What is a Takeover Target?

A takeover target is a company that is a good candidate for purchase by an acquirer.

How Does a Takeover Target Work?

Let's assume Company XYZ has developed an exciting new widget. Several companies may be interested in purchasing Company XYZ to keep Company XYZ's technology proprietary, and so Company XYZ may become a takeover target.

[InvestingAnswers Feature: How to Play the Buyout Game: 3 Tips for Finding the Best Deals]

Why Does a Takeover Target Matter?

It's not always easy to tell which companies are good takeover targets, but if a company is struggling, or if it has a large amount of cash on its balance sheet, it's likely that other companies consider the company as a takeover target.

Some potential acquirers will take the next step of purchasing shares. If the target is a public company, and if the potential acquirer purchases more than 5% of those shares, the buyer must report the purchase to the Securities and Exchange Commission (SEC). This often triggers a flurry of trading activity in the target's stock.