Backflip Takeover - Explained
What is a Backflip Takeover?
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What is a Backflip Takeover?
A backflip takeover is an unusual type of takeover in which a company which is acquiring a target company becomes a subsidiary of the acquired or target company once the deal is completed. The two entities that merge (the acquiring company and the acquired) become one and the name of the acquired company is retained. Being an unusual or a rare type of takeover, the name 'backflip takeover emerged. This is because all its processes and practices are contrary to the conventional takeover in which the acquired becomes a subsidiary of the acquirer. In the case of a backflip takeover, the acquiring company becomes a subset of the acquired company.
Back To: BUSINESS ENTITIES, CORPORATE GOVERNANCE, & OWNERSHIP
How is a Backflip Takeover Used?
There are quite a number of reasons why companies opt for backflip takeover. A target company that has a wider customer base, stronger structure and better recognition than the acquiring company will automatically make the acquirer consider a backflip takeover. Although, the acquirer has taken over the target company, it functions as a subset of the target (acquired) company and the brand name is still retained. Also, when an acquirer is of less reputation than the acquired, a backflip takeover is adopted. Less reputation does not necessarily mean the brand is not popular, rather, it might be that the name of the brand has been tarnished and faced with lots of negativity.
Example of a Backflip Takeover
In most cases, acquiring companies with tarnished images, products and services deficiencies, awry reputations and the likes opt for a backflip takeover. They are absorbed into the acquired company and function as a subset of the company, usually a better and bigger acquired company. Below is an example of a backflip takeover; DullCo is a large company that has suffered irreparable damages, customers defects and bad reputation. The company still has financial resources and decides to acquire a smaller but evolving company with a good structure, widely-recognized name and positive outlook. DullCo uses the backflip takeover approach and once the acquisition deal is complete, DullCo becomes a subsidiary of the smaller but fast-growing company and also bears its name. The financial resources of DullCo and used in boosting the newly acquired brand.
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