Jargon

As in any line of work, there are a number of terms used by M&A (mergers & acquisition) specialists that can be confusing. We have compiled a list of terms not covered elsewhere in the Learn section - let us know if we missed one!

Cap Table is a report detailing who owns what percentage of your company and what class of shares they own.

CIM or Confidential Information Memorandum is typically a 30-100 page document describing your company in detail but not identifying customer specific information. (sample CIM table of contents)

Earn out is a way to tie part of the sale price a buyer is willing to pay to the result the company achieves post-sale. Earn outs are often used as a way to bridge the difference between what a buyer feels the company is worth based on historical performance and what a seller feels the company is worth based on their knowledge of the prospects for growth.

EBITDA is a measure of profitability and reflects cash flow. It is defined as Earnings Before Interest, Taxes, Depreciation and Amortization according to GAAP.

FASB (The Financial Accounting Standards Board) is an independent nonprofit organization responsible for establishing accounting and financial reporting standards for companies and nonprofit organizations in the United States, following generally accepted accounting principles (GAAP).

GAAP (generally accepted accounting principles) are standards that encompass the details, complexities, and legalities of business and corporate accounting and are the required standard of reporting for all publicly traded companies. GAAP compliance makes the financial reporting process transparent and standardizes assumptions, terminology, definitions, and methods. Buyers can easily compare financial statements issued by GAAP-compliant entities and safely assume consistency, which allows for quick and accurate evaluation of your company, giving the buyer more confidence and often resulting in a higher price paid for your company.

LTM or Last Twelve Months is a shorthand way of measuring how your company is doing as the transaction progresses - often a clause in the LOI stipulates a hurdle rate for key metrics such as EBITDA.

MAC (Material Adverse Change) or MAE (Material Adverse Event) is a change in circumstances that significantly reduces the value of a company and can result in a deal being renegotiated or canceled.

NDA or Non-Disclosure Agreement is a document we require any potential bidder to sign before they are allowed to read the CIM. We recommend using an NDA supplied by the outside counsel selected as the transaction attorney for the buyer.

No Shop Agreement is usually a component of the LOI and restricts your ability to open or continue discussions with any other party while the buyer is undertaking their due diligence on your company

Owners Income is a measure of cash flow defined as net income plus depreciation, amortization and other non-cash charges less the average annual amount of capital expenditures for plant and equipment.

QoE - Quality of Earnings is similar to an audit typically completed by a third party to verify GAAP standards are being employed in your financial accounting practices. A QoE report analyzes the earnings power of your business to determine how sustainable and accurate the earnings are. Specifically, a QoE report digs into the seller’s financial information and reports how well the underlying data relates to the financial statements.

Seller Note or Seller Financing is effectively a loan from you to the buyer to be paid over 3-5 years. Most transactions at the smaller end of the spectrum involve seller notes.

Stay Bonus or Retention Bonus is a bonus paid to key members of the company management team to stay with the company after the new owner takes charge. Typically the stay bonus is paid to the employee in two or three payments tied to events such as the close of the sale, six months and sometimes 12 months post sale if they remain employed with the new owner.

Teaser - this is a one or two page document describing your company but not revealing enough information that a competitor or employee would easily be able to guess the name of the company for sale.

TTM - Trailing Twelve Months - see LTM.

Virtual Data Room can be thought of as an internet version of the physical data rooms of the past where all the documents a buyer requires to evaluate your company are housed in an encrypted, secure environment. The Virtual Data Room allows Sell Side Quarterbacks to control access on an individual buyer basis and individual document basis - all while being able to report on what documents are being accessed and by whom.