Definition - What does Gray Knight mean?
During a public corporate takeover or acquisition, a gray knight is a secondary, separate party to the first bidder and target company.
Divestopedia explains Gray Knight
In most cases, a gray knight watches the interactions between the first bidding firm and target company to see if any problems arise. If they do, the gray knight becomes involved to try and take advantage of the issues between the two initial parties. The gray knight often falls between the unfriendly black knight that is pursuing a hostile takeover and a white knight that is working closely with the board of directors and management to reach a fair purchase price.
The variation of the term 'knight' is more commonly used in the context of a public company M&A. In the sale of a privately-held middle market business, some potential buyers might wait to see how the sales process unfolds before making an offer, knowing that many deals fail to cross the finish line. In these failed deals, the gray knights would then approach the target with a less-favorable offer since they recognize that the target company has just come off of a failed transaction.