Our M&A Glossary is a valuable resource for anyone seeking to understand the world of corporate transactions, providing clear definitions and explanations of key terms to guide both industry veterans and newcomers through the complexities of mergers, acquisitions, and related topics.
The glossary is organized alphabetically, allowing you to search for a specific term directly in the search field and access its definition instantly.
A divestiture is a strategic decision by a company to sell or dispose of a part of its business or assets. It can involve the sale of subsidiaries, divisions, product lines, or non-core assets to focus on core operations or address financial or strategic objectives.
A down payment is an upfront payment made by a buyer to secure a purchase or as part of a larger payment arrangement. It is typically a percentage of the total purchase price and demonstrates the buyer’s commitment.
This is a comprehensive appraisal of a business undertaken by a prospective buyer, especially to establish its assets and liabilities and evaluate its commercial potential.
The due diligence process is the thorough examination and evaluation of a company’s financial, operational, legal, and commercial aspects before entering into a business transaction. It helps uncover risks, opportunities, and key information for informed decision-making.
This is a provision that allows the seller of a business to receive additional future compensation based on the business achieving certain future financial goals.
An earnout is a provision in an M&A deal that allows the seller to receive additional payments based on the future performance of the acquired company. It helps bridge valuation gaps and aligns the interests of the buyer and seller.
EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It’s a measure of a company’s overall financial performance and is used as an alternative to net income in some circumstances.
The merging of companies can lead to a reduction in fixed costs by removing departments that perform duplicate functions.
This is a gain of more specialized skills or technology due to a merger.
This is one of the less ideal reasons to make a merger. It occurs when management decides to make a merger to increase the size of the company purely for the purpose of ego or prestige.
Enterprise value (EV) is a measure of a company’s total value, including market capitalization, short-term and long-term debt, and any cash on the company’s balance sheet.
An equity bridge, also known as an equity bridge loan or bridge equity, is a short-term loan provided by investment banks to sponsors (typically private equity firms) in leveraged buyouts (LBOs) to finance the equity portion of the deal. The purpose of an equity bridge is to allow the sponsor to contribute a smaller amount of equity upfront when acquiring a company. The sponsor can then repay the equity bridge loan later, usually after the acquisition closes, using the proceeds from the sale of high-yield bonds, or from the cash flows of the acquired company. This financing structure allows the
Equity financing is a method of raising capital by selling ownership shares in a company to investors, such as individuals, venture capitalists, or private equity firms. It provides capital in exchange for an ownership stake and potential future returns on investment.
These are underwriting fees charged by investment banks to issue equity in connection with the transaction.
Equity value is the value of a company available to owners or shareholders. It is calculated by subtracting debt and other liabilities from the company’s total value.
Escalation of commitment is a phenomenon where a party continues to invest resources or maintain a commitment to a course of action despite negative outcomes or diminishing returns. It can occur in negotiations when parties become emotionally or financially invested in a particular outcome.
Escrow is a legal concept describing a financial instrument where an asset or escrow money is held by a third party on behalf of two other parties that are in the process of completing a transaction.
An escrow agreement is a legal contract that involves a third party holding assets, funds, or documents on behalf of two parties involved in a transaction. It provides security and ensures the fulfillment of obligations.
These are agreements where a third party holds assets on behalf of the parties in the transaction until certain conditions are met.
This is a neutral third-party that prepares routine financial, compliance and legal documents related to the transfer of a business and holds funds until the parties fulfill specified conditions.
ESG criteria are a set of environmental, social, and governance factors that are used to evaluate the sustainability and ethical impact of an investment. Investors consider these criteria alongside financial performance when making investment decisions.
Ethical investing involves making investment decisions based on ethical principles and values. It avoids investments in industries or companies that are deemed to have negative social or environmental impacts.
This is the value of the purchase price over and above the net book value of assets (total purchase price minus the net book value of assets).
This is a 1-page profile of a business that is used to solicit buyer interest. It usually has all identifying information removed.
An exit strategy is a plan or approach to liquidate or divest from an investment or business. It outlines how an investor or business owner intends to realize their investment or transition out of the business, often aiming for a profitable exit or ownership transfer.
This is the amount that a hypothetical willing buyer would pay a willing seller acting at arm’s length in an open and unrestricted market, when neither is under any compulsion to buy or sell, and when both have reasonable knowledge of the relevant facts.
These are the increases or decreases in the net book value of assets to arrive at the fair market value.
A family-owned business is a business that is owned and operated by members of a family, typically spanning multiple generations. Family-owned businesses often prioritize long-term sustainability and maintaining family values.
This is an acronym for the First In, First Out inventory valuation method. The first inventory units purchased are considered to be the first sold.
This is a buyer that values a business based on the expected future economic performance of that business if operated on a standalone basis.
Financial due diligence is the process of reviewing the financial health of a target company. It includes reviewing financial statements, assets, liabilities, cash flow, and more.
These are documents prepared to provide detailed financial information about a company to potential buyers.
Financial risk refers to the potential loss or negative impact on financial performance due to various factors, such as market volatility, credit risk, liquidity risk, and operational risk. It involves assessing and managing these risks to protect the financial stability of a business or investment.
This is the lowest preconceived price a seller will or should accept.
This occurs when a company acquires a target that either makes use of its products to manufacture finished goods or is a retail outlet for its products.
A franchise is a business model where an entrepreneur (franchisee) pays a franchisor for the right to operate a business using the franchisor’s brand, systems, and support.
This is the amount of cash that a company is able to generate after laying out the money required to maintain or expand its asset base.
This occurs when the board of directors and management of the target company approve of the takeover. They will advise the shareholders to accept the offer.
This is the number of shares a company has outstanding after options, convertible securities, etc., are exercised.
This is an acronym for Generally Accepted Accounting Principles. GAAP includes the standards, conventions, and rules accountants follow in recording financial transactions and preparing financial statements.
This is the value of a business enterprise that is expected to continue operating in the future.
In M&A, goodwill is an intangible asset that arises when a buyer acquires an existing business and pays more than the fair market value of the net assets.
Green investing, also known as eco-investing or climate investing, refers to investing in companies, projects, or funds that promote environmentally-friendly practices, technologies, and solutions.
Guarantees are promises made by one party to assume financial responsibility or compensate for specified risks or liabilities in a business transaction. They provide assurance to the other party involved that certain obligations will be fulfilled. Guarantees can take various forms, such as performance guarantees, payment guarantees, or warranty guarantees. They are commonly used to mitigate potential risks and build trust between parties in a deal.
This is a clause in a contract that specifies how certain provisions of the contract should be interpreted.
In a purchase agreement, this provision provides for a portion of the consideration to be deposited in escrow or withheld by the buyer to be applied toward future indemnification claims by the buyer.
This is the merging of companies in the same lines of business, usually to achieve synergies.
A horizontal merger is a combination of two companies operating in the same industry or market segment. It aims to increase market share, eliminate competition, achieve economies of scale, or enhance product offerings.
A hostile takeover is an acquisition in which the acquiring company pursues the target company against its will or without its cooperation. It typically involves bypassing or overcoming resistance from the target company’s management or board of directors.
These are assets that can be assigned a fair value; can include both tangible and intangible assets.
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