M&A terms,
clearly explained.
30 terms from business sales, valuation and the purchase agreement. Briefly defined, with an example and a practical tip.
Adjusted EBITDA
Adjusted EBITDA is earnings before interest, taxes, depreciation and amortisation, corrected for one-off, non-operating and non-market effects. It shows sustainable earning power and is the basis for multiple-based valuations.
Learn more →Asset deal
An asset deal is a business sale in which the buyer acquires individual assets, such as machinery, inventory, customer contracts and brands, rather than the company itself. The seller remains the company.
Learn more →Auction process
An auction process is a structured sale process in which several interested parties submit offers in parallel and according to fixed deadlines. The aim is competition on price and terms.
Learn more →Cash-free / debt-free
Cash-free / debt-free is a pricing arrangement under which the company is valued as if it had neither financial debt nor excess cash. Existing debt reduces the purchase price, free cash increases it.
Learn more →Closing
Closing is the completion of the business purchase agreement. The buyer pays the purchase price, and ownership of the business or the shares passes to the buyer.
Learn more →Closing accounts
Closing accounts are a purchase price mechanism under which the final purchase price is calculated on the basis of a balance sheet as at the closing date. At signing, only a provisional purchase price is agreed.
Learn more →Enterprise value
Enterprise value is the value of a company's operating business, regardless of how it is financed. It covers the value for equity and debt providers combined and is the usual starting point for purchase price negotiations.
Learn more →Equity value
Equity value is the value of a company's equity, i.e. the amount the buyer pays for the shares in a share deal. It is derived from enterprise value less net financial debt and further adjustments.
Learn more →Leakage
Leakage is any non-permitted outflow of value from the company being sold to the seller or persons related to the seller between the locked box date and closing.
Learn more →Locked box
A locked box is a purchase price mechanism under which the purchase price is fixed definitively on the basis of an already audited balance sheet at a reference date. From that date, no value may flow out to the seller.
Learn more →Long list / short list
The long list and short list are the buyer lists of a sale process. The long list collects all conceivable buyers; the short list contains the prioritised candidates who are actually approached.
Learn more →Management buy-in (MBI)
A management buy-in (MBI) is the purchase of a company by external managers who have not previously worked in the company and who take over its management themselves after the acquisition.
Learn more →Management buy-out (MBO)
A management buy-out (MBO) is the purchase of a company, or a majority stake in it, by its existing managing directors or senior employees, usually financed with equity, bank loans and contributions from the seller.
Learn more →NDA (non-disclosure agreement)
An NDA is a confidentiality agreement under which prospective buyers undertake to keep information about the target company secret and to use it only to evaluate the acquisition. It is signed before the information memorandum is released.
Learn more →Net working capital
Net working capital is the capital tied up in day-to-day business, in simplified terms inventory plus trade receivables minus trade payables. In M&A it serves as the reference figure for purchase price adjustments.
Learn more →Non-compete clause
A non-compete clause is the seller's contractual obligation not to compete with the sold company for a certain period and within a defined territory after the sale.
Learn more →Share deal
A share deal is a business sale in which the buyer acquires the shares or stock of the company. The company remains in place as the legal entity, with all its contracts, rights and obligations unchanged.
Learn more →Share purchase agreement (SPA)
The share purchase agreement (SPA) governs the sale of shares in a company. It sets out the purchase price, warranties, liability, closing conditions and ancillary agreements in binding form.
Learn more →Signing
Signing is the execution of the business purchase agreement. From this point, buyer and seller are bound, even though ownership often passes only later at closing.
Learn more →Strategic buyer
A strategic buyer is a company that acquires another company to strengthen its own business. Typical aims are market share, technology, customers or regions.
Learn more →Vendor due diligence
Vendor due diligence is a review of the seller's own company by external advisers, commissioned by the seller, whose report is passed on to prospective buyers before or during the sale process.
Learn more →Vendor loan
A vendor loan is part of the purchase price that the seller defers for the buyer and that is repaid later with interest; it closes financing gaps between equity and bank debt.
Learn more →W&I insurance
W&I insurance covers losses arising from breaches of warranties and from tax indemnities in the business purchase agreement, so that the buyer claims against the insurer instead of the seller.
Learn more →Warranties and indemnities
Warranties and indemnities are contractual commitments made by the seller in the purchase agreement: warranties assure certain characteristics of the business, while indemnities cover specifically named risks euro for euro.
Learn more →Questions about your specific case?
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