If you are a seller or buyer that doesn’t have a lot of experience in the world of M&A, it can be frustrating and confusing trying to understand the terminology that is used. As much as we try not to confuse our clients, it is many times more efficient to use the specialized terms of the profession. To help, we have put together a list of common M&A terminology that we hope will assist you and make the process smoother if you are buying or selling a business.
Acquisition: One company takes over the controlling interest or controlling ownership in another company.
Add-On Acquisition: A strategic acquisition fit for an existing platform/portfolio company.
Asset Deal: The acquirer purchases only the assets (not its shares) of the target company.
Confidential Information Memorandum: Sometimes called “the book,” pitchbook or a deck, the Confidential Information Memorandum is a description of the business including products, history, management, facilities, markets, financial statements and growth potential. This is used to market the business to potential buyers.
Data Room: Secure online website that contains information including contracts, documents, and financial statements of the business being sold. These online data rooms can track who views the information.
Deal Structure: May include seller debt, earn outs, stock, or other valuables besides cash.
Due Diligence: Part of the acquisition process when the acquirer reviews all areas of the target business to satisfy their interests. This includes viewing the internal books, operations, and internal procedures.
Earn-Out: A type of deal structure where the seller can earn future payments based on certain achievements or the performance of the business being sold after the closing. These are often based on revenue targets or earnings.
EBITDA: Earnings before interest, taxes, depreciation, and amortization.
Goodwill: An intangible asset that comes as a result of name, customer loyalty, location, products, reputation, and other factors.
Indication of Interest (IOI): A letter from the buyer to the seller that indicates the general value and terms a buyer is willing to pay for a company. The letter is non-binding to both parties.
Letter of Intent (LOI): A document that lays out the key terms of the deal. LOI’s are typically non-binding for both parties except for certain provisions such as confidentiality and exclusivity.
Multiple: Common measure of value to compare pricing trends on deals.
NDA: A confidentiality agreement that prohibits the buyer from sharing the confidential information of the seller. This is usually signed before the seller provides detailed, sensitive information to a buyer.
Purchase Agreement: The contract that contains all the specifics of the transaction and the obligations and rights of the seller and buyer.
Representations and Warranties (reps & warranties): Past or present statements of fact to inform the buyer or seller about the status and condition of their business and its assets, employees, and operations.
Search Fund: This is an individual or a group that is seeking to identify a business that the individual or group can acquire and manage. Usually, search funds do not have dedicated capital but instead, have informal pledges from potential investors.
Teaser: An anonymous document shared with potential buyers for a specific business that is for sale.
Working Capital: A financial term used as a measurement of a business’s ability to meet its financial obligations over the coming business cycle (which is 12 months for most businesses). It is not defined under Generally Accepted Accounting Principles (GAAP). However, it is commonly calculated using this formula: Working Capital = Current Assets – Current Liabilities.
If you are thinking about buying or selling a business, Benchmark International has a team of specialists that can help answer your questions. A simple phone call or email to us can start the process today.
Americas: Sam Smoot at +1 (813) 898 2350 / Smoot@BenchmarkCorporate.com
Europe: Carl Settle at +44 (0)161 359 4400 / Settle@BenchmarkCorporate.com
Africa: Anthony McCardle at +2721 300 2055 / McCardle@BenchmarkCorporate.com
ABOUT BENCHMARK INTERNATIONAL
Benchmark International’s global offices provide business owners in the middle market and lower middle market with creative, value-maximizing solutions for growing and exiting their businesses. To date, Benchmark International has handled engagements in excess of $6B across various industries worldwide. With decades of global M&A experience, Benchmark International’s deal teams, working from 12 offices across the world, have assisted hundreds of owners with achieving their personal objectives and ensuring the continued growth of their businesses.