M&A Glossary
Definitions of key terms used in mergers and acquisitions, due diligence, and deal processes.
A
Add-On Acquisition
An acquisition made by a private equity portfolio company to expand its operations, customer base, or capabilities. Also called a bolt-on acquisition.
Asset Purchase
A transaction structure where the buyer acquires specific assets and liabilities of a business rather than the stock or ownership interests.
B
Broker
An intermediary who represents sellers (or sometimes buyers) in M&A transactions, typically for smaller businesses. Also called a business broker.
C
CIM (Confidential Information Memorandum)
A detailed document prepared by the seller or their advisors that provides comprehensive information about a business for sale. Used to market the opportunity to potential buyers.
D
Data Room
A secure repository (typically virtual) where confidential documents are stored and shared during due diligence. Access is controlled and activity is tracked.
Due Diligence
The comprehensive investigation and verification of a target company's business, finances, legal matters, and operations before completing an acquisition.
E
Earnout
A portion of the purchase price that is contingent on the business achieving certain performance targets after closing. Used to bridge valuation gaps.
EBITDA
Earnings Before Interest, Taxes, Depreciation, and Amortization. A common measure of a company's operating performance used in M&A valuation.
Escrow
A portion of the purchase price held by a third party after closing to cover potential indemnification claims or purchase price adjustments.
Exclusivity
A period during which the seller agrees not to negotiate with other potential buyers. Typically granted after signing an LOI.
I
IOI (Indication of Interest)
A preliminary, non-binding expression of interest from a buyer that outlines proposed transaction terms. Less detailed than an LOI.
L
LOI (Letter of Intent)
A document outlining the key terms of a proposed transaction. Usually non-binding except for certain provisions like exclusivity and confidentiality.
M
Management Presentation
A meeting where the target company's management team presents to potential buyers, typically after initial due diligence and before final bids.
Multiple
A valuation metric expressing enterprise value as a ratio of a financial metric (e.g., EBITDA multiple, revenue multiple).
N
NDA (Non-Disclosure Agreement)
A confidentiality agreement signed by potential buyers before receiving information about a target company. Also called a Confidentiality Agreement.
P
Platform Company
An initial acquisition by a private equity firm in a particular industry, which serves as the foundation for add-on acquisitions.
Purchase Agreement
The definitive legal document that governs the sale of a business, including representations, warranties, covenants, and indemnification provisions.
Q
Quality of Earnings (QofE)
A financial due diligence analysis that validates the sustainability and accuracy of a company's reported earnings.
R
Representations and Warranties
Statements of fact made by the seller (and sometimes buyer) in the purchase agreement about the business, its operations, and its legal compliance.
S
Seller Financing
When the seller provides a loan to the buyer for a portion of the purchase price, to be repaid over time after closing.
Stock Purchase
A transaction structure where the buyer acquires the stock or ownership interests of the target company, taking on all assets and liabilities.
T
Teaser
A brief, anonymous summary of a business for sale used to generate initial interest from potential buyers before they sign an NDA.
W
Working Capital
Current assets minus current liabilities. Purchase agreements typically include a working capital target with adjustment mechanisms.
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