In Business, what is a Black Knight?

A black knight is a common reference to a corporate raider or a company that engages in the process of attempting a hostile takeover of another business entity. Whether an individual who is backed by a number of investors or a company that makes a profit by purchasing corporations and selling off the assets, the black knight tends to follow a consistent pattern.

At the beginning of the process, the black knight will research a number of corporations and their current financial status. The purpose of the research is to identify target companies that have enough assets, property, market share, and other holdings to make the acquisition worthwhile. Once a viable target company is identified, the corporate raider will begin to acquire shares of the outstanding stocks of the company. Along the way, it will become necessary for the black knight to declare his or her intentions to acquire controlling interest in the company.

Often, a corporation will resist the hostile takeover bid. Depending on the amount of resources that are on hand, and the desire of the other shareholders to prevent the takeover, it is possible to minimize the efforts of the black knight and possibly even convince the raider to sell other investors the acquired shares. More often, however, the black knight is able to capitalize on divisions among the shareholders and slowly gain controlling interest in the corporation. Once control is established, it generally takes little effort to get the remaining shareholders to go along with the dismantling of the corporation, and the sale of all the assets.

The key to the success of a black knight is making sure to never expend more resources in the acquisition process than can be realized in the form of profits from the sale of all the assets. Covering all expenses and making a little extra for the effort allows the black knight to begin the process of identifying another corporation that is ripe for a takeover attempt.