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M&A Glossary

When buying and selling companies, you will come across countless technical and unfamiliar terms.

We have compiled some of them for you in the following glossary, which should make it easier for you to familiarize yourself with M&A topics ...

Acquisition or partial acquisition of a company, regardless of the form in which this takes place (asset deal, share deal, etc.)

A company that is acquired or fits in as an addition to an existing company/group

Adjustments in the determination of a sustainable earning power of the company to be sold, in which special factors are eliminated

Acquisition of a company from existing equity, i.e., without debt financing, which generally offers greater transaction security and enables a faster transaction

Amortization of intangible assets, particularly goodwill.  Relevant in some common business valuation methods when determining EBITDA

An asset of a company, an individual value that a company has at its disposal, including intangible assets

Transaction in which it is not the shares in a company (share deal) that are transferred, but rather the assets that are essential to the business. This is particularly common in the case of partnerships or the acquisition of a business unit

APA, company purchase agreement by way of an asset deal, which (depending on local law) does not have to be notarized

Sale of a company by means of a bidding process (auction process)

Claims regarding breaches of warranty can only be made if they exceed in total the amount specified for the basket

Application competition of law firms, investment banks or M&A advisors/boutiques for a corresponding mandate

Offer to acquire a company or to conclude another transaction

Procedure in which, in the context of a company sale, interested parties are invited to submit an offer within a certain time window in order to then decide with which party to enter into detailed negotiations

Binding offer in the course of a bidding process or a purchase process

An acquisition that suitably complements a previous company/group, also referred to as an add-on

The bottom line of the income statement, i.e., the profit of the company

Obligation of a contracting party to pay a predefined amount of money if it unilaterally (without justification) breaks off the contract negotiations or allows them to fail

Purchasing side in the acquisition of a company

Engagement of an M&A advisor to support or execute a transaction on the buy-side

Guarantees/liabilities provided by a buyer in the course of a purchase agreement

Right to acquire shares in a company at a fixed strike price, possibly linked to further terms/conditions

Upper limit under which a liability applies or the maximum amount that must be paid as part of a transaction

Required capital expenditures of the company / investments in fixed assets

Separation of a part of a company to form a legally independent entity, often in the course of the sale/divestiture of a business unit

Liquid funds of a company

The purchase price is usually negotiated on the basis of the enterprise value, which is understood to be cash & debt free, i.e., to which liquid funds are added and from which financial liabilities are deducted in order to arrive at the actual purchase price (equity value)

Influx of liquid funds of a company, calculated from the annual net profit plus/minus delta fixed assets, current assets, provisions. The cash flow is used for a company valuation using the DCF method (discounted cash flow)

Change in the control of a company (change of ownership)

Contractual clause that often includes a special right of termination by the contracting party if the shareholder structure of the other contracting party changes. Often found in credit and loan agreements, as well as in important customer and supplier contracts, and represents a risk that needs to be examined

Information barrier designed to prevent information from being exchanged between the various departments of a company

A term for the execution of a company purchase agreement. In practice, there is often a time lag between the signing of a purchase agreement and its fulfilment (closing), since in the meantime conditions defined in the agreement still have to be fulfilled

Determination of the purchase conditions on the basis of a closing audit carried out specifically on the transfer date

Measures and actions taken as part of the execution of a company purchase agreement, e.g. payment of the purchase price or resignation of the managing director

Contractually agreed upon conditions that must be met before the contract can be executed (closing), e.g., antitrust approval or the consent of significant partners of the company that contain change of control clauses

Combination of Cap and Floor, by which - for example in the context of an Earn-Out - a lower and upper limit is defined

Collective term for loan collateral

An analysis of a company's business model, its range of products and services, and its market and competitive environment

Confidentiality agreement or declaration of confidentiality. Obligation of contracting parties to keep information they receive from the other party confidential. Often also referred to as NDA (Non-Disclosure Agreement)

Post-closing due diligence by a company purchaser, e.g., after closing

In a company purchase agreement, covenants are obligations that must be fulfilled by the contracting parties prior to signing and closing, e.g., the seller's obligation to continue the target company's business operations as before until closing. However, covenants may also be contained in important contracts of the target company, meaning that their fulfilment may have to be checked

Cross-border acquisition/transaction involving parties from at least two countries

Current assets, i.e., assets that are usually turned over in the short term (usually within one year). These include inventories, advance payments, marketable securities, receivables, and cash

Included as a deduction in the net operating capital (net working capital) of a company

A space in which a target company makes company information available to the potential buyer in the course of due diligence. Contrary to earlier practice, a data room of this kind is now generally set up virtually via a cloud service provider specializing in this field and no longer in the form of collected files

Procedure for calculating the value of a company. Derives from the company's expected future cash flow surpluses, discounted to the valuation date

Lower value limit below which a contracting party may not assert any claims under the contract

Fact or circumstance that can lead to the failure of a corporate transaction

Group of internal employees and, if applicable, external advisors who work together to review, negotiate and execute a corporate transaction

Liabilities of a company or individual. This includes financial liabilities and current liabilities that are part of net working capital. Financial liabilities are generally deducted when determining the equity value of a company

An agreement, usually used in the sale of a business during a bad economic period, that offers the seller (or creditors) further payments upon a certain recovery of the situation

The dilution of the shareholdings of existing shareholders as a result of the entry of a new shareholder in the course of a capital increase

Disclaimer clause

Disclosure of information in the context of a company acquisition or annual financial statements

DCF: expected cash flows of a company

Corporate transaction in a critical (possibly insolvency-prone) corporate situation

Detailed examination of company information in preparation for a corporate transaction. Financial, legal and tax due diligence are common, but in some cases, there may also be a market due diligence, an operational due diligence, a people due diligence, a real estate due diligence or other special reviews as appropriate in the individual case

Report that summarizes the findings of a due diligence and is usually only provided to the buyer but may also be shared with the sellers in excerpts as a basis for discussion

Structure in a company purchase agreement according to which part of the purchase price depends on future performance. Reference values are often the sales, EBITDA or EBIT achieved in a certain period or alternatively the retention of key customers or other similar criteria

Earnings Before Interest and Taxes. Frequent key figure for company valuations, especially in the context of the so-called multiples method

Earnings Before Interest, Taxes, Depreciation and Amortization. Since depreciation and amortization are not deducted, EBITDA primarily reflects a company's cash-effective results and is therefore independent of national accounting laws. This is also a frequently used indicator in company valuations, especially for more investment-intensive companies

Value of a company before deducting financial liabilities (Financial Dept) and adding cash. Most common valuation methods calculate an enterprise value which must be adjusted by deducting financial liabilities and adding cash in order to arrive at the actual equity value

Equity capital of a company

Value of the invested equity in a company, in effect the purchase price that flows in the course of an outright purchase/sale, but not the value that is usually negotiated - which would be the enterprise value ...

Use of a portion of the purchase price as security for the buyer's potential claims under the business purchase agreement

Bank account in which the escrow amount is deposited

Commitment by a contracting party to conduct negotiations only with the other party for a certain period of time or to conclude a corporate transaction only with said party

Conditions that are stipulated in a purchase agreement and must be fulfilled until the final implementation of the purchase agreement (closing) (e.g., payment of purchase price or creation of legal framework conditions)

Separation of an investor from an investment/sale of an investment

Information document compiled by the seller to provide a comprehensive picture of the target company, possibly even as a basis for talks/negotiations or indicative offers

Opinion of an investment bank on whether in its view the price of a company in an M&A transaction is justified

Provisions in a loan agreement that require the borrower to meet certain financial targets during the term of the loan

All liabilities used to finance a company

Detailed examination of a target company's financial position and the financial information provided

Annual financial statements or interim financial statements of a company

Assets classed as fixed assets

Lower limit/minimum value that must be paid in the course of a transaction or a contractual circumstance

Part of the cash flow available to the company after deducting the necessary investments (capital expenditure) and changes in working capital. Relevant for calculating enterprise value using the discounted cash flow method

List of guarantees/warranties within the scope of a purchase agreement for which the respective contracting party is liable

Consideration of a company or the value of individual assets on the assumption that the company will be continued as an economic unit

Often used to describe the value of a company that is not matched by any tangible (i.e., balance sheet) assets, e.g., the value of the company name/brand or customer list

Planning that provides for significant, possibly exponential growth. In sales scenarios, a field hockey stick of this kind is sometimes projected for the near future after the planned transaction

Hold-back of services owed. In M&A transactions, hold-back describes the partial withholding of the purchase price by the buyer

Contractual obligation to indemnify or hold harmless the contractual partner. Indemnities cover risks known to the parties, while contractual warranties protect the buyer against unknown risks

The first, still non-binding offer submitted by a prospective buyer as part of a bidding process; if necessary, the request for such an indicative offer is preceded by a structured process before the seller decides which prospective buyers to enter into talks/negotiations with

Written compilation of information about a company for sale, which is made available to prospective buyers and usually already contains comprehensive detailed information about the target company

Intangible assets, e.g., software, trademark rights, goodwill acquired for a consideration, etc

Joint venture/merger of at least two strategic partners/shareholders

In the context of an M&A project, an examination of the legal circumstances of the target company carried out by an internal team of the prospective buyer or by external lawyers

Formal statement on legal issues in the context of an M&A project issued by the legal advisor of one contracting party to the other contracting party

Written declaration by a contracting party to conclude a contract on the terms specified in the LOl. In the M&A project, the corporate buyer declares in the LOl its intention to acquire the target company under certain conditions. This declaration of intent can be binding or non-binding

Leveraging the return on capital employed by bringing favourable debt financing into the acquisition of a company

Acquisition of a company that is largely financed by borrowing, which usually has to be borne by the target company

Collective term for liabilities of all kinds. In M&A practice, a distinction is made between financial debt and current liabilities

Determine purchase terms by relying on existing annual audits

Management reporting during the year, e.g., during a management audit in the course of a due diligence review

Acquisition of a company by an external manager who, as managing partner, supplements or (partially) replaces the previous management

Acquisition of a company by its employed management or the second management level

Interview conducted by a prospective buyer of a company with the management of the target company as part of its due diligence

Presentation of the management in the context of a company sale. Important part of the due diligence process

Market capitalization of a company listed on the stock exchange. This reflects the current market value of the company and is calculated by multiplying the number of shares by their current market value

Declaration of intent on the purchase of a company or other corporate transaction, which is agreed between the potential buyer and the seller. The difference between a MoU and a Letter of Intent lies in the two-sided nature of the memorandum, although in practice a LoI also often contains obligations on both sides

Merger of two or more companies

Legally prescribed examination (depending on the size of the company) by the antitrust authorities of the consequences of a merger under competition law

Mergers and acquisitions of companies, general term for corporate transactions or advice on corporate transactions of all kinds

Form of financing that is a hybrid between equity and debt and can have a wide variety of forms and rights

Company valuation by means of multiples. Multiples are typically key figures such as sales, EBIT or EBITDA

Non-Disclosure Agreement. See Confidentiality Agreement

Total of all financial liabilities minus cash, i.e., net financial liabilities

Net profit of a company from sales minus costs, depreciation, interest and taxes

Present value of an investment, determined by the discounted cash flow associated with it

Offer to conclude a contract, either as a non-binding offer (Indicative Offer) or a binding offer (Binding Offer)

Profit & Loss Accounts

PMI, more commonly "Post Closing Integration": Implementation and integration measures that can take place after the closing

Consideration of a company value after completion of a capital increase

Right to sell an asset or further/remaining shares in a company at a predetermined price or under predetermined conditions to a defined buyer, who is then obligated to make the corresponding purchase

Questions asked of the seller or the seller's advisors as part of a due diligence process

Concise due diligence report that only lists real problem areas that would have to be resolved in advance or in the course of a transaction or, in the worst case, would be deal breakers

Warranties of the seller regarding the legal and economic circumstances of the target company

Basic remuneration of an M&A advisor, as an alternative to an hourly fee and usually in addition to a success fee or transaction fee

RoI, performance indicator of an investment: net proceeds (return of funds minus funds employed) divided by funds employed

Return on capital employed

Return on equity, income/return in relation to capital employed

Sell-side in a corporate transaction

Assignment of an M&A advisor to support or execute a transaction on the sell-side

Share in a company, e.g., stock

Purchase of company shares, so-called share deal, in contrast to the asset deal, usual for corporations

SPA, company purchase agreement by way of a share deal, which (at least in some countries) must be notarized

Owner of a share in a company

Signing of a contract. Completion usually takes place in a second step, the closing

Abbreviation for Small and Medium Enterprises. In German, corresponding to KMUs, small and medium-sized enterprises. There is no sharp demarcation. Various German and European institutions use different definitions. According to the definition of the European Union, the borderline between small and medium-sized enterprises is 250 employees and 50 million euros in sales. The German Federal Statistical Office defines microenterprises as those with sales of less than 1 million euros and fewer than 10 employees

Forced exclusion of minority shareholders

Success fee, in the case of M&A, e.g., payable to the transaction advisor, usually upon achievement of the closing

Target company to be addressed or acquired in the course of an M&A transaction

Determination of tax risks in the course of due diligence

Tax savings through the use of borrowed capital, interest and other financing costs

Usually, an anonymous brief description of a company to gauge the interest of potential buyers

Agreement on the smooth transfer of a target from the seller to the buyer, e.g., regarding payroll and IT services, until the buyer has built up its own resources (internal or external). The payment of a management fee is often agreed for this purpose

Threshold below or above which certain legal consequences are attached, e.g., as an exemption limit (basket) or allowance (deductible). For example, the seller only owes compensation if the buyer's warranty claims exceed a threshold value

Valuation, in particular company valuation

Due diligence review of a target company by the seller in advance of and in preparation for a possible company sale

Guarantees/liabilities that a seller assures in the course of a purchase agreement

Abbreviation for Weighted Average Cost of Capital. Refers to a mixed interest rate for equity and debt capital used in business valuations

M&A jargon for companies where employees (e.g., creative staff or consultants) represent a key corporate asset and could leave in the event of a sale