In the world of mergers and acquisitions (M&A), one of the most discussed scenarios is that of the "white knight." This term refers to an investor or another company that intervenes in a negotiation to acquire a target company, with the intent of preventing a hostile takeover by an undesirable buyer or to help the company resolve a crisis situation. While this strategy can bring numerous advantages, it also carries certain risks. Here is an analysis of the main pros and cons of the white knight.

Pros of the White Knight

1. Saving a struggling company The white knight can be the ideal solution for a company that is facing financial difficulties or is under the threat of a hostile takeover. This type of intervention helps to preserve the company's autonomy and avoid the risk of dismemberment or loss of identity, which is often associated with a hostile acquisition.
2. Preservation of employment When a company is acquired by a white knight, it is more likely that operations will remain stable, preserving employee jobs and local activities. A hostile takeover, on the other hand, may lead to layoffs or aggressive restructuring to optimize costs.
3. Improvement of long-term prospects The white knight often brings resources, skills, or strategic synergies that can help strengthen the company's long-term prospects. This type of alliance can open up new growth opportunities due to more stable governance and a greater ability to face economic challenges.
4. Lower risk of conflicts Unlike hostile takeovers, where tensions between management and the acquirer can undermine the company's management, the white knight tends to be well-regarded by management and shareholders, who prefer amicable negotiations. This approach reduces conflicts and fosters a more collaborative work environment.
5. Greater protection for shareholders A white knight can offer shareholders a favorable solution, perhaps by keeping the stock value stable or even increasing it. Unlike a hostile takeover, which could lead to an unfavorable market valuation or asset liquidation, the white knight is committed to protecting the long-term interests of investors.

The Cons of the White Knight

1. Potential conflict of interest Although the white knight intervenes with the intention of protecting the company and shareholders, their motivations may not perfectly align with the interests of all parties involved. For example, a white knight might be more interested in acquiring the target company to benefit from long-term strategic synergies rather than pursuing its survival as an independent entity.
2. Temporary solution In some cases, the white knight may not address the fundamental problems of the company, but merely postpone the crisis. If the company continues to struggle with debts, inefficiencies, or ineffective management, the intervention of the white knight might only delay an inevitable failure or restructuring.
3. Difficulty in finding the right knight It is not always easy to find a white knight willing to intervene effectively and under the desired conditions. Choosing the right partner is crucial; a poorly matched white knight could worsen the situation rather than improve it, especially if they lack strategic vision or adequate resources.
4. Risk of loss of autonomy Even though the white knight presents itself as a "friendly solution," the company may end up losing its long-term autonomy. The terms of the partnership or acquisition could limit the ability to make independent decisions in favor of the interests of the knight itself.
5. Impact on internal dynamics The entry of a white knight into a company could alter internal dynamics, with the risk of fractures between management, shareholders, and employees. Not everyone may view an external intervention positively, creating tensions that negatively impact the corporate culture and overall performance.

The pros and cons mentioned in this article need to be properly contextualized; here we have summarized some circumstances we encountered in the transactions we followed, where the role of the white knight took on different characteristics depending on the specific situations we faced.

In general, we can say that the white knight can be a fundamental resource in times of crisis or threats of hostile takeover, offering significant advantages such as safeguarding employment and ensuring business stability. However, its effectiveness depends on the quality of the chosen partner and how the operation is managed. Companies must carefully weigh the pros and cons before accepting external intervention, as, although the white knight may be a temporary savior, it does not always provide a definitive solution to deeper issues.

In any case, strategic and mindful management is essential to determine whether this is the right choice.

WA