Private placement Pure play Representations Retainer fee Secured Debt Security Senior Debt Share deal/Share transfer Shareholder Agreement Shares Simple Guide to M&A Terminology and Jargon Solvent Share Purchase Agreement (SPA) Specialist advisors Stapled / debt package Strategic Investor Strategy Statutory Accounts or Stat Accounts Subordinated Debt Subsidiary Success fee Sweat Equity Synergy Tag along Takeover Target Tax due diligence: Tax treatment Teaser / blind profile / executive Lucas & Weston Ltd Copyright © 2018 Lucas & Weston Ltd. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopy, recording or any information storage and retrieval system, without prior permission in writing from the publisher. 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. 1 Lucas & Weston Ltd 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] 2 Lucas & Weston Ltd 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 3 Lucas & Weston Ltd Aa 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. 4 Lucas & Weston Ltd 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. 5 Lucas & Weston Ltd Bb 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. 6 Lucas & Weston Ltd 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.