What it means
In everyday conversation people say target or seller, but in accounting and legal documents the business being purchased is the acquiree. The distinction matters because the acquirer keeps its own accounting history while the acquiree's assets and liabilities are brought in at fair value on the day control passes.
Identifying which party is the acquiree is usually obvious, since one company pays and the other is paid for. It becomes genuinely difficult in mergers of similar-sized businesses or share-for-share deals, where accountants look at who controls the board, who holds the majority of voting rights and whose management team leads the combined group.
Reverse acquisitions are the awkward case worth knowing about. A smaller listed company can legally buy a much larger private one, yet if the private company's owners end up controlling the combined group, accounting rules treat the listed company as the acquiree even though it issued the shares.
From the acquiree's own perspective the deal changes almost everything. Its results are consolidated into the buyer's accounts from the completion date, its assets are restated to fair value, and any excess paid over those values becomes goodwill in the buyer's balance sheet.
Deal documents use the term constantly, so recognising it saves confusion in negotiations. Warranties, indemnities and completion accounts are typically given by the acquiree's shareholders, and the buyer's due diligence is aimed squarely at what the acquiree is really worth.
The acquiree does not necessarily disappear after completion. It often continues as a legal entity filing its own statutory accounts, keeping its own trading name and its own bank arrangements, while its results are also folded into the buyer's consolidated figures.
In practice
Real-world examples.
Example
A packaging group announces the purchase of a smaller label printer, and the announcement identifies the printer as the acquiree whose results will be consolidated from the completion date of 1 October.
Example
In a share-for-share deal between two similar-sized recruitment firms, advisers spend weeks determining which party is the accounting acquiree, because the answer decides whose assets get restated to fair value.
Example
A private equity backed distributor buys a family-owned rival, and the acquiree's shareholders give warranties on stock valuations and customer contracts that survive for two years after completion.
Formula
Calculation
Consideration for the acquiree = number of shares acquired x price per share, and the goodwill arising = consideration - fair value of the acquiree's net identifiable assets.
An acquirer agrees to buy 100% of an acquiree that has 4,000,000 shares in issue, at an agreed price of $18 per share. The total consideration is 4,000,000 x $18 = $72,000,000.
Due diligence values the acquiree's identifiable assets and liabilities at a net figure of $50,000,000 once property, equipment, customer relationships and debts have been restated to fair value. Goodwill is therefore $72,000,000 - $50,000,000 = $22,000,000.
That $22,000,000 represents what the buyer paid for things it cannot itemise separately, such as the acquiree's reputation, assembled workforce and expected synergies. It sits on the acquirer's consolidated balance sheet and is tested each year for impairment rather than depreciated on a schedule.Case study
Seen in the real world.
Thornbury Signal Systems is a fictional listed electronics company presented here as an illustrative example. It had a modest market value of $30,000,000 but a stock market listing that a much larger private business, the invented Ravenscourt Instruments, wanted for itself.
Thornbury issued new shares to buy Ravenscourt, so legally Thornbury was the buyer. Because Ravenscourt's owners ended up holding 78% of the combined group's voting shares, the accountants concluded that Ravenscourt controlled the enlarged company and treated Thornbury as the accounting acquiree in a reverse acquisition.
The consequence surprised the Thornbury board. The comparative figures in the first set of group accounts were Ravenscourt's history rather than Thornbury's, and it was Thornbury's assets that were restated to fair value, which is exactly the treatment the acquiree receives regardless of who signed the cheque.
Watch out
Common mistakes.
- Assuming the acquiree is always the smaller company, when reverse acquisitions can make a larger or listed business the accounting acquiree.
- Using acquiree and acquirer interchangeably in deal documents, which creates real ambiguity about who is giving warranties to whom.
- Expecting the acquiree's book values to carry across unchanged, when its assets and liabilities are restated to fair value on the acquisition date.
Questions
People also ask.
Is the acquiree the same as the target?
Yes in practice, though target is deal-making language and acquiree is the term used in accounting standards and legal drafting.
What happens to the acquiree's accounts after completion?
Its results are consolidated into the buyer's group accounts from the date control passes, and it may continue filing its own statutory accounts as a subsidiary.
Who decides which company is the acquiree?
The determination follows control, judged on voting rights, board composition and which management team leads the combined business, not simply on who issued the shares.
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