M&A Glossary.

The purchase of one business or a controlling interest in one business by another party. An acquisition can be structured as a share purchase (buying the shares of the company) or an asset purchase (buying specific assets of the business).

In plain English: The yearly profit a new owner would really get, once the one-off and personal costs are taken out.

EBITDA adjusted to remove one-off, non-recurring, or non-cash items that distort the underlying earnings of the business. Common adjustments include owner salary above market rate, one-off legal costs, and non-cash stock compensation. Buyers and sellers often disagree on what constitutes a legitimate adjustment.

Adjusted EBITDA in depth (opens in a new tab)

In plain English: How much subscription money comes in each year without having to win it again.

The annualised value of recurring subscription revenue. For a SaaS business, ARR is calculated by multiplying monthly recurring revenue (MRR) by 12. ARR is the primary valuation metric for subscription software businesses.

In plain English: A safety net for investors if the next round is priced lower than theirs.

A term in an investment that adjusts an investor’s price per share if the company later raises money at a lower valuation. Full ratchet protection resets the price completely; broad-based weighted average adjusts it proportionally and is the more common, founder-friendly form.

Growth capital

A legal agreement governing the purchase of specific assets of a business rather than its shares. The buyer acquires defined assets (and typically assumes defined liabilities) rather than the entire legal entity. Common in digital business transactions where the buyer wants to avoid inheriting unknown liabilities.

In plain English: Buy the whole company with its history, or just pick the parts you want.

Two primary structures for acquiring a business. In a share purchase, the buyer acquires the shares of the company and inherits all assets and liabilities. In an asset purchase, the buyer acquires specific assets and assumes only specified liabilities. Each structure has different tax, legal, and commercial implications for both parties.

In plain English: A faster, quieter way to sell a struggling company’s assets and pay creditors.

A state-law process in the United States where a company transfers its assets to an independent assignee who sells them and distributes the proceeds to creditors. It is often faster and quieter than a court-supervised bankruptcy. The route is chosen with insolvency counsel.

Special situations (opens in a new tab)

In plain English: Money one side pays the other if it walks away from a signed deal.

A fee payable by one party to the other if the transaction does not complete due to a specified reason. Break fees are used to compensate a buyer for the cost of due diligence if the seller withdraws, or to compensate a seller if the buyer walks away without cause. Typically 1-3% of the transaction value.

Advisory services provided to a buyer in an M&A transaction. A buy-side advisor helps identify targets, conduct initial assessment, structure offers, manage due diligence, and negotiate transaction terms on behalf of the acquirer.

Tax payable on the profit from the sale of a business or asset. CGT treatment varies significantly by jurisdiction, holding period, and transaction structure. Tax planning before a sale can materially affect the net proceeds received by the seller.

In plain English: Selling one part of a bigger company as a business of its own.

The sale of a division, product line or business unit out of a larger group. A carve-out needs the unit’s IP, contracts, people and financials separated from the parent, and usually a transition service agreement so it can run standalone after completion.

Corporate carve-outs (opens in a new tab)

In plain English: The price assumes no spare cash and no debt. You keep the cash and clear the debt.

The standard basis on which a price is quoted. The buyer pays the enterprise value; the seller keeps surplus cash and repays debt and debt-like items at completion, subject to a normal level of working capital being left in the business.

NWC peg calculator (opens in a new tab)

In plain English: A line in a contract that lets the other party rethink the deal when the business gets a new owner.

A provision in a contract that is triggered when ownership of a business changes hands. Common in customer contracts, supplier agreements, software licences, and employment agreements. Change of control clauses can allow the counterparty to terminate the contract or require consent to the transfer, which can affect deal structure and value.

In plain English: The share of customers or revenue that leaves each month or year.

The rate at which customers or revenue is lost over a given period. Gross churn measures the percentage of customers or revenue lost. Net churn accounts for expansion revenue from existing customers. High churn is one of the most significant value-compression factors in SaaS and subscription business transactions.

In plain English: The detailed sales book a serious buyer reads after signing an NDA.

A detailed document prepared by the seller's advisor describing the business for sale. A CIM typically includes business overview, financial performance, customer analysis, technology description, team structure, growth opportunities, and transaction process details. Distributed to qualified buyers after NDA execution.

In plain English: A small, walled-off group allowed to see the most sensitive data when the buyer is a rival.

A small, ring-fenced group of buyer advisers or staff who are allowed to see competitively sensitive information, such as customer pricing, under strict rules. Clean teams are used when the buyer is a competitor and competition law limits what can be shared before completion.

Security and data rooms (opens in a new tab)

In plain English: A balance sheet drawn up on the closing day so the final price can be trued up.

Financial statements prepared as at the date of completion of a transaction, used to calculate the final purchase price adjustment. Completion accounts are used to ensure the buyer receives the business with the agreed level of working capital and net debt.

Conditions that must be satisfied before a transaction can complete. Common conditions precedent include regulatory approvals, third-party consents, financing conditions, and the accuracy of representations and warranties. Failure to satisfy a condition precedent can give either party the right to walk away from the transaction.

In plain English: A private equity firm moving a company it loves from an old fund into a new one, so it can keep growing it.

A new fund set up by a private equity manager to buy one or more companies from an older fund it manages. Existing investors can take cash or roll into the new vehicle, and new secondary investors provide the capital. Also called a GP-led secondary.

GP-led secondaries (opens in a new tab)

In plain English: A rule you agree to follow to keep a loan. Break it and the lender gets a say.

A promise in a loan agreement, such as keeping minimum cash, staying within a leverage ratio or reporting monthly. Breaching a covenant can let the lender reprice, restrict or call the loan, so covenants are sized to the business plan with headroom.

Venture debt advisory (opens in a new tab)

The total cost of acquiring a new customer, including sales, marketing, and onboarding costs. CAC is assessed alongside customer lifetime value (LTV) to evaluate the efficiency of the growth model. A high CAC relative to LTV signals poor unit economics.

In plain English: How much of the revenue depends on a few big customers. The fewer, the riskier.

The degree to which revenue is dependent on a small number of customers. A business where one customer represents more than 15-20% of revenue has significant concentration risk. Buyers typically apply a discount or structure earnouts to protect against the loss of a concentrated customer post-acquisition.

In plain English: A secure online folder where buyers read the documents, with every view logged.

A secure online repository where transaction documents are stored and shared with qualified buyers during due diligence. A well-organised deal room accelerates due diligence and signals operational maturity to buyers.

Security and data rooms (opens in a new tab)

In plain English: Bills that are not loans but still come off the price as if they were.

Obligations a buyer treats as debt and deducts from enterprise value, even though they are not bank loans. Common examples are deferred revenue in some deals, unpaid tax, accrued bonuses, customer deposits, deferred consideration from earlier acquisitions and finance leases.

NWC peg calculator (opens in a new tab)

In plain English: Part of the price paid later, on fixed dates, whatever happens.

A portion of the purchase price that is paid after completion, either on a fixed schedule or contingent on performance targets. Deferred consideration includes earnouts, vendor loans, and holdbacks. It is used to bridge valuation gaps between buyer and seller.

In plain English: Owning a smaller slice after new shares are issued. A smaller slice of a bigger pie can be worth more.

The fall in an existing shareholder’s percentage ownership when new shares are issued, for example in a funding round or to expand an option pool. Dilution is not loss of value if the round raises the company’s valuation by more than the share given up.

Dilution calculator (opens in a new tab)

A document provided by the seller to the buyer that qualifies the representations and warranties given in the transaction agreement. The disclosure letter identifies known exceptions to the warranties, protecting the seller from warranty claims for disclosed matters.

In plain English: The buyer checking everything before they pay.

The process by which a buyer investigates a target business before completing an acquisition. Due diligence covers financial, legal, commercial, technical, and regulatory aspects of the business. The scope and depth of due diligence varies by transaction size and complexity.

Diligence Readiness Index (opens in a new tab)Technical due diligence (opens in a new tab)

In plain English: Part of the price you only get if the business hits agreed targets after the sale.

A deferred payment structure where part of the purchase price is contingent on the business achieving agreed performance targets after closing. Earnouts are used to bridge valuation gaps, retain seller motivation post-acquisition, and allocate risk between buyer and seller. Common targets include revenue, EBITDA, or customer metrics over a 12 to 36 month period.

Earnout modelling toolContingent consideration (opens in a new tab)

Earnings Before Interest, Tax, Depreciation, and Amortisation. A measure of operating profitability that excludes financing costs and non-cash charges. EBITDA is the most common valuation metric for profitable businesses. EBITDA multiples vary by industry, growth rate, and market conditions.

In plain English: What the whole business is worth before you deal with cash and debt.

The total value of a business, including both equity and debt. Enterprise value is calculated as equity value plus net debt (debt minus cash). When a business is valued at a multiple of EBITDA or revenue, the resulting figure is typically enterprise value, not equity value.

In plain English: What the owners actually take home once debt is paid off and cash is added back.

The value of the equity in a business, calculated as enterprise value minus net debt. Equity value is what the seller actually receives in a transaction (before tax). The distinction between enterprise value and equity value is important in transactions involving significant cash balances or debt.

In plain English: A promise to talk to only one buyer for a set time. Keep it short and tie it to milestones.

A period during which the seller agrees not to negotiate with other potential buyers while the preferred buyer conducts due diligence and finalises transaction documents. Exclusivity periods typically range from 30 to 90 days. Granting exclusivity too early or for too long weakens the seller's negotiating position.

Got an unsolicited offer? (opens in a new tab)

In plain English: Getting your house in order before you sell, so buyers pay more and find less.

The work done six to twelve months before a sale to make a business easy to buy: clean monthly accounts, documented add-backs, signed contracts, IP assignments, a second line of management and a data room ready to open.

Exit readiness (opens in a new tab)Diligence Readiness Index (opens in a new tab)

In plain English: How much the business would struggle if the founder stepped away.

The degree to which a business relies on its founder for operations, sales, customer relationships, or product development. High founder dependency is one of the most common value-compression factors in small and mid-market digital business transactions. Buyers pay more for businesses that can operate independently of the founder.

The premium paid for a business above the fair value of its identifiable net assets. Goodwill represents intangible value including brand, customer relationships, workforce, and market position. In an asset purchase, goodwill is often separately identified and may be amortisable for tax purposes.

In plain English: A private equity firm offering its investors a way to cash out early on a company it still holds.

A transaction led by a private equity manager (the GP) that gives its fund investors a liquidity option on one or more portfolio companies, usually through a continuation fund or a strip sale.

GP-led secondaries (opens in a new tab)

Revenue minus the direct cost of delivering the product or service, expressed as a percentage of revenue. Gross margin is a key indicator of business quality. SaaS businesses typically target 70-85% gross margins. Below 60% raises questions about infrastructure costs or professional services dependency.

In plain English: Investment that funds the next stage of a proven business, often without a full sale.

Minority or majority investment into a profitable or near-profitable business to fund expansion, acquisitions or partial founder liquidity. Growth equity investors focus on unit economics and a credible path to a larger exit.

Growth capital

In plain English: Money kept back from the price for a while in case problems turn up.

A portion of the purchase price withheld by the buyer at closing and released to the seller after a specified period, subject to the absence of warranty claims. Holdbacks are used as security for the seller's indemnification obligations. Typically 10-20% of the purchase price held for 12-24 months.

An obligation by the seller to compensate the buyer for losses arising from a breach of representations and warranties or other specified events. Indemnification provisions define the scope, duration, and financial limits of the seller's liability post-closing.

In plain English: A first, non-binding price range that says "we are serious, let us look closer".

A non-binding expression of interest from a buyer indicating the price and key terms on which they would be willing to acquire a business, subject to due diligence and documentation. Also referred to as an Expression of Interest (EOI) or Letter of Intent (LOI) in some markets.

The risk that the acquired business cannot be successfully integrated into the buyer's organisation, resulting in loss of customers, staff, or operational capability. Integration risk is a key consideration for strategic acquirers and is often reflected in deal structure through earnouts and transition service agreements.

In plain English: The one-to-three page outline of the deal both sides agree before the lawyers start.

A non-binding document outlining the key terms of a proposed transaction, including price, structure, exclusivity period, and conditions. The LOI signals serious intent and provides a framework for negotiating the binding transaction agreement. Also referred to as a Term Sheet or Heads of Agreement.

LOI teardowns (opens in a new tab)LOI value decoder

The total revenue expected from a customer over the duration of their relationship with the business. LTV is assessed alongside customer acquisition cost (CAC) to evaluate unit economics. A healthy LTV:CAC ratio is typically 3:1 or higher.

In plain English: Investors get their money back first when the company is sold, before everyone else.

The right of preferred investors to be paid back a set amount, usually one times their investment, before ordinary shareholders receive anything on a sale. Participating preferences add a further share of what is left.

Growth capital

In plain English: The price is fixed from an earlier balance sheet and the seller promises not to take value out since.

A transaction pricing mechanism where the purchase price is fixed at a historical balance sheet date (the locked box date) rather than adjusted based on completion accounts. The seller is restricted from extracting value from the business between the locked box date and completion. Common in European M&A transactions.

The predictable monthly revenue from active subscriptions. MRR is the foundational metric for SaaS and subscription businesses. New MRR, expansion MRR, contraction MRR, and churned MRR are tracked separately to understand the dynamics of revenue growth.

In plain English: The number a buyer multiplies your profit or revenue by to get a price.

The factor applied to a financial metric (revenue, EBITDA, ARR) to arrive at a business valuation. For example, a business valued at 5x EBITDA with $2M EBITDA has an enterprise value of $10M. Multiples vary by industry, growth rate, market conditions, and deal-specific factors.

A confidentiality agreement executed between the seller and a prospective buyer before any confidential information about the business is shared. NDAs define what information is confidential, how it can be used, and the consequences of breach. All buyers execute NDAs before receiving a CIM.

In plain English: If no new customers joined, how much would revenue from existing ones grow or shrink in a year?

A measure of revenue retained from existing customers over a period, including expansion revenue from upsells and cross-sells, minus contraction and churn. NRR above 100% means the business is growing revenue from its existing customer base without acquiring new customers. NRR above 110% is a significant premium driver in SaaS valuations.

In plain English: The "normal" working capital level. Close below it and the price drops by the difference.

The normal level of working capital agreed in the purchase agreement, usually based on a trailing twelve-month average. If working capital at completion is above the peg, the price goes up; below it, the price comes down, dollar for dollar.

NWC peg calculator (opens in a new tab)Working capital peg in depth (opens in a new tab)

An agreement by the seller not to compete with the acquired business for a specified period and within a specified geographic area after the transaction closes. Non-competes are standard in digital business transactions and are typically 2-4 years in duration. The enforceability of non-competes varies by jurisdiction.

In plain English: A deal done quietly with a few chosen buyers instead of a public sale.

A transaction where the business is not publicly listed for sale. Off-market deals are sourced through direct outreach, networks, and relationships. They are often preferred by sellers who want to maintain confidentiality and by buyers who want to avoid competitive auction processes.

Corp dev buy-side outreach (opens in a new tab)

In plain English: Free code with strings attached that a buyer will check before they pay.

The risk that open-source code inside a product carries licence terms, such as copyleft obligations under the GPL or AGPL, that could require the company to publish its own source code or restrict how it sells the product. Buyers scan the codebase for this in technical due diligence.

Technical due diligence (opens in a new tab)

In plain English: Joining two businesses together after the deal so they work as one.

The planned work of combining two businesses after completion: people, systems, customers, brand and reporting. Most value in an acquisition is created or lost in the first 100 days of integration.

Post-merger integration (opens in a new tab)

In plain English: Pre-money is the value before the cheque; post-money is the value after.

Pre-money valuation is what a company is worth immediately before new investment. Post-money valuation is pre-money plus the new money raised. The new investor’s ownership is the amount raised divided by the post-money valuation.

Dilution calculator (opens in a new tab)

A mechanism in the transaction agreement that adjusts the final purchase price based on the actual financial position of the business at closing. Common adjustments include working capital, net debt, and cash. The two main approaches are completion accounts and locked box.

A document sent to prospective buyers outlining the process for submitting indicative offers, the timeline, and the information available. Process letters are used in structured sale processes to manage buyer expectations and maintain competitive tension.

In plain English: An accountant checking that the profit you claim is real and will keep coming.

An independent accounting review that tests whether reported and adjusted earnings are real, recurring and supported by evidence. A QoE report is commissioned by buyers, or by sellers as part of vendor due diligence, and often sets the earnings figure the price is based on.

Adjusted EBITDA in depth (opens in a new tab)

In plain English: Facts the seller swears are true, with money on the line if they are not.

Statements of fact made by the seller about the business in the transaction agreement. Representations and warranties cover areas including financial statements, ownership, intellectual property, contracts, employees, and regulatory compliance. Breach of a warranty gives the buyer the right to claim compensation from the seller.

In plain English: Keeping a slice of your company after selling, for a second payday later.

A structure where the seller retains a minority equity stake in the business post-acquisition rather than receiving full cash consideration. Rollover equity is common in PE-backed transactions where the buyer wants the seller to remain invested in the business's future performance.

Rollover equity (opens in a new tab)

An annualised projection of a financial metric based on recent performance. For example, a business generating $200K in revenue in the most recent month has a run rate of $2.4M. Run rate is useful for fast-growing businesses but can be misleading if recent performance is not representative of the full year.

A measure of the total financial benefit to a single owner-operator from a business, including net profit plus owner's salary, benefits, and discretionary expenses. SDE is used to value small businesses where the owner is also the primary operator. It is equivalent to EBITDA plus owner compensation.

Advisory services provided to a seller in an M&A transaction. A sell-side advisor prepares the business for sale, identifies and approaches buyers, manages the sale process, and negotiates transaction terms on behalf of the seller.

The binding legal agreement governing the purchase and sale of shares in a company. The SPA sets out the purchase price, payment terms, representations and warranties, conditions precedent, and post-closing obligations. The SPA is the primary transaction document in a share purchase.

In plain English: A sale that has to happen faster or differently than usual, because something has changed.

A transaction shaped by pressure or complexity rather than a normal timetable: cash runway, lender action, founder health, a failed process or a distressed parent. Special situations usually run on compressed 30 to 45 day processes.

Special situations (opens in a new tab)

A buyer that acquires a business for strategic reasons rather than purely financial returns. Strategic acquirers typically pay higher prices than financial buyers because they can realise synergies through combining the acquired business with their existing operations. Examples include a larger company acquiring a competitor, a supplier, or a business with complementary technology.

In plain English: Selling a small piece of several companies at once to raise cash.

A secondary transaction where a fund sells a slice, or strip, of several portfolio companies to a secondary buyer instead of selling any one company outright.

GP-led secondaries (opens in a new tab)

A fee paid to an M&A advisor upon successful completion of a transaction, calculated as a percentage of the transaction value. Success fees align the advisor's incentives with the client's outcome. Acquiry charges a percentage of the transaction, set by deal size and complexity.

A brief, anonymised document describing a business for sale without identifying the company by name. Teasers are used in initial outreach to prospective buyers to gauge interest before requiring NDA execution. A well-crafted teaser generates interest without revealing confidential information.

In plain English: Software shortcuts that will need paying back with time and money later.

The future cost of shortcuts in software: outdated frameworks, missing tests, fragile integrations and code only one engineer understands. Buyers estimate the cost of fixing it and may reflect it in price or in the integration plan.

Technical due diligence (opens in a new tab)

A non-binding document outlining the key commercial terms of a proposed transaction. Equivalent to a Letter of Intent or Heads of Agreement. The term sheet forms the basis for negotiating the binding transaction agreement.

The total consideration paid in a transaction, including upfront cash, deferred payments, earnouts, assumed debt, and the value of any equity rolled over. Transaction value may differ from enterprise value depending on the specific deal structure and adjustments.

In plain English: The seller keeps providing systems or staff for a while after the sale so the business keeps running.

An agreement under which the seller provides specified services to the buyer for a defined period after closing to support the transition of the business. TSAs are common where the buyer needs time to establish its own infrastructure or where the business is being carved out of a larger organisation.

Corporate carve-outs (opens in a new tab)

In plain English: A buyer knocking on the door without being asked. Flattering, but test it before you say yes.

An approach to buy a business that the owner did not invite. The first 72 hours matter: keep the conversation non-exclusive, avoid sharing sensitive data before an NDA, and test the offer against the wider market before committing.

Got an unsolicited offer? (opens in a new tab)

In plain English: The seller pays for the checks up front, so buyers move faster and argue less.

Due diligence conducted by the seller on its own business before going to market, typically prepared by an independent advisor. VDD accelerates the buyer's due diligence process, reduces information asymmetry, and can increase buyer confidence and price. Common in larger transactions.

Exit readiness (opens in a new tab)

A loan provided by the seller to the buyer to fund part of the purchase price. The buyer pays the seller over time with interest rather than paying the full amount at closing. Vendor loans are used to bridge financing gaps and can demonstrate the seller's confidence in the business's future performance.

In plain English: A loan for start-ups that stretches the runway without giving away as many shares.

A loan to a venture-backed company, usually alongside or after an equity round, used to extend runway with less dilution. Venture debt typically carries interest, fees, covenants and warrants giving the lender a small equity stake.

Venture debt advisory (opens in a new tab)

In plain English: A ticket to buy shares later at today’s price, often given to lenders.

The right to buy shares at a fixed price in the future. Lenders in venture debt deals often receive warrants as part of their return, which creates a small amount of dilution for existing shareholders.

Venture debt advisory (opens in a new tab)

In plain English: Insurance that pays out if a warranty turns out to be wrong, so the seller walks away clean.

Insurance that covers losses arising from breaches of representations and warranties in a transaction agreement. W&I insurance allows sellers to receive clean exits without retaining liability for warranty claims, and gives buyers a creditworthy counterparty for warranty claims. Common in transactions above $10M.

In plain English: The day-to-day money tied up in the business: what customers owe, minus what you owe suppliers.

The difference between current assets and current liabilities. In M&A transactions, a working capital target is agreed and the purchase price is adjusted if the actual working capital at closing differs from the target. Working capital adjustments are a common source of post-close disputes.

NWC peg calculator (opens in a new tab)Working capital peg in depth (opens in a new tab)