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  • DEFINITION of 'Backflip Takeover'

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    A backflip takeover occurs when the acquiring company becomes a subsidiary of the target company after the takeover, rather than the target becoming a subsidiary of the acquirer as is more typical. This type of deal structure usually happens when the target has stronger brand recognition or goodwill in key markets compared to the acquirer. The acquirer may be struggling and use the acquisition to access the target's complementary business and resources to improve its long-term prospects, often operating under the target's name post-acquisition. An example given is a large company with brand damage acquiring a smaller but fast-growing rival, where the larger company becomes a subsidiary and the deal is conducted under the target's brand name.

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    Backflip Takeover

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    A backflip takeover occurs when the acquiring company becomes a subsidiary of the target company after the takeover, rather than the target becoming a subsidiary of the acquirer as is more typical. This type of deal structure usually happens when the target has stronger brand recognition or goodwill in key markets compared to the acquirer. The acquirer may be struggling and use the acquisition to access the target's complementary business and resources to improve its long-term prospects, often operating under the target's name post-acquisition. An example given is a large company with brand damage acquiring a smaller but fast-growing rival, where the larger company becomes a subsidiary and the deal is conducted under the target's brand name.

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    7 views1 page

    DEFINITION of 'Backflip Takeover'

    Uploaded by

    asdasd
    A backflip takeover occurs when the acquiring company becomes a subsidiary of the target company after the takeover, rather than the target becoming a subsidiary of the acquirer as is more typical. This type of deal structure usually happens when the target has stronger brand recognition or goodwill in key markets compared to the acquirer. The acquirer may be struggling and use the acquisition to access the target's complementary business and resources to improve its long-term prospects, often operating under the target's name post-acquisition. An example given is a large company with brand damage acquiring a smaller but fast-growing rival, where the larger company becomes a subsidiary and the deal is conducted under the target's brand name.

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    © All Rights Reserved
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    DEFINITION of '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.

    INVESTOPEDIA EXPLAINS '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 fastgrowing rival Hotshot Inc. DullCos 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 Hotshots management want to sell out to a larger, struggling competitor? Probably
    because Hotshots executive team believes it can use DullCos huge resources to expand faster
    than it could on its own. Hotshots management is also very likely to bargain for a substantial
    presence on the Board of Directors and management of the combined entity.

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