Glossary
M&A terms, explained for founders
Transaction language is precise for a reason, but it is rarely explained. At Motion Advisory Partners we have written these entries to give a direct definition, a plain English explanation and the points that matter to founders and buyers. Forty-eight terms, from break fee to working capital.
- A note on these entries
- Transaction language and legal treatment depend on the agreement and the jurisdiction, so nothing here is legal, tax or financial advice. We are happy to explain how any of these terms applies to your situation.
Browse terms
- AcquisitionThe purchase of one business by another, through shares or assets.
- Asset saleA transaction in which the buyer acquires specific assets and liabilities of a business rather than the company itself.
- Break feeA payment one party agrees to make to the other if the deal is abandoned for specified reasons.
- Buy and buildA strategy of acquiring several smaller businesses and combining them into a larger group.
- Cash-free, debt-freeThe basis on which most offers are made: a price for the business assuming it has no cash and no debt, adjusted at completion.
- Change of controlThe point at which majority ownership of a company passes to a new party, and the contract clauses triggered by it.
- Client concentrationThe degree to which revenue depends on a small number of clients.
- Completion accountsAccounts prepared after completion to settle the final price by reference to actual cash, debt and working capital.
- Data roomA secure online repository in which the seller shares documents with buyers during due diligence.
- Deferred considerationPart of the price paid after completion on agreed dates, usually without performance conditions.
- Drag-along rightsA right allowing majority shareholders to require minority shareholders to sell on the same terms when the company is sold.
- Due diligence DDThe buyer's investigation of a business before completing a transaction.
- EarnoutContingent consideration paid after completion if agreed conditions, usually financial targets, are met.
- EBITDAEarnings before interest, tax, depreciation and amortisation. A common measure of operating profit.
- EBITDA multipleEnterprise value expressed as a multiple of EBITDA. A shorthand for comparing valuations.
- Enterprise value EVThe value of the business as an operating whole, before adjusting for cash and debt.
- Equity valueThe amount shareholders receive for their shares, after adjusting enterprise value for cash, debt and working capital.
- EscrowPart of the price held by an independent third party and released when agreed conditions are met.
- ExclusivityA period during which the seller agrees not to negotiate with other buyers.
- ExitThe event by which shareholders realise the value of their investment, usually a sale of the company.
- Fee revenue Net revenueRevenue earned for the agency's own work, after pass-through costs such as media spend and third-party production.
- GoodwillThe part of the price paid for a business that exceeds the value of its identifiable assets.
- Heads of terms HoT, LOIA document setting out the main terms of a proposed deal before the full legal agreement.
- IndemnityA promise in the sale agreement to compensate the other party for a specific loss if it arises.
- Information memorandum IMThe document that presents a business to prospective buyers in a sale process.
- Joint venture JVA business owned and run jointly by two or more parties, as an alternative to an outright acquisition.
- Key person riskThe risk that the business loses value if one or a few individuals leave or step back.
- Locked boxA pricing mechanism that fixes the price by reference to a balance sheet at an agreed date before completion.
- Management buyout MBOThe purchase of a business by its existing management team, often with external funding.
- MergerThe combination of two businesses into one, with the owners of both holding shares in the combined group.
- Minority investmentAn investor acquiring less than half of a business, usually to fund growth, with the founders retaining control.
- Non-competeA restriction preventing a seller from competing with the business, or soliciting its clients and staff, for a period after the sale.
- Normalised EBITDA Adjusted EBITDAEBITDA adjusted for one-off, non-recurring or non-commercial items to show the underlying earnings of the business.
- Ordinary course of businessRunning the business as usual between signing and completion, or after a locked box date, without unusual transactions.
- Private equity PEInvestment firms that buy stakes in private companies with the aim of growing and selling them for a return.
- Quality of earnings QoEAn independent analysis of whether reported earnings are accurate, sustainable and properly recognised.
- Recurring revenueIncome that repeats predictably, from retainers, subscriptions or long term contracts.
- Retention HoldbackPart of the price kept back by the buyer at completion to cover claims or adjustments, and paid later if not needed.
- Rollover equityPart of the consideration taken as shares in the buyer or its parent rather than cash.
- Share purchase agreement SPAThe binding legal contract under which shares in a company are sold.
- Share saleA transaction in which the buyer acquires the shares of the company, and with them everything it owns and owes.
- SynergiesThe additional value a buyer expects from combining two businesses, through revenue or cost benefits.
- Tag-along rightsA right allowing minority shareholders to join a sale by the majority on the same terms.
- Transition periodThe period after completion during which the sellers remain involved to hand over relationships and responsibilities.
- Unsolicited approachAn expression of interest from a buyer that the owners did not invite.
- Vendor due diligence VDDDue diligence commissioned by the seller before a process, shared with buyers to speed the sale and reduce surprises.
- WarrantiesStatements of fact about the business given by the seller in the sale agreement, which the buyer can claim against if untrue.
- Working capitalThe capital tied up in running the business day to day, and a frequent adjustment to price in a transaction.
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