Simple Guide to M&A Terminology and Jargon

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Disclaimer

The information provided in this document is general and does not cover any particular person or entity.

While every precaution has been taken to ensure that the information contained in this publication is correct and not misleading, the author and Lucas & Weston Limited make no representations or warranties about the accuracy, completeness, or suitability for any purpose of the information and related graphics in this publication. The information contained in this publication may contain technical inaccuracies or typographical errors. All liability of Lucas & Weston Limited howsoever arising for any such inaccuracies or errors is expressly excluded to the fullest extent permitted by law.

Neither Lucas & Weston Limited nor any of its directors, employees or other representatives will be liable for loss or damage arising out of or in connection with this publication. This is a comprehensive limitation of liability that applies to all damages of any kind, including (without limitation) compensatory, direct, indirect or consequential damages, loss of data, income or profit, loss of or damage to property and claims of third parties.

It is also not recommended for you to follow this information without the advice of a professional who specialises in your area of interest and who have taken care of thoroughly appraising your particular circumstances.

Acknowledgements

A big thank you to Ellie Weston for the design and typesetting.

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About Lucas & Weston

Lucas & Weston is a boutique independent business broker specialising in representing service, industrial and manufacturing businesses for sale. Typical sale engagements are worth between £500,000 to £10million. They have helped business owners and investors from all over the UK and abroad in most industrial sectors with a proven track record of over 250+ transactions.

About Howard Weston

Howard is a qualified financial adviser, member of the Corporate Finance Faculty of the Institute of Chartered Accountants in England & Wales (ICAEW), and holds the institute’s Corporate Finance Qualification. He is regularly invited to speak on business sales and company valuations and has written articles for the BBC and other media.

For the past 18 years, Howard has been successfully advising owners, shareholders and investment groups on buying and selling businesses - directly responsible for deals and sales transactions worth millions of pounds.

Howard would be delighted to discuss any aspects of your M&A needs and can be emailed directly at [email protected]

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Lucas & Weston Simple Guide to Getting Up to Speed with M&A Terminology and Jargon

Know your MBO from your NDA and your EBIT from PBT

Introduction

Know your MBO from your NDA and your EBIT from PBT. Confusing isn’t it?

Even the title of this glossary has an acronym. M&A is mergers and acquisitions, the transfer or combination of companies and/or assets. Generally, and simply, anything to do with the buying and selling of businesses.

Jargon and acronyms are ubiquitous within the M&A industry. A shortcut for people in the know, but confusing and possibly intimidating to the uninitiated.

For nearly 20 years, I’ve been involved in the buying and selling of businesses, and I’ve introduced hundreds of vendors and purchasers to the process, guided them through the labyrinth of new challenges, negotiations and scenarios.

Getting up to speed and understanding what’s being said in fast-paced meetings and negotiations is key. And, with that in mind, I’ve created this simple glossary explaining over 180 of the most common terms and jargon that you might encounter on your M&A journey.

As with any collection, despite best intentions, there might be omissions and errors contained herein. This glossary doesn’t purport to be exhaustive, but please email me at [email protected] with any glaring howlers or additions you feel should be added.

I know this little glossary has helped countless clients, I hope it helps you.

With best wishes,

Howard Weston Managing Director Lucas & Weston Ltd

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Acid Test Ratio, aka Quick Ratio or Liquidity Ratio: a common financial ratio used to show the extent to which amounts which are due and payable within 12 months are covered by amounts received/receivable within the same time. The higher the figure, the better, as it shows increased liquidity (stock is excluded, so it is more relevant to cash availability).

Acquisition - the purchase of assets or company shares. A buyer, bidder or purchaser is the entity that makes the purchase or the offer to purchase. The Target is the entity being purchased, or the entity in which a stake is being purchased. The Vendor is the entity that sells or disposes of the target entity.

Acquisition finance: a term used for the debt financing of the acquisition of a company. Administration: is a procedure under the insolvency laws. It functions as a rescue mechanism for insolvent entities and allows them to carry on running their business.

Administration can be voluntary (board-decided) and involuntary (court-decided) receivership. Involuntary administrative receivership, the administrator is appointed by the company directors. In involuntary administrative receivership, the administrator is appointed by a court.

Aged Debtor Analysis: detailed report about how much you were/are owed at a certain period.

Amortisation: An American word for depreciation. Announcement: an important part of the 100-day plan is the announcement of the acquisition. This includes notifying the press as well as communicating the consequences and the changes that this will entail to stakeholders (staff, customers, suppliers, etc.).

Articles of Association: the written rule about running a company agreed by shareholders, directors and the company secretary. Needed when registering a company and accompanied by a Memorandum of association.

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A-shares, B-shares: to be able to grant different rights to different groups of shareholders (e.g. founders, finance providers, etc.), several types of shares are often created. For example, the articles of incorporation could stipulate that the holders of B shares have the right to appoint a director to the board.

Asset-based finance. A specialised method of providing structured working capital and term loans that are secured by accounts receivable, inventory, machinery, equipment and/or property/real estate. Often used to raise finance in the acquisition of a business.

Asset deal: an agreement in which the assets, not the shares of a company are sold. This has three special considerations. First, most of the debts remain behind in the selling company. Second, this agreement is subject to different tax treatment. And finally, there might be ramifications for the legal continuity of the activities of the company.

Asset: things of value owned by a company are assets. Assets can be tangible (i.e., physical), such as stocks, land, buildings, or equipment, or they may be intangible (i.e., things a company has a legal right or claim to), such as goodwill, monies owed or intellectual property rights.

Auditor: an auditor is often asked to issue a report on the closing accounts.

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Balance Sheet: a statement of the assets, liabilities, and capital of a business at a particular point in time, detailing the balance of income and expenditure over the preceding period. Makes up part of the financial statements or statutory accounts.

Bank guarantee: a guarantee issued by a bank to ensure that any losses will be compensated. If the seller does not pay, it will be paid by the bank, instead of the seller. In smaller deals, it is very hard, nigh on impossible, to get from the bank.

Bear market: a market in which share prices are down with investors and dealers likely to be selling, pushing prices down.

BIMBO: A type of deal which is a combination of a management buyout (MBO) and a management buy-in (MBI). A BIMBO occurs when existing management - along with outside managers/investors - decides to buyout a company.

Binding (Non): the binding nature of clauses or an entire agreement requiring particular attention, usually legal, when preparing documentation between the parties. Non-binding statements are often used initially and formalised into more binding statements/documents as the sale process progresses.

Blue Chip: a reference to a well-established stock or company with a national reputation and financially sound footing. Products and services from blue chips usually are widely known and used.

Board of Directors: the individuals whose collective legal responsibility it is to manage the business and operations of a corporation.

Book Value: a term used to state the value of a business or an asset as recorded in a firm’s books/accounts.

Bull market: activity in the market is optimistic, and investors and dealers are likely to be buying, pushing prices up.

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Burn rate: a measure of the rate at which a start-up with little or no revenue uses available cash to cover expenses.

Business Angels: investors who invest in a company at a very early stage. This type of investor is often an individual or a small group of individuals.

Business Plan: a document that defines and outlines exactly what the business does, what it wants to achieve and how it intends to do it. Business plans usually incorporate a financial forecast alongside strategic goals. Used widely by start-ups for raising finance. And by seasoned business owners looking to develop and grow their business.

Buy and build: A strategy often used by Companies who are looking to grow through acquisition to create a valuable larger group.

Buy-out fund: see private equity.

Buy-Sell Agreement: a contract under which a shareholder must first offer his or her shares for sale to the other shareholders before being allowed to sell to outside entities.

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Capital Gains Tax (CGT): Capital Gains Tax is a tax on the profit when selling (or ‘disposing of’) something (an ‘asset’) that has increased in value, e.g. shares. It’s the gain made that is taxed, not the amount of money received.

Change of Control Clauses: clauses in company agreements that stipulate that the contract will no longer be valid or will be dissolved if there is a change in control of the company. Identification of Change of Control Clauses is an important part of any legal due diligence and analysis of the legal continuity of the acquisition.

Commercial due diligence: the review of the markets in which the company operates and the commercial position of the company. Usually undertaken by the purchaser’s accountants or advisers. Also, banks if bank debt is involved in the deal.

Completion accounts: when the agreement is finalised in an SPA (see Sale and Purchase Agreement), a future date on which a balance sheet is to be drawn up (the completion accounts) is agreed. These closing accounts will then form the basis for determining the net debt and the working capital that will be used for determining the final price according to the agreed price formula.

Confidentiality Undertaking: See Non-Disclosure agreement (NDA). Consideration: the proceeds received on the disposal of an asset. Can be made up of more than just cash, i.e. shares or property.

Contingent Liability: a potential obligation that may be incurred depending on the outcome of a future event. A contingent liability is one where the outcome of an existing situation is uncertain, and this uncertainty will be resolved by a future event.

Corporation Tax: A banded tax on the profits of a company. Covenant: a legal term promising to do, or not to do, a given thing.

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Creditors: Parties (e.g. person, organisation, company, or government) that a business owes money to.

Crowdfunding: the funding of a project or company by a group of individuals rather than professional institutions, in which the internet is used as the main means of communication.

Current assets: cash and other assets that are expected to be converted to cash within a year. Typically seen on a company balance sheet.

Current liabilities: a company’s debts or obligations that are due within one year. Typically seen on a company balance sheet.

Current Ratio: a common financial ratio of current assets to current liabilities.

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Data room: a location or space (may also be an electronic space) in which potential purchasers can get access to specific confidential data concerning the company/business. By providing the buyer (and its advisors) with access to this space, the buyer will have the opportunity to read these documents and to form a picture of the company.

DCF Discounted Cash Flow: a commonly used valuation method where the present value of all future cash flows from a company is calculated.

De minimis: a minimum amount for any individual claims. Typically seen on warranty and indemnity claims.

Deadlock: a negotiating term for a situation in which an agreement cannot be made or where ending a disagreement is impossible because neither side will give up something that it wants.

Deal advisor: the advisor (often an investment bank, corporate finance house, accountant or business broker), acting as a broker, which means that it looks for the parties and brings them together, conducts and organises negotiations and draws up the various non-legally binding sales documents.

Debenture: a legal document which formalises a lender’s charge over the assets of a company.

Debt free, cash free: a deal term commonly seen in a Letter of Intent or HoTs where the offered price assumes a situation without financial debts and surplus free cash.

Debtors: Parties that owe a business money. Default: the failure to comply with the terms and conditions of a financing agreement/arrangement.

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Deferred payment/vendor note/vendor loan: if the seller allows spread payments, it effectively grants a loan (vendor note or vendor loan) to the buyer.

Depreciation: an accounting method of allocating the cost of a tangible asset over its useful life.

Dilapidations: According to the Royal Chartered Institute of Surveyors (RCIS) ‘Dilapidations’ refers to breaches of lease covenants that relate to the condition of a property during the term of the tenancy or when the lease ends.

Directors’ loans: the Government define a director’s loan as when a director (or other close family member) gets money from the company that isn’t: a salary, dividend or expense repayment. Or, the money you’ve previously paid into or loaned the company. Is usually noted on a Directors Loan account.

Directors’ Remuneration/Emoluments: payment or compensation received for services or employment and includes salary, pension contributions, any bonuses and any other economic benefits that an employee or executive receives during employment concerning fulfilment of the role as a director.

Disclosures: notifications/letter. This is a usually a letter prepared by the Sellers’s lawyers listing elements that the seller discloses to the buyer with the aim of avoiding subsequent disagreement or litigation as to whether certain information has or has not been divulged during the negotiations. This document has an effect on the warranties or indemnities. For example, if the seller discloses that they have lost, or will, lose a key contract, this might prevent the buyer from making a claim for the loss of business.

Discount / Premium: adjustments are still applied to the value of shares if the transaction relates to a minority interest, a majority interest, a holding company through which ownership is acquired indirectly, or shares without voting rights, etc.

Dividend: A dividend is a payment made by a company to its shareholders, usually as a distribution of post-tax profits. A common way directors, particularly of smaller firms, pay themselves.

Drag along: an obligation included in the shareholder agreement to sell the shares if the other party also sells its package of shares.

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Due Diligence: is one of the main processes which takes place before any transaction is completed. It is an investigation into a potential investment and serves to confirm all material facts in regards to a sale. The individual elements of due diligence may include commercial due diligence (markets, product and customers), a market/industry sector report (marketing study), an accountant’s report (trading record, net asset and taxation position), environmental report (e.g. has the business been dumping toxic waste on public land) and legal due diligence (implications of litigation, title to assets and intellectual property issues).

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Earn-out: an arrangement which makes a proportion of the final value/price dependent on the future achievement of certain, normally financial, objectives. Effective for driving further value if the target business is forecasting growth.

EBIT / Earnings Before Interest and Tax: the profit before interest and taxes. This is also called operating profit or operating profit before tax.

EBITDA / Earnings Before Interest, Tax, Depreciation and Amortisation: the profit before interest, taxes, depreciation and amortisation. This is a gauge of the operating cash flow of a company.

Economy of scale: this is where two or more operations operating merged can create direct cost savings producing working efficiencies and enhancing profitability. Using the greater buying power of a larger group applied to a new customer base is a good example of an economy of scale. See also Synergy.

EIS (Enterprise Investment Scheme): a government incentive scheme designed to help smaller higher-risk trading companies to raise finance by offering a range of tax reliefs to investors who purchase new shares in those companies. Strict rules apply, and specialist advice is recommended.

Enterprise Value / EV: the market values of common stock and long-term debt of the company minus any cash reserves. This is the debt and cash free value of a company

Entrepreneurs’ Relief: A tax treatment which reduces the amount of Capital Gains Tax on disposal of qualifying business assets, as long as certain criteria meet the qualifying conditions throughout a one-year qualifying period either up to the date of disposal or the date the business ceased.

Environmental due diligence: the investigation into the environmental situation about soil pollution, water pollution, air pollution and noise pollution. Usually undertaken by the purchaser’s accountants or specialist advisers.

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Equity: is the difference between the value of any assets and the cost of the liabilities of something owned.

Escrow: An escrow is a financial instrument held by a third party, typically a lawyer, on behalf of the other two parties in a transaction. The funds are held by the escrow service until it receives the appropriate written or oral instructions or until obligations have been fulfilled.

Exclusivity: a clause in a letter or an agreement in which the seller undertakes cease negotiations with other parties and not to enter into any new negotiations. Exclusivity is normally for a limited period, usually a few months or until a deal is concluded or negotiations are terminated.

Exit (also called ‘Realisation’): The point at which a shareholder turns their investment into cash. Exits occur via trade sales, management buy-outs, management buy-ins, BIMBOs and occasionally flotation/listing.

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Factoring: The selling of trade debts (e.g. invoices) to a third party known as a Factor. Used by businesses to aid working capital. Commonly confused with Invoice Discounting. (see Invoice Discounting).

Fees: the fee of the deal advisor. These are often split into an up-front retainer followed by a successful commission payment, usually percentage based. The fees of other advisors are usually time and expense based.

Financial due diligence: the process of reviewing the historical and future accounts and forecasts of the company. Typically undertaken by the purchaser’s accountants or advisers.

Financial Statements: (see Statutory Accounts) The annual statement summarising a company’s activity during a set accounting period (usually a financial year).

Fiscal year: a period that a company or government uses for accounting purposes and preparing financial statements. The fiscal year may or may not be the same as a calendar year. In the UK it runs from April 6th to April 5th the following year.

Fixed assets: assets purchased for long-term use (to produce income for the business) and are not likely to be converted quickly into cash, such as land, buildings, and equipment.

Free Cash Flow: deducting the tax on the operating profit, investments and growth in working capital from the EBITDA indicates the free cash flow.

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Gearing: the amount of borrowing/debt in relation to equity. Goodwill: The difference between the price paid for a business and the value of its assets. Goodwill represents intangible assets that are not separately identifiable for example the business name or trademarks, the quality of the customer base or its position in the industry. Goodwill is a tricky area for valuation as it is highly subjective. It is also possible to have negative goodwill.

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Handover: passing control or responsibility for something to someone else. A common negotiating point for business sales.

Heads of Agreement/Heads of Terms: an agreement in principle (also called a Letter of Intent (LOI) or Memorandum of Understanding (MOU)). This document can also refer to a binding list of basic elements that will be covered in more detail in a Share Purchase Agreement (SPA). This document is typically, but not always, prepared by an adviser (lawyer/accountant/corporate-financier or broker).

Health and safety: the investigation into working conditions with a focus on health and safety. Usually undertaken by the purchaser’s solicitors or specialist advisers.

Hedge funds: funds that, unlike Private Equity funds, also invest in assets other than shares.

Hold harmless letter / approved reader letter: letter of indemnity. A letter in which an adviser provides a party with access to a report or a file, in which the party agrees to indemnify the advisor from any liability that could arise from the access provided to files or reports.

Horizontal integration: where companies acquire a similar company in the same sector or industry. (see also Vertical integration)

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Indemnities: compensation for damages. Indemnities are used if it is disclosed or known that a particular problem exists or could occur. A typical example could be the need to environmentally clean a site or premises at the termination of a lease.

Info Memo / Information Memorandum (IM): after signing an NDA, the potential buyer may be sent an information memorandum and a process letter. The information memorandum is a document that describes the company and should include the following information: a history of the company, description of products and services, market position, management, financial information, etc.

Insolvency: is the state of being unable to pay the money owed, by a person or company.

Institutional investor: an institution such as a pension fund or insurance company that makes large investments and trades large quantities of securities, often receiving preferential treatment and paying lower transaction commissions.

Insurance due diligence: the investigation into the existing insurance coverage and variance analysis with the required coverage, as well as the investigation into the continuity of insurance coverage during the transaction process. Usually undertaken by the purchaser’s accountants or specialist advisers.

Intangible assets: fixed assets that are intangible, i.e. isn’t physical like copyright, patents or trademarks.

Intellectual Property Rights (IPR): the rights of ownership over intangible property: e.g. trademarks or patents.

Invoice Discounting: (see also Factoring) an asset-based working capital provision that allows businesses to get advances on cash they are due from customers, rather than waiting for those customers to pay. Confidential invoice discounting is invoice financing that can be arranged confidentially, so that customers and suppliers are unaware that the business is being advanced capital against sales invoices before payment is received.

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IPO / Initial Public Offering: initial public offering. In an IPO or flotation, a company offers its shares for sale on the stock exchange for the first time. New shares are issued so that the company can raise capital.

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Joint Venture (JV): two or more parties join together to form a new venture. Junior debt and senior debt: a subordinated loan that is lower (junior) or higher (senior) in priority, where the subordination refers to the order of repayment in the event of the company’s bankruptcy.

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Lawyer / M&A lawyer: the specialised lawyers or corporate lawyers who write the contracts and formalise transactions.

LBO / Leveraged Buy-out: a buy-out partly financed with debt. Legal continuity: this term refers to the question whether the company’s existing contracts with customers, suppliers, staff, and authorities, etc., are to be retained after the acquisition. In a share deal, the shares of the company are sold, which is unlikely to affect the agreements.

Legal due diligence: the review of the legal situation of the company in the areas of company law, review of contracts, labour laws, intellectual property (IP), permits/licences, etc. Usually undertaken by the purchaser’s solicitors.

Leverage: the degree of debt financing used for an acquisition. Limited company: a private company whose shareholders are legally responsible for its debts only to the extent of the amount of capital they invested.

Liquidation Value / Wind up value: The amount available if all the assets of a business are sold off and converted to cash.

List of parties / Schedule of parties: a list of parties is drawn up to obtain a clear overview of the advisors and members of the management of the buying and selling parties. The list records the contact details of the various people involved in the transaction.

Loan Note - A form of vendor finance or deferred payment, in which the buyer acts as a borrower, agreeing to make payments to the holder of the loan note at a specified future date.

LOI / Letter Of Intent: a statement of intent. A written document setting out the intentions of the parties. Typically, it is nothing more than an intention to continue negotiating and is often subject to only two binding clauses namely exclusivity and confidentiality.

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M&A / Mergers & Acquisitions: is the general term used for the transfer or combination of companies and/or assets.

MAC / Material Adverse Change: a provision in a Letter of Intent or Heads of Terms referencing operational issues such as maintaining profitability, not losing important customers/contracts/suppliers and other issues which might affect a purchaser’s decision to acquire.

Market cap: the market capitalisation of a listed company, i.e. the total value of its shares, calculated by the price of the shares on the exchange, multiplied by the number of outstanding shares.

MBI / Management Buy-in: a transaction in which a new management group and an investor or investment fund become co-owners of a company.

MBO / Management Buy-out: a transaction in which the existing management and an investor or investment fund become co-owners of a company.

Memorandum of association: a legal statement signed by all shareholders agreeing to the formation of the company. (See also Articles of Association).

Merger: A combination of two or more businesses that results in the creation of a new entity.

Mezzanine: an intermediate form of financing that has some of the characteristics of capital and some of the characteristics of debt. This can technically take the form of convertible debt, preferred shares or debt with warrants.

Minority shareholder: A minority shareholder is defined as a shareholder who does not exert control over a company. Typically holding less than 50% of a company’s shares.

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Memorandum of Understanding (MOU): a statement of understanding of terms for a deal used interchangeably with Letter of Intent and Heads of Terms.

Multiple: the multiple method is a valuation method that is often used to support the results of a DCF method. In this method, the company is compared with other companies whose value is known. This is done using a multiple. For example, a valuation at four times EBITDA.

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Non-Disclosure Agreement (NDA) / Confidentiality Undertaking: an undertaking to ensure discretion and secrecy. In this agreement, the parties confirm that they will not misuse the information exchanged in the context of sale/acquisition talks. An NDA also often includes other provisions, such as an agreement not to approach staff for a defined period, usually a couple of years.

Net Asset Value (NAV) (see also shareholders’ funds): is the value of an entity’s assets minus the value of its liabilities. Commonly seen as shareholder’s funds on an accounting balance sheet.

Newco: A new company formed to buy a Target by the Buyer, and used to acquire an operating subsidiary, by buying the controlling interest in the Target. A new company is used as it is clean of historical liabilities and protects the Buyer from direct investment in the Target.

Normalized working capital: an analysis of how the working capital would look in normal circumstances. Adjustments could be for all exceptional and non-recurring items.

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Offer Letter: a letter from a potential acquirer indicating their intention to purchase.

Operations and synergy due diligence: the investigation into the efficiency of the operations and how specific synergies or economies of scale can be achieved. Usually undertaken by the purchaser.

Option: the right to buy or sell a security at a specific price.

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PAT / Profit After Tax: the profit after taxes. PBT / Profit Before Tax:the profit before taxes, sometimes also described as EBT/earnings before tax.

PE Ratio: A price-earnings ratio (P/E Ratio) is the ratio for valuing a company that measures its current share price relative to its per-share earnings. Used mainly for listed company shares for price comparison.

Pensions due diligence: the review of the existing and future obligations related to pensions. The future commitments can vary based on the type of pension plan set up by the company. Usually undertaken by the purchaser’s accountants or specialist advisers.

Performance related payment: similar to an earn-out. This is where a proportion of the sale consideration is deferred and linked to the future performance of the business or other clearly defined performance metric.

PMI / Post Merger Integration: the proper integration of the acquired company into the existing buying company has to be set up, planned and monitored.

Preference shares: These fall between debt and equity. They usually carry no voting rights and have preferential rights over ordinary shareholders regarding dividends and ultimate repayment of capital in the event of liquidation.

Private Equity (PE) fund: an investment fund active in mature cash flow generating companies that also attract debt financing for the acquisitions and actively involves management in the acquisition.

Private placement: in a private placement, the company raises capital by selling shares privately to venture capital companies, private equity companies, institutional investors and other investors, instead of holding a public offering of shares.

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Pure play: a company that focuses exclusively on a product or sevice in order to obtain a large market share.

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Representations: If statements made by the seller about the company prove to be incorrect, these statements form the basis for any subsequent indemnities.

Retainer fee: the fixed or monthly payment that is awarded regardless of whether the transaction is completed.

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Secured Debt: a loan or financial arrangement that has seniority in case the borrowing company defaults or is dissolved and its assets sold to pay creditors.

Security: a thing deposited or pledged as a guarantee of the fulfilment of an undertaking or the repayment of a loan.

Senior Debt: a loan or financial arrangement that has a higher priority in case of a liquidation of the asset or company. Usually provided by a bank.

Share deal/Share transfer: an agreement where the shares of a company are sold.

Shareholder Agreement: an agreement in which the various shareholders make agreements concerning matters such as voting rights at general meeting and rights and obligations related to the sale of packages of shares.

Shares: are equal parts into which a company’s capital is divided, entitling the holder to a proportion of the profits.

Solvent: the ability for a company or business to meet its financial obligations. Share Purchase Agreement (SPA): an SPA is a final agreement between the buyer and the seller on the sale of the company. This document is traditionally prepared by the acquirer’s Solicitor, but not always.

Specialist advisors: subject specialists are called upon during transactions to provide specific advice. For example on the environment, property, stock assessment, pensions, taxes, etc.

Stapled / debt package: a package of loans in various forms and with different degrees of subordination, ranging from mezzanine to junior and senior debt.

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Strategic Investor: an investor who agrees to invest in a company to have access to proprietary technology, product, customer base, geographic location or service. By having this access, the investor can potentially achieve its strategic goals.

Strategy: when initiating and implementing a deal, the underlying strategic goal should always be borne in mind.

Statutory Accounts or Stat Accounts: A company’s annual accounts are prepared from the company’s financial records at the end of your company’s financial year. A report which shows shareholders how the company is performing. It is a legal requirement for a company to file Statutory Accounts with Companies House annually. A company’s accounts must include a balance sheet, notes, a profit and loss account, notes about the accounts and a directors’ report.

Subordinated Debt: a loan or financial arrangement that has a lower priority than a senior loan in case of a liquidation of the asset or company.

Subsidiary: is a company whose shares are more than 50% controlled by another company, usually referred to as the parent company or holding company.

Success fee: the portion of the fee that depends on the closing of the transaction. Sweat Equity: occurs where ownership of shares in a company result from work done rather than an investment of capital. Quite common in start-up businesses.

Synergy: The creation of a whole is greater than the sum of its parts. The combined power a business buyer gets when it works with an existing business where the total power achieved is greater than working separately. Examples of synergy include shared resources, combined purchasing power and operational know-how.

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Tag along: a right included in the shareholder agreement to sell the shares if the other party also sells its package of shares. In contrast, to drag along, this does not involve an obligation but merely a right.

Takeover: the transfer of control of a company. Target: A company or asset to be acquired. Tax due diligence: the investigation of the historical and future tax situation of the company. Usually undertaken by the purchaser’s accountants or advisers.

Tax treatment: usually, the sale of shares (a share deal/share transfer) are subject to Entrepreneurs Relief or other taxes. Therefore it is usually preferred by the seller. Conversely, the buyer may prefer an asset deal because the goodwill paid may be subject to preferred tax-treatment and comes free of liabilities from the previous company structure, in effect a clean slate.

Teaser / blind profile / executive summary: the anonymous profile of the company that is sent to potential buyers. The aim is to determine whether such a purchase could interest them without the identity of the company being disclosed.

Threshold: regularly, parties agree only to submit claims if the total amount of the claims exceeds a specified minimum amount.

Time and expense based fee: fee-based on hours worked and reimbursement of expenses incurred.

Tire-kickers: Buyers that are either too timid to make an acquisition or just being nosey.

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Transfer of a Going Concern (TOGC): Where a business is transferred as a going concern and thus taken out of the scope of VAT.

TUPE / Transfer of Undertakings (Protection of Employment): according to European and UK employment law, in many cases, there is a mandatory transfer of employment contracts. This is a specialised area which needs careful consideration and advice.

Turnaround: the process of re-energising a business or company with the aim of a substantial increase in a company’s revenues, profits and reputation.

Turn-around funds: see also vulture fund or special situations fund. This places emphasis on the value created by restructuring the acquired companies and making them profitable again (i.e. turning them around)

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UK GAAP / Generally Accepted Accounting Principles: the generally accepted accounting principles in the UK. This term refers to UK accounting law and accounting principles applicable in UK.

Unsecured Debt: debts which don’t have any priority or security in case of dissolution of the company and sale of its assets.

USP (Unique Selling Point/Proposition): A marketing terms used to illustrate point or points of differentiation of a product or services from its competitors. For example the only product of its kind, the first of its kind, highest cost, best quality etc.

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Valuation: an estimation of the worth of something. Often subjective and calculated.

VAT (Value Added Tax): Is a tax on the sale of most goods and services. Different rates apply.

Vendor: a person or company that sells or disposes of the target entity. Vendor Finance: Can either be in the form of deferred loans from, or shares subscribed by, the vendor. The vendor may well take shares alongside the management of the new entity. This category of finance is generally used where the vendor’s expectation of the value of the business is higher than that of management and the institutions backing them.

Venture capital: Equity finance in an unquoted, and usually quite young, company to enable it to start up, expand or restructure its operations entirely. It’s cheaper than bank finance initially because paying dividends can be deferred; it also provides a strategic partner - but it implies handing over some control, a share of earnings and decisions over future sales.

Venture Capital / VC: a segment of the pcrivate equity industry which focuses on investing in new companies with high growth rates. Usually, expects high and quick returns.

Vertical Integration: Where a company expands into other areas of its sector, for example, a manufacturing company owning one of its suppliers or distributors. (See horizontal integration)

Vulture funds: funds that are specialised in acquiring distressed companies.

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Warranties & Guarantees. The seller provides statements about the business and also guarantees that these statements are correct. The warranties are often limited by time and up to a certain amount of money.

Working capital: the sum of the customers, suppliers, stocks and other current assets and liabilities necessary for the day-to-day operations of the company.

Write-Down: a decrease in the reported value of an asset or a company. Write-Off: a decrease in the reported value of an asset or a company to zero.