Acquisition: The purchasing and transfer of a company’s stock or assets to a buyer.
Accretion: Growth of a business through acquisition or through internal expansion.
Allocations of Purchase: Assigning value to real and intangible assets of an acquired business whose price is now greater than it had been in the past.
Asset Based Approach: Determining the value of assets and equity interest through methods based on market value of assets or business less liabilities.
Asset Based Lending: Typical of leveraged buyouts, this type of financing is based on a percentage of the asset’s established value. It takes into consideration the company’s ability to manage debt and cash flow.
Asset Sale: Only the assets (and/or liabilities) of a corporation are sold in this transaction, not the corporate entity itself.
Base Year: The current fiscal year. Year to date results are used to project the revenue for the current fiscal year as often, at the time of analysis, the fiscal year is not yet complete.
Book Value: The net worth, net book value or shareholder’s equity of a company. For assets, the accumulated depreciation/ amortization/ depletion is subtracted from their capitalized costs on the books. For a company, the accumulated depreciation/ amortization / depletion / liabilities on its balance sheet are subtracted from its total assets.
Book Value of Invested Capital: Book value of debt plus book value of equity, both as calculated on the balance sheets.
Business Valuation: Determining the economic value of a business, an enterprise or an interest therein, this valuation is conducted for many purposes including a merger or acquisition; gift, estate or inheritance tax planning; ESOPs and other employee benefit plans; going public; acquisition agreements; partnership, corporate and marital dissolutions, etc.
Capital Structure: The structure of a company’s invested capital.
Capitalization: Assigning value to historic or projected income. Recognizing an expense as a capital asset that will depreciate over time.
Capitalization Rate: The rate (generally as a %) by which income is converted into value.
Capitalizing Net Income: Net income divided by necessary ROI (return on investment).
Cash Flow Lending: Unsecured financing based on timing and certainty of cash flow.
Confidential Business Review: A confidential document sent to potential buyers of a company for which they must sign a confidentiality agreement. The document contains an in-depth analysis of the company’s current status and growth opportunities with regard to its organization, infrastructure, products and services, market and competitors, as well as historical and projected financials.
Confidential Business Profile: An anonymous company summary used to solicit the interest of potential buyers.
Consulting Agreement: A contract by which the seller agrees to stay engaged on a consulting basis with the company after it has sold, for a committed to period of time.
Contingent Liabilities: Obligations that must be disclosed although they need not be adjusted for in the accounts, because they are only possible obligations, but not certain.
Covenant Not to Compete: Similar to a non-compete agreement, this condition mandates the seller to refrain from engaging in a business post-sale that would compete with the company sold. These are typically specific by time and geography.
Deal Structure: The composition of the final sum paid for a company, elements of which may be cash and non-cash. Non-cash items may have tax benefits and could include stock, covenants, infrastructure, consulting agreements etc.
Debt Free Cash Flow: Debt free net income is added to the calculated depreciation, and from this figure provisions for working capital and expenditures are subtracted.
Debt Free Net Income: The statement of a business’s income without inclusion of its debt.
Depreciation and Amortization: Activity in a capital account that reflects an asset’s value reduced over time.
Discount Rate: A rate of return used to convert a future payable or receivable into present value.
Discounted Cash Flow Value: A calculation that estimates future earnings to infinity, discounts that figure by an approximated rate of risk, and states the amount as a current value.
Divestiture: The partial or full disposal of an investment or asset through sale, exchange, closure or bankruptcy. Divestiture can be done slowly and systematically over a long period of time, or in large lots over a short time period.
Doctrine of Fraudulent Conveyance: A transfer of assets, without regard to their value, and with an intention to avoid creditors.
Due Diligence: After a letter of intent has been submitted to a seller by a buyer, the seller will proceed to explore and assess the benefits and liabilities of the potential acquisition. This includes inquiry and prediction for all aspects of the business: historical, current and future.
EBIT: Earnings before interest and taxes.
EBITDA: Earnings before interest, taxes, depreciation and amortization.
Earnout: A portion of the purchase price which is only payable to the seller post-acquisition if the company achieves the estimated targets upon which the sale was based.
Economic Life: The period of time during which tangible and intangible assets will still be profitably used.
Evaluation Report: Represents the fair market value of an enterprise.
Excess Cash: Money possessed by a company that is over and above that which it needs for operation through a business cycle. Typically, this amount is kept by the seller in the case of a merger and acquisition.
