M&A Glossary

Acquisition: The purchase of one company by another. The acquiring company absorbs the company being acquired, and the acquiring company continues to exist.

Addbacks: Expenses or deductions that are added back to a company’s net income to provide a more accurate picture of its financial performance.

Adjusted EBITDA: EBITDA that removes non-recurring and irregular items from its earnings.

Asset Purchase Agreement (APA): An agreement between a buyer and a seller that finalizes terms and conditions related to the purchase and sale of a company’s assets.

Accounts Payable (AP): Money owed by a company to its creditors. This is a short-term debt (liability) on the balance sheet.

Accounts Receivable (AR): Money owed to a company by its debtors. This is recorded as an asset on the balance sheet.

Asset Purchase: An acquisition where the buyer purchases the assets of the company rather than its shares. This allows for selective asset acquisition and can leave liabilities with the seller.

Balance Sheet: A financial statement that reports a company’s assets, liabilities, and shareholder equity.

Bench Strength: Having a team who can run the business without you always needing to be there.

Buyside vs. Sellside: Buyside relationships in M&A involve a firm assisting a business in acquiring additional companies, whereas sellside relationships involve the firm representing a company looking to be acquired.

Business Mix: The range of products, services, or customers a business targets or offers.

Capital Expenditures (CapEx): Money spent on items that are needed to sustain the business.

Confidential Information Memorandum (CIM): Document providing key information about a company being offered for sale. It can include detailed descriptions of business operations, financial performance, the management team, and other relevant data.

Data Room: Traditionally, an actual room where confidential business information was held.

Due Diligence (DD): Due diligence is a process of verification, investigation, or audit of business records to confirm all relevant facts and financial information.

Definitive Agreement: The final, legally binding document that outlines all terms of the M&A transaction.

Earnout: A contractual provision stating that the seller of a business can receive additional future compensation based on the company achieving specific financial goals post-acquisition.

EBITDA: Earnings before interest, taxes, depreciation, and amortization. Typically can be viewed as Net Profit on a Balance Sheet.

External Team: Transactional support team composed of your M&A advisors, CPA, M&A attorney, and mentors.

General Ledger: The main accounting record of a company or organization.

Goodwill: An intangible asset that arises when a buyer acquires an existing business. Goodwill represents the premium paid over the fair market value of the company’s net assets.

Holdback (HB): Cash held back in an escrow account, usually for 12 months.

Integration: The process following an M&A in which the merged companies’ operations, cultures, and systems are combined into a single, cohesive organization.

Internal Team: Employees and key team members, or “bench strength.”

Indication of Interest (IOI): Commonly referred to as an “IOI,” a buyer may submit an IOI to signal their ability and willingness to make an offer.

Legal Due Diligence: A detailed look at your deal regarding agreements like employment, non-competition, marketing, binding letters, etc.

Letter of Agreement (LOA): A document outlining the preliminary agreement between the seller and the M&A advisory firm involved in a potential M&A deal. It’s not legally binding but signifies serious intent to proceed.

LOI (Letter of Intent): A written, non-binding document which outlines an agreement in principle for the buyer to purchase the seller’s business, stating the proposed price and terms.

Merger: A combination of two companies into one new entity, where both companies agree to combine their operations on a roughly equal footing.

NDA (Non-disclosure Agreement): A legal contract that prevents the disclosure of sensitive information shared between the buyer and the seller.

P&L (Profit & Loss): A financial report showing a company’s revenues, expenses, and net profit or loss over a specific period of time.

Post Transaction: A transitional period of 90 days – a year where integration will happen.

QoE (Quality of Earnings): The due diligence review by an independent accounting firm diving into a company’s financial and operating information.

Stock Purchase: A type of acquisition where the acquiring company buys the target company’s shares directly from its shareholders.

Teaser: A one-page marketing summary highlighting key aspects of a company while omitting its name and location to ensure confidentiality.

Trial Balance: A report showing the closing balances of all accounts in the general ledger at a point in time.

Trailing Twelve Months (TTM): The term for financial data from the past 12 consecutive months

Valuation: The process of determining the present value of an asset or a company. Various methods, including discounted cash flow, comparables, or asset-based approaches, can be used.

Working Capital: A financial metric that is the difference between a company’s current assets and current liabilities. A non-cash item that affects the balance sheet and the closing of your transaction.