Question

Subject: Merger and Acquisition

What are the financial characteristics that make a firm vulnerable to takeover? And why?

Answer 1

The various financial characteristics that make a firm vulnerable to takeover are

1. Growth: The high/low growth trajectory of a company can indicate whether it can become takeover target.

2. Profitability: Companies with higher or lower profitability ratio can become a potential takeover target.

3. Leverage: Companies with higher leverage are more likely to become accquisition targets

4. Liquidity: A company which has lower level of liquidity is pron to get accquired compared to others

5. Valuation: Companies are having low market value are easy target to get accquired

The reasons for why is because of numerous factors like targeting company wants to enhance its business abilities, increasing it's market share, gaining competitive advantage, diversifying, cutting operating costs etc.