Business Brokers, Merger Advisors, M&A Firms Industry Terminology

Accretion/Dilution Analysis

Used to assess whether a deal increases (accretion) or decreases (dilution) the acquirer’s per-share metrics, usually EPS, after accounting for financing, synergies, and purchase accounting.

- The CFO asked whether the transaction is EPS-accretive in year one. - Our model shows slight dilution without synergies, but accretion with $5M of cost saves. - The board wants accretion by year two to approve the deal.

Add-Backs

Adjustments that remove non-recurring, non-core, or discretionary expenses to normalize earnings (often for EBITDA or SDE).

- We added back the owner’s car lease and one-time legal fees. - The QoE firm challenged several add-backs as recurring. - Clean add-backs boosted adjusted EBITDA by $700k.

Adjusted EBITDA

EBITDA normalized for add-backs, pro forma items, and run-rate adjustments to reflect ongoing earnings power.

- The buyer is paying 8x adjusted EBITDA. - Adjusted EBITDA excludes the closed product line. - We need to reconcile adjusted EBITDA to the audited statements.

Asset Purchase Agreement (APA)

The definitive contract for an asset deal specifying assets acquired, liabilities assumed, price, reps & warranties, indemnities, and covenants.

- The buyer prefers an APA for tax and liability reasons. - Schedules to the APA list each asset and contract assignment. - The APA includes a 12-month indemnity survival period.

Auction Process

A structured, competitive sale process to maximize price and terms, often with staged outreach, CIMs, management meetings, and bid rounds.

- We’re running a limited auction with 25 targets. - First-round bids are due next Friday. - A broad auction should surface both strategics and sponsors.

Basket (Indemnity Basket)

A dollar threshold that must be exceeded before indemnification claims are payable; can be deductible (seller pays amounts above the basket) or tipping (once exceeded, seller pays from the first dollar).

- There’s a $500k deductible basket and a 10% cap. - The buyer wants a tipping basket for financial statement breaches. - Small claims aggregate toward the basket over time.

Blind Teaser

A short, anonymized summary sent to potential buyers to gauge interest without revealing the seller’s identity.

- The teaser highlights growth and margins but masks the company name. - We’ll send teasers before issuing NDAs. - The client approved the teaser’s financial metrics.

Bolt-on Acquisition

A smaller acquisition added to a private equity platform or strategic core business to expand products, geography, or capability.

- The sponsor is seeking bolt-ons within a 6–8x multiple range. - This target would be a bolt-on to our HVAC platform. - Bolt-ons can accelerate cross-sell synergies.

Breakup Fee (Termination Fee)

A fee payable if a party terminates under specified conditions (e.g., seller accepts a superior offer or fails closing conditions).

- The 3% breakup fee deterred interlopers. - The reverse termination fee covers financing failure. - The board negotiated a lower breakup fee with a go-shop.

Buy-Side Advisory

Advisory services for acquirers, including target sourcing, valuation, diligence support, financing, and negotiation.

- Our buy-side mandate focuses on healthcare IT. - The buy-side team will coordinate the QoE. - Fees include a monthly retainer plus a success fee.

Cap Table (Capitalization Table)

A record of ownership interests—common, preferred, options, warrants—and their rights.

- Clean up the cap table before the process. - The cap table shows multiple SAFEs converting at close. - Drag and tag rights are summarized on the cap table.

Carve-Out

Sale of a division, subsidiary, or product line of a larger company, often requiring transition services and stand-up costs.

- The carve-out needs a TSA for IT and payroll. - We built a standalone cost model for the unit. - The buyer wants indemnities for stranded liabilities.

Change of Control

A contractual trigger activated when ownership changes, often requiring consents or granting counterparties special rights.

- Key customer contracts need change-of-control consent. - The debt has a change-of-control put. - The lease terminates on a change of control without landlord approval.

Closing Conditions

Specific conditions that must be satisfied or waived to close (e.g., approvals, financing, no MAE, HSR clearance).

- HSR clearance is a closing condition. - The financing out was removed as a condition. - All third-party consents are closing conditions.

Comparable Companies Analysis (Trading Comps)

Valuation method using public peers’ multiples (EV/EBITDA, EV/Revenue) applied to the target’s metrics.

- Trading comps support an 8–9x range. - We adjusted comps for growth and margin differentials. - The banker book includes comps sensitivity tables.

Confidential Information Memorandum (CIM)

A detailed marketing document outlining the business, financials, operations, and growth plan for potential buyers under NDA.

- The CIM will highlight recurring revenue. - Buyers asked for a revised CIM with cohort data. - We’re finalizing the CIM’s financial forecast section.

Control Premium

The amount paid above unaffected market value for the benefits of control, such as directing strategy or cash flows.

- The offer includes a 30% control premium. - Control premium analysis supports the price. - Minority investors won’t receive a control premium.

Data Room (Virtual Data Room, VDR)

A secure online repository for diligence documents, Q&A, and user permissions.

- Upload the QoE and tax returns to the VDR. - We granted the second-round bidders VDR access. - The VDR audit trail shows who viewed IP agreements.

Deal Flow

The volume, quality, and pace of potential M&A opportunities an advisor or buyer reviews.

- Our deal flow is strongest in industrial services. - Increasing intermediaries expands deal flow. - Q1 deal flow slowed due to rates.

Deal Multiples

Valuation ratios such as EV/EBITDA, EV/Revenue, or price/SDE used to compare and price transactions.

- HVAC platforms are trading at double-digit multiples. - The deal multiple compresses if add-backs don’t hold. - We benchmarked the multiple against recent comps.

Drag-Along Rights

Provisions allowing majority owners to force minority owners to sell on the same terms in a sale of the company.

- Drag rights ensure a clean 100% sale. - Minority investors asked for tag rights alongside drag. - The buyer wants confirmation of enforceable drag-along.

Due Diligence

The investigation of financial, legal, commercial, tax, operational, and technical aspects of a target.

- The buyer launched financial and legal diligence. - Red flags surfaced in customer concentration during diligence. - Diligence findings reduced the purchase price.

Earnout (Contingent Consideration)

A purchase price component payable if the target meets future performance targets, aligning incentives and bridging valuation gaps.

- The earnout is tied to revenue growth over two years. - We added an earnout to get to the seller’s price. - Disputes often arise over earnout definitions and control.

Enterprise Value (EV)

The value of the business to all capital providers: equity plus net debt (and other adjustments).

- We’re paying 9x EBITDA on an EV basis. - EV to equity value requires subtracting net debt. - The EV bridge reconciles to purchase price.

Equity Rollover (Seller Rollover)

When sellers reinvest a portion of proceeds into the new ownership structure, maintaining alignment and upside.

- Management will roll 20% into NewCo. - The rollover reduced the cash needed at close. - The sponsor prefers a meaningful rollover for alignment.

Escrow/Holdback

A portion of the price withheld in escrow to secure indemnity obligations or post-closing adjustments.

- 10% of the price will sit in escrow for 12 months. - Escrow will cover known tax exposures. - The buyer proposed a holdback instead of a surety bond.

Exclusivity (No-Shop Clause)

A period during which the seller agrees not to solicit or negotiate with other buyers, giving the lead buyer time to complete diligence and financing.

- The LOI has a 60-day exclusivity period. - We extended exclusivity to finish QoE. - No-shop breaches can trigger a breakup fee.

Fairness Opinion

An advisor’s opinion to a board that the consideration in a transaction is fair from a financial point of view.

- The special committee requested a fairness opinion. - The banker opined the price was fair to minority holders. - We need diligence access to deliver the fairness opinion.

Financial Buyer

An acquirer focused on returns (e.g., private equity funds, family offices), often using leverage and exit strategies.

- A financial buyer outbid strategics. - Sponsors want a management rollover. - The seller prefers a sponsor for growth capital.

Hart-Scott-Rodino (HSR) Filing

U.S. pre-merger antitrust notification required for transactions above specified thresholds; parties must observe a waiting period or receive early termination.

- The deal triggers HSR based on size-of-transaction tests. - We filed HSR; the waiting period ends in 30 days. - The second request will delay closing.

Indemnification

Contractual protection allocating post-closing losses from breaches of reps, warranties, or covenants, subject to baskets, caps, and survival periods.

- The seller’s indemnity cap is 10% of price. - IP reps have a longer survival period. - RWI will backstop general indemnities.

Indication of Interest (IOI)

A non-binding letter expressing preliminary valuation, structure, and key assumptions, submitted early in a process.

- IOIs are due with a price range and sources of funds. - Our IOI assumes $3M of add-backs. - The banker advanced five IOIs to management meetings.

Integration Plan (Post-Merger Integration, PMI)

A structured plan to combine organizations, systems, people, and processes to realize synergies and minimize disruption.

- The integration plan targets $8M of cost saves. - Day-1 readiness is a PMI workstream. - Culture integration is on the critical path.

Investment Thesis

A concise rationale for why a deal creates value, covering market tailwinds, differentiation, and synergy opportunities.

- The thesis hinges on cross-selling into the installed base. - Our thesis requires a price under 9x EBITDA. - We refined the thesis after customer interviews.

Key Employee Retention Plan (KERP)

Incentive program to retain critical staff through closing and integration, often with stay bonuses.

- The KERP covers the CTO and head of sales. - Bonuses vest at closing and six months post-close. - The buyer requested a KERP to protect the pipeline.

Leverage Buyout (LBO)

Acquisition financed substantially with debt, where returns derive from cash flow, deleveraging, and multiple expansion.

- The LBO model supports 2.5x debt/EBITDA at close. - Sponsor IRR depends on a 5-year exit. - Lenders require a 1.75x DSCR in the LBO.

Letter of Intent (LOI)

A non-binding agreement outlining price, structure, timelines, exclusivity, and key terms prior to definitive documents.

- The LOI sets a 90-day closing timeline. - We’re negotiating the no-shop in the LOI. - The LOI includes a working capital peg.

Locked Box vs Closing Accounts

Two purchase price mechanisms: locked box fixes price at a historical date with leakage protections; closing accounts set price at closing based on actual balance sheet.

- The seller prefers a locked box to avoid a true-up. - Closing accounts need a detailed adjustment schedule. - Leakage provisions are central to locked box deals.

Management Presentation

A meeting where the seller’s management team presents the business to bidders, often in second round, with Q&A.

- Schedule management meetings after IOIs. - The CEO will lead the management presentation. - We tailored questions for the management session.

Material Adverse Effect (MAE)

A contractual definition of a significant negative change, used in reps and closing conditions to allocate risk.

- The buyer can walk if there’s an MAE. - Pandemic carve-outs were added to the MAE definition. - MAE exclusions include general economic conditions.

Mezzanine Debt

Subordinated debt between senior debt and equity, often with higher yields, warrants, or PIK features.

- Mezzanine fills the gap in the capital stack. - The mezz lender wants penny warrants. - We modeled a 12% PIK mezz tranche.

Minority Interest (Non-Controlling Interest, NCI)

The portion of a subsidiary’s equity not owned by the parent; added in EV calculations and addressed in deal structure.

- EV adds back NCI to reflect total enterprise value. - The buyer will purchase the remaining 20% minority. - NCI rights appear in the shareholders’ agreement.

NDA (Non-Disclosure Agreement)

A confidentiality agreement governing use and disclosure of deal information, often with non-solicit/standstill provisions.

- Sign the NDA to access the CIM. - The NDA includes a two-year non-solicit. - We enforced the standstill in the NDA.

Net Working Capital (NWC)

Current operating assets minus current operating liabilities; transaction agreements set a target (peg) and post-close true-up.

- We agreed to a $12M NWC peg. - Seasonality complicates the NWC calculation. - The buyer claimed a shortfall in the NWC true-up.

Purchase Price Allocation (PPA)

Accounting process that allocates purchase price to identifiable assets and liabilities at fair value, with any residual to goodwill.

- The PPA bumped up customer relationship intangibles. - PPA impacts future amortization expense. - We engaged a valuation firm to support the PPA.

Quality of Earnings (QoE)

An independent analysis assessing the sustainability and accuracy of earnings, revenue recognition, working capital, and add-backs.

- The QoE adjusted revenue for cut-off errors. - QoE reduced add-backs by half. - Lenders require a third-party QoE.

Representations and Warranties (Reps & Warranties)

Statements of fact about the business in purchase agreements, with associated indemnities for breaches.

- Bring-down of reps at closing is a condition. - The seller negotiated materiality scrapes. - IP reps are heavily negotiated in this deal.

Seller Note

A portion of consideration financed by the seller as a promissory note, typically subordinated and bearing interest.

- The seller note bridges the financing gap. - We negotiated a 6% interest rate on the note. - The note subordinates to senior debt.

Seller’s Discretionary Earnings (SDE)

A small-business cash flow metric: EBITDA plus owner’s compensation and discretionary or non-recurring expenses.

- The business trades at 3.5x SDE. - We normalized SDE by removing one-time PPP income. - Brokers often market using SDE rather than EBITDA.

Stock Purchase Agreement (SPA)

The definitive contract for a stock deal transferring shares (and typically all assets and liabilities) to the buyer.

- The buyer chose an SPA to preserve contracts. - The SPA’s tax covenants allocate pre-closing taxes. - Minority squeeze-out provisions are in the SPA.