HomeGlossary
Glossary
M&A and investment banking glossary
Plain-language definitions of the terms you will meet in valuations, fundraising and deals.
Accretive / dilutive
A deal is accretive if it raises the buyer's earnings per share, and dilutive if it lowers them.
Cap table
A record of who owns what in a company: each shareholder, their number of shares and their percentage ownership.
Comparable company analysis
A valuation method that applies the trading multiples of similar listed companies to the target.
Completion accounts
A price mechanism where the final price is adjusted after closing, using accounts prepared as at the completion date.
Control premium
The extra amount a buyer pays to take control of a company, over the value of a minority stake.
Convertible instrument
A security, often a note or preference share, that can later convert into equity on agreed terms.
Data room
A secure online repository where the seller shares documents for due diligence.
DCF (discounted cash flow)
A valuation method that discounts forecast free cash flows to today at a rate that reflects the risk of the business.
Discount for lack of marketability
A reduction in value for shares that cannot easily be sold, common for private companies.
Drag-along right
A right that lets majority shareholders require minority shareholders to join in the sale of the company.
Due diligence
The buyer's structured investigation of a target before signing, covering financial, commercial, legal and other matters.
Earn-out
Part of the price that is paid later, and only if the business meets agreed performance targets.
EBITDA
Earnings before interest, tax, depreciation and amortisation: a common measure of operating profit.
Enterprise value
The value of the operating business, before the effect of financing. Equity value plus net debt is a common way to reach it.
Equity value
The value that belongs to shareholders: enterprise value less net debt and other debt-like items.
Escrow
Part of the price held by a neutral third party for an agreed period, to cover possible claims against the seller.
Greenfield investment
Building new operations from scratch in a market, rather than buying or partnering.
Information memorandum
The detailed document given to serious investors after an NDA, describing the business, market, financials, forecast and the proposed deal.
Joint venture
A business formed and owned together by two or more parties, who share its risks and returns.
Letter of intent (LOI)
A document that sets out the main terms of a proposed deal, usually non-binding apart from confidentiality and exclusivity.
Leveraged buyout (LBO)
A buyout financed largely with debt, secured on the assets or cash flows of the acquired business.
Liquidation preference
An investor right to be repaid first, and sometimes more than once, when a company is sold or wound up.
Locked-box mechanism
A price mechanism that fixes the price on a past balance-sheet date, with protection against value leaving the business afterwards.
Management buyout (MBO)
A buyout in which the company's own management team buys the business.
Mezzanine finance
Funding that sits between senior debt and equity, with a higher return than debt and more protection than equity.
NDA (non-disclosure agreement)
A confidentiality agreement signed before sensitive information is shared.
Net debt
Borrowings less cash and cash equivalents.
Normalised EBITDA
EBITDA adjusted for one-off items and for owner or related-party costs, to show what the business earns on a repeatable basis.
Post-merger integration
The work of combining operations, people and finances after a deal closes, to capture the expected benefits.
Precedent transactions
A valuation method that applies the multiples paid in comparable past deals to the target.
Private equity
Investment funds that buy stakes in private companies, usually to grow them and sell later.
Private placement
An offer of securities to a select group of investors instead of the public. In India it follows Section 42 of the Companies Act, 2013 and its rules.
Quality of earnings
An analysis of whether reported profit is sustainable and repeatable, rather than the result of one-offs.
Right of first refusal (ROFR)
A right to buy shares before they are sold to anyone else, on the same terms.
Share purchase agreement (SPA)
The binding contract for buying shares in a company, setting the price, conditions, warranties and protections.
Synergies
Benefits expected from combining two businesses, such as cost savings or extra revenue.
Tag-along right
A right that lets minority shareholders join a sale by the majority on the same terms.
Teaser
A short, anonymous summary of a business that tests the interest of potential buyers or investors.
Term sheet
A short summary of the key terms of a proposed investment or deal.
Venture capital
Investment in early-stage and high-growth companies, in return for equity.
Warranties and indemnities
The seller's statements about the business (warranties) and promises to compensate the buyer for specified losses (indemnities).
Working capital
The short-term funds a business needs to run day to day: broadly current operating assets less current operating liabilities.
General definitions for information only. See our disclaimer. Read the guides for worked explanations.
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