Dawn Raid

During a dawn raid, an investor acquires a substantial number of shares in a company first thing in the morning, just as the stock market is opening for business. Because the bidding company builds a substantial stake in its target at the prevailing stock market price, any takeover costs are likely to be significantly lower than they would have been had the acquiring company made an announcement of intention prior to acquiring a position in a target.

Like the dawn raid in war, the corporate dawn raid is done early in the morning, so by the time the target realizes it's being attacked, it's too late — the investor has already scooped up a meaningful controlling interest position. However, only a minority interest in a firm's shares can be bought this way, as a position greater than 5% requires formal documentation. So, after a successful dawn raid, the raiding firm is likely to make a takeover bid to acquire the rest of the target company.

In theory, a dawn raid should allow a target entity to be purchased at a discount before news breaks of an acquirer's interest in a takeover target. In practice, however, many developed markets enjoy a level of market efficiency that makes it difficult to execute a dawn raid without outsiders knowing of it already. High-frequency trading and other algorithm driven investment strategies further complicate anonymity. As such, empirical results are mixed.

The growth and flexibility of financial instruments further distort the traditional definition of a dawn raid. For instance, many instruments might be available in OTC or off-exchange markets. Futures and options can be purchased "pre-market."

Another consideration is brokerage service level. Popular discount brokers do not "fill" market orders immediately. If speed of execution is required, more expensive full-service brokers may be required.