growth in CEE: M&A, and Greenfield Investment 13 Lund University, School of Economics and Management …

Legal Aspects of Takeover Defence Tactics: A Comparative Analysis between the English and the US SystemsLegal Aspects of Takeover Defence Tactics: A Comparative Analysis between the English and the US Systems
sas-space.sas.ac.uk [PDF]
… Fostering privatization and market economy approach opened gates for partnerships, takeovers, and new subsidiaries … Page 13. The Effects of FDI on Economic Growth in CEE: M&A, and Greenfield Investment 13 Lund University, School of Economics and Management …

Constructing the GFC: Australian banking leaders during the financial 'crisis'Constructing the GFC: Australian banking leaders during the financial 'crisis'
journals.sagepub.com [PDF]
… Fostering privatization and market economy approach opened gates for partnerships, takeovers, and new subsidiaries … Page 13. The Effects of FDI on Economic Growth in CEE: M&A, and Greenfield Investment 13 Lund University, School of Economics and Management …

The determinants of ownership in M&As: An analysis of the stake purchases in Romanian acquisitionsThe determinants of ownership in M&As: An analysis of the stake purchases in Romanian acquisitions
www.ceeol.com [PDF]
… Fostering privatization and market economy approach opened gates for partnerships, takeovers, and new subsidiaries … Page 13. The Effects of FDI on Economic Growth in CEE: M&A, and Greenfield Investment 13 Lund University, School of Economics and Management …

Restoring confidence in consumer financial protection regulation in Australia: A Sisyphean task?Restoring confidence in consumer financial protection regulation in Australia: A Sisyphean task?
journals.sagepub.com [PDF]
… Fostering privatization and market economy approach opened gates for partnerships, takeovers, and new subsidiaries … Page 13. The Effects of FDI on Economic Growth in CEE: M&A, and Greenfield Investment 13 Lund University, School of Economics and Management …

ЗРОСТАННЯ БІЗНЕСУ-ЗЛИТТЯ ТА ПОГЛИНАННЯЗРОСТАННЯ БІЗНЕСУ-ЗЛИТТЯ ТА ПОГЛИНАННЯ
elibrary.ru [PDF]
… Fostering privatization and market economy approach opened gates for partnerships, takeovers, and new subsidiaries … Page 13. The Effects of FDI on Economic Growth in CEE: M&A, and Greenfield Investment 13 Lund University, School of Economics and Management …

Advising Howard: Interpreting changes in advisory and support structures for the Prime Minister of AustraliaAdvising Howard: Interpreting changes in advisory and support structures for the Prime Minister of Australia
www.tandfonline.com [PDF]
… Fostering privatization and market economy approach opened gates for partnerships, takeovers, and new subsidiaries … Page 13. The Effects of FDI on Economic Growth in CEE: M&A, and Greenfield Investment 13 Lund University, School of Economics and Management …

Corporate Ownership and Control in the Financial MarketsCorporate Ownership and Control in the Financial Markets
heinonline.org [PDF]
… Fostering privatization and market economy approach opened gates for partnerships, takeovers, and new subsidiaries … Page 13. The Effects of FDI on Economic Growth in CEE: M&A, and Greenfield Investment 13 Lund University, School of Economics and Management …


Leave a Reply

Your email address will not be published. Required fields are marked *