Mergers & Acquisitions Glossary of Terms

Add-backs 

Adjustments made to EBITDA to reflect the true profitability of a business by adding back discretionary or non-recurring expenses

Adjusted EBITDA 

EBITDA normalized to remove one-time, non-operational, or owner-related expenses. (SDE – Owner replacement Cost) 

Asset Sale 

A transaction in which the buyer purchases individual assets and liabilities, rather than equity. 

Auction Process 

A competitive sale process where multiple buyers bid for the same target. 

Bolt-on Acquisition 

A smaller company acquired to complement the existing operations of the acquirer. 

Break-Up Fee 

A fee paid if a deal falls through, typically to cover the other party’s expenses. 

CIM (Confidential Information Memorandum) 

A detailed document shared with potential buyers outlining the business for sale. 

Cash-Free, Debt-Free 

A valuation basis assuming the target will be delivered without cash or debt on the balance 

sheet. 

Capital Expenditures (CapEx) 

Funds used to acquire or upgrade long-term assets like equipment, property, or technology. 

Typically capitalized and impact future cash flow and valuation. 

Clawback

A contractual provision that allows the buyer to recover part of the purchase price under certain post-close conditions, such as missed earn-out targets. 

Data Room 

A secure virtual location for storing confidential information during due diligence. (e.g., ShareFile)

Deal Structure 

The mix of cash, debt, equity, and terms used to complete a transaction. 

Deferred Consideration 

A portion of the purchase price paid after the closing, subject to conditions. 

​Due Diligence 

The process of evaluating a company’s financials, legal matters, operations, etc., before a deal closes. 

Earn-Out 

A portion of the purchase price contingent on future performance post-acquisition. 

Enterprise Value (EV) 

A measure of a company’s total value, including debt and excluding cash. 

Escrow 

Funds held by a third party to cover future obligations or liabilities post-close. 

Fair Market Value (FMV) 

The price an asset would sell for on the open market. 

Financial Buyer 

An investor focused on ROI, such as a private equity firm. 

Full Reps & Warranties 

Seller guarantees about the business that can result in liability if untrue. 

Goodwill 

Intangible value paid over the fair value of net assets in an acquisition. 

Holdback 

A portion of the purchase price held for a period to ensure the seller meets certain 

obligations.

Indemnification

Protection for the buyer against future liabilities caused by the seller’s breach of 

representations. 

Integration

The post-close process of combining the operations, systems, and teams of the two entities. 

Internal Rate of Return (IRR) 

A measure of the profitability of an investment over time. 

Letter of Intent (LOI) 

A non-binding agreement outlining the key terms of a proposed acquisition. 

Leveraged Buyout (LBO) 

A transaction funded largely with debt. 

Management Buyout (MBO) 

When a company’s existing management acquires the business. 

Mezzanine Debt 

A subordinated loan that ranks below senior debt but above equity. It often carries higher interest rate. 

Minority Interest 

Ownership stake of less than 50%, without control. 

Multiple (Valuation Multiple) 

A factor used to value a business by multiplying it against a financial metric like EBITDA, 

revenue or SDE, based on market comps or industry norms. 

Net Working Capital (NWC) 

Current assets minus current liabilities; often a component of closing adjustments. For a small to mid-sized business transaction, WBC is typically calculated as Current Assets – Cash – Current Liabilities. 

Non-Compete Agreement 

A clause that prevents the seller from starting a competing business after closing. 

Non-Disclosure Agreement (NDA) 

A legal contract protecting confidential information during deal discussions. 

No-Shop Clause 

A clause in the LOI or Purchase Agreement that prevents the seller from soliciting offers from the other buyers for a defined period. 

Normalized Financials 

Financials adjusted to reflect a company’s true recurring earnings by removing one-time, non-operational, or owner related expenses. 

Private Equity (PE) 

Investment funds that acquire private businesses to grow and sell at a profit. 

Purchase Price Allocation (PPA) 

Allocation of the purchase price to tangible and intangible assets after acquisition. 

Quality of Earnings (QoE) 

A report analyzing the sustainability of earnings and identifying risks in financial 

statements. 

Representations & Warranties 

Statements made by the seller about the business being sold. 

Rollover Equity 

Equity retained or rolled into the new entity by the seller. 

SBA Loan 

A government-backed loan often used in small business acquisitions. 

SDE (Seller’s Discretionary Earnings) 

A measure of profitability for small businesses, including owner compensation. 

Teaser 

A brief, anonymized document sent to potential buyers to gauge interest before sharing the CIM. 

Term Sheet 

A summary of the key financial and legal terms of a proposed transaction. 

Trailing Twelve Months (TTM) 

The most recent 12-month financial period, used to evaluate performance. 

Valuation

The process of determining the economic value of a business. 

Virtual Data Room (VDR) 

A secure digital platform for sharing documents during diligence. (e.g., ShareFile) 

Working Capital Adjustment 

A closing mechanism to ensure a normalized level of working capital is transferred with the business. 

Working Capital Peg 

The target net working capital agreed upon during negotiations, used to calculate post-close adjustments.