M&A & Valuation Glossary
Plain-English explanations of the 44 terms business owners meet across valuation, financing and a company sale.
- Count of glossary terms with an example
- Sum of relatedTerms entries across glossary terms
- Explore by category
- Five families of terms cover the full arc of a valuation and sale process.
- Valuation Methods
- Methods used to estimate what a business is worth.
- Financial Metrics
- Core metrics that describe financial performance.
- M&A Terms
- Deal structures and concepts in mergers & acquisitions.
- Legal & Structure
- Contractual and structural terms in a transaction.
- Adjusted EBITDA
- EBITDA modified to exclude non-recurring items, owner compensation above market rate, and other normalising adjustments. Shows true operating performance.
- ARR (Annual Recurring Revenue)
- The annualised value of recurring subscription revenue. Key metric for SaaS and subscription businesses.
- Asset-Based Valuation
- Values a company based on the fair market value of its assets minus liabilities. Used for asset-heavy businesses or as a floor valuation in distressed situations.
- Churn Rate
- The percentage of customers or revenue lost over a period. Low churn indicates strong product-market fit and customer satisfaction.
- Comparable Companies Analysis
- Valuation method comparing the target to similar publicly traded companies using ratios like EV/EBITDA, P/E, or EV/Revenue.
- Conditions Precedent
- Requirements that must be satisfied before a transaction can close, such as regulatory approvals or third-party consents.
- Control Premium
- The additional amount paid above market value to acquire a controlling stake, typically 20-40% for public companies.
- Customer Concentration
- Risk when a large percentage of revenue comes from a small number of customers. Generally problematic if >20% from one customer.
- Data Room
- A secure virtual repository where confidential documents are shared with potential buyers during due diligence.
- DCF (Discounted Cash Flow)
- A valuation method that projects future cash flows and discounts them to present value using a discount rate (typically WACC). Focuses on intrinsic value based on expected performance.
- Disclosure Schedule
- Exhibits to the SPA listing exceptions to representations and warranties, detailing known issues or risks.
- Due Diligence
- Comprehensive investigation of a target company's business, financials, legal matters, and operations before completing an acquisition.
- A portion of the purchase price contingent on the business achieving specified performance targets post-acquisition.
- Earnings Before Interest, Taxes, Depreciation, and Amortisation. A proxy for operating cash flow and the most common metric for business valuation.
- EBITDA Margin
- EBITDA divided by revenue, expressed as a percentage. Measures operational efficiency and profitability.
- EBITDA Multiple
- A valuation method that multiplies a company's EBITDA by an industry-specific multiple to estimate enterprise value. Higher multiples indicate stronger market positioning or growth potential.
- Enterprise Value (EV)
- The total value of a business including equity and debt, minus cash. Represents what an acquirer would pay for the entire business.
- Equity Value
- The value attributable to shareholders after deducting net debt from enterprise value. What the owner actually receives.
- A portion of the purchase price held by a third party to cover potential indemnification claims post-closing.
- Financial Buyer (PE)
- Private equity firms or investors acquiring companies primarily for financial returns rather than strategic fit.
- Free Cash Flow (FCF)
- Cash generated after accounting for capital expenditures. The cash available for distribution to shareholders or reinvestment.
- Gross Margin
- Revenue minus cost of goods sold, expressed as a percentage. Indicates pricing power and production efficiency.
- Contractual protection where the seller agrees to compensate the buyer for losses arising from breaches or undisclosed liabilities.
- Key Person Dependency
- Risk that the business is overly reliant on specific individuals, typically the owner. Reduces valuation and buyer confidence.
- Letter of Intent (LOI)
- A non-binding document outlining the key terms of a proposed transaction before detailed due diligence and negotiations.
- MAC Clause
- Material Adverse Change clause allowing a buyer to withdraw if significant negative events occur between signing and closing.
- Management Buyout (MBO)
- A transaction where the existing management team acquires the business, often with private equity backing.
- Net Debt
- Total debt minus cash and cash equivalents. Used to calculate equity value from enterprise value.
- Net Revenue Retention (NRR)
- Measures revenue retained from existing customers including upsells, downgrades, and churn. >100% indicates expansion exceeds losses.
- Non-Compete Agreement
- Contractual restriction preventing the seller from competing with the sold business for a specified period and geography.
- Precedent Transactions
- Valuation based on prices paid in recent M&A transactions for similar companies. Often includes control premiums.
- Quality of Earnings (QoE)
- Third-party analysis verifying the accuracy and sustainability of a company's reported earnings, typically commissioned by buyers.
- Recurring Revenue
- Predictable, repeating revenue streams from subscriptions, contracts, or repeat customers. Commands higher valuations.
- Representations & Warranties
- Statements of fact made by the seller about the company. Breaches may result in price adjustments or indemnification claims.
- Revenue (Turnover)
- Total sales or income generated by a business before any expenses are deducted. Also called turnover or top-line revenue.
- Revenue Multiple
- Valuation approach using a multiple of annual revenue. Common for high-growth companies or those with negative EBITDA. SaaS companies often trade at 3-10x ARR.
- Run Rate
- Annualised projection based on current period performance. Useful for fast-growing businesses but may overstate sustainable revenue.
- Seller's Note
- Financing provided by the seller to the buyer, allowing deferred payment of part of the purchase price over time.
- SPA (Share Purchase Agreement)
- Strategic Buyer
- Terminal Value
- Working Capital
- Still have questions about your valuation?
- The instant benchmark gives you an indicative value range in under 60 seconds, measured against completed sales of medium sized European businesses. The full valuation takes about 5 minutes, uses your own financials and shows up to four methods. Both are free. Both are indicative estimates, not a formal appraisal.
- The one success fee we intend to charge applies only when a deal closes. Provisional. No engagement letter has been drafted yet, so this is how we intend to charge rather than terms you can hold us to.
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