Jargon Buster: Simplifying M&A Terms

Below is a basic glossary covering a wide range of terms relevant to selling or buying a business.

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A

Acquirer: A company or individual that purchases another company.

Acquisition: The process by which one company takes control of another.

Add-on Acquisition: An acquisition strategy where a company buys smaller companies to add to its existing operations.

Adjusted EBITDA: Earnings Before Interest, Taxes, Depreciation, and Amortisation, adjusted for non-recurring items to reflect the company's true earnings potential.

Advisor: A professional who provides advice and assistance in an M&A transaction. This can include financial advisors, legal advisors, and business brokers.

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B

Bid: An offer made by a potential acquirer to purchase a target company.

Break-up Fee: A fee paid by the seller to the buyer if the transaction is not completed under certain conditions.

Business Valuation: The process of determining the economic value of a business or company.

Buyer: An individual or entity that seeks to purchase a company.

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C

Capital Gains Tax: A tax on the profit made from selling a non-inventory asset.

Cash Flow: The total amount of money being transferred into and out of a business.

Closing: The final step in an M&A transaction where the transfer of ownership occurs.

Confidentiality Agreement: A legal agreement between parties to keep certain information confidential.

Covenants: Conditions or clauses within an agreement which stipulate certain actions the parties must adhere to.

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D

Deal Structure: The terms and conditions of an M&A transaction, including payment method, timeline, and legal arrangements.

Deal Synergies: The financial benefits expected from combining two companies.

Due Diligence: The process of thoroughly investigating a company's business, legal, financial, and operational status before completing an acquisition.

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E

EBITDA: Earnings Before Interest, Taxes, Depreciation, and Amortisation. It is a measure of a company's operating performance.

Earn-out: A provision in which the seller receives additional compensation based on the future performance of the business.

Enterprise Value (EV): A measure of a company's total value, calculated as market capitalization plus debt, minority interest, and preferred shares, minus total cash and cash equivalents.

Equity: The value of the shares issued by a company.

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F

Fairness Opinion: An independent assessment, typically provided by a financial advisor, on whether the terms of an M&A transaction are fair from a financial perspective.

Financing: The act of providing funds for business activities, making purchases, or investing.

Financial Buyer: An acquirer that primarily focuses on the financial returns of the acquisition rather than strategic benefits.

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G

Goodwill: An intangible asset that arises when a buyer acquires an existing business, representing the value of the business’s reputation, customer base, and other intangible factors.

H

Holdback: A portion of the purchase price that is retained until certain conditions are met post-closing.

Horizontal Integration: The acquisition of a company operating in the same industry and at the same level of the supply chain.

I

Indemnity: A contractual obligation of one party to compensate another for any loss or damage arising out of the transaction.

Integration: The process of combining two companies into one entity after an acquisition.

Investment Bank: A financial institution that provides advisory services for mergers and acquisitions, among other services.

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J

Joint Venture: A business arrangement where two or more parties agree to pool their resources to achieve a specific goal.

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L

Leverage: The use of borrowed funds to finance the acquisition of a company.

Letter of Intent (LOI): A non-binding document outlining the preliminary terms of a potential acquisition.

Liquidity Event: An occurrence that allows shareholders to convert their equity into cash, such as an acquisition or IPO.

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M

Management Buyout (MBO): A transaction where a company's management team purchases the assets and operations of the business they manage.

Merger: The combination of two companies into one larger company.

Minority Interest: Ownership of less than 50% of a company's equity.

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N

Non-Compete Clause: A contractual agreement in which the seller agrees not to start a competing business or work for a competitor for a certain period after the sale.

Non-Disclosure Agreement (NDA): A legal contract ensuring that confidential information shared during the M&A process remains confidential.

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O

Offer: A proposal to acquire a company, typically outlining the terms and price.

Owner's Earnings: A measure of cash flow that represents the amount of money that could be distributed to the owners.

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P

Post-Merger Integration (PMI): The process of combining and rearranging businesses to realise the potential efficiencies and synergies from a merger or acquisition.

Private Equity (PE): Investment funds that buy and restructure companies that are not publicly traded.

Purchase Agreement: A legal document outlining the terms and conditions of the sale of a business.

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Q

Quality of Earnings (QoE): An analysis performed to evaluate the sustainability and accuracy of a company’s earnings.

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R

Recapitalisation: A restructuring of a company's debt and equity mixture, often to make a company's capital structure more stable.

Representations and Warranties: Statements of fact made by one party to another during the negotiation of a transaction.

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S

Share Purchase Agreement (SPA): A legal contract between a buyer and a seller that outlines the terms and conditions regarding the sale and purchase of shares in a company.

Strategic Buyer: An acquirer that is interested in a company for strategic reasons, such as entering new markets or acquiring new technology.

Synergy: The concept that the value and performance of two companies combined will be greater than the sum of the separate individual parts.

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T

Tag-along Rights: Rights that allow minority shareholders to join in the sale of a company when the majority shareholder sells their stake.

Target Company: The company that is the subject of an acquisition attempt.

Term Sheet: A non-binding agreement that outlines the basic terms and conditions of an investment.

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U

Underwriting: The process by which an underwriter evaluates and assumes another party's risk for a fee.

Unicorn: A private startup company valued at over $1 billion.

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V

Valuation: The process of determining the current worth of an asset or company.

Venture Capital (VC): Financing provided to startups and small businesses with high growth potential.

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W

Walkaway Price: The lowest price a seller is willing to accept for their company.

Working Capital: The difference between a company's current assets and current liabilities.

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Z

Z-Score: A statistical measure that can help predict a company’s likelihood of bankruptcy.

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This glossary provides a detailed overview of key M&A terms, helping users of the M&A deal matching platform to navigate the complex process with greater understanding and confidence.