Selling your business not only requires an experienced M&A advisor, it also requires both buyer and seller to be represented by corporate solicitors, accountants, and other professionals.
If you have never sold or bought a business before, you’ll hear many terms which may be new to you before, during, and after the process. When approaching a complex transaction like a merger or an acquisition, it’s better to be well-informed so that you can stay in control of as much of the process as possible.
In this article, we have included some of the most useful and common terms used during merger and acquisition activity together with their meanings:
ACQUISITION
The purchase of the shares in or selected assets owned by a company.
ASSET SALE
In an asset sale, the acquirer agrees to purchase selected assets from the selling company. Following completion, the selling company remains under its previous ownership.
CONCENTRIC/CONGENERIC MERGER
A type of merger used by companies targeting the same target clients but in different ways to each other where joining together may deliver financial and operation benefits.
CONFIDENTIAL INFORMATION MEMORANDUM
A document issued by an M&A advisor containing detailed information about a company for sale to a potential acquirer following the signing of a non-disclosure agreement and permission by the owner of the selling company granting the potential acquirer permission to inspect the document.
CONGLOMERATE MERGER
A type of merger when two non-competing companies merge even though they share no common business areas.
DATA ROOM
An online, password-protected internet server or cloud server containing documentation, paperwork, and statistics about your company required for due diligence.
DEFERRED CONSIDERATION
Deferred consideration refers to tranches of payments made from the acquirer to the seller made after completion day.
DEAL STRUCTURE
The deal structure outlines how a transaction will be paid for – cash, seller finance, shares or stock, earn outs, deferred consideration, and so on.
DUE DILIGENCE
The process by which an acquirer and their professional representatives gather as much information about your business as possible so that they have a clear and deep understanding of what they’re proposing to buy.
EARN-OUT
Similar to deferred consideration but these payments are not fixed – they vary according to the financial performance of the company you’ve sold.
EBITDA
Earnings before interest, tax, depreciation, and amortisation.
FAMILY OFFICE
A family office is an organisation run by investment and private equity professionals whose job it is to provide a return on a wealthy family’s cash.
HORIZONTAL MERGER
A type of merger when two companies in direct competition with each offering similar products or services and targeting the same markets combine forces.
INDICATION OF INTEREST (IOI)
A non-binding letter from an acquirer to a seller indicating the price an acquirer is willing to pay for a seller’s business and the terms under which such a sale would take place.
LETTER OF INTENT (LOI)
A letter of intent lays out in much greater detail a deal an acquirer is willing to offer a seller. This is non-binding in most cases however many acquirers insist on exclusivity and many sellers on clauses protecting them from the acquirer soliciting staff or customers. Both parties generally will require confidentiality.
MANAGEMENT BUY-INS (MBI’S)
When a management team, backed by a funder, purchases the shares in another business and replaces the existing management team.
MANAGEMENT BUY-OUTS (MBO’S)
When a company’s existing management team, backed by a funder, purchase the shares in the business they are responsible for running from its existing shareholders.
MARKET-EXTENSION MERGER
A type of merger when two companies selling the same product and services but in different markets join together.
MERGERS
When two or more companies agree to merge, they do so with a view to creating joint ownership and joint business operations. A new company is formed and, either all at once or staged over a certain period of time, the assets, liability, staff, and more are transferred to the new company.
NON-DISCLOSURE AGREEMENTS
A binding legal agreement not to disclose information to third parties – a signed NDA is required prior to an M&A advisor sending over a confidential information memorandum to a potential acquirer.
PRIVATE EQUITY GROUP
Private equity groups consist of both venture capital firms and high-net-worth individuals seeking investment in a business with a view to making a significant return on their risked capital by selling the company on to a third-party within a timeframe of between three and seven years.
PRODUCT-EXTENSION MERGER
A type of merger when two companies selling different but related products to the same market merge.
REPRESENTATIONS AND WARRANTIES
Usually stored in the data room and required for the due diligence process, reps & warranties are documents containing information about the target business, its operations, its assets, and its employees.
REVERSE MERGERS
A reverse merger (sometimes called a reverse takeover or a reverse IPO) is used by private limited companies when they want to become public limited companies without having to arrange and execute an initial public offering.
SALES AND PURCHASE AGREEMENT (SPA)
The governing and legally binding document outlining the responsibilities of the seller and the acquirer for an acquisition or merger.
SEARCH FUND
Founded by an individual with a particular talent and/or bank of expertise who is backed by HNWIs wanting to buy companies and wanting their person of talent to actively run these companies.
SHARE SALE
The acquisition of a business involving the transfer of shares in that business from a seller to an enquirer.
TEASER DOCUMENT
An initial marketing document created by an M&A advisor team sent directly to potential acquirers with the goal of eliciting an enquiry about the business being offered for sale.
TENDER DOCUMENTS
With a tender offer, an acquirer invites all of the target company’s shareholders to sell their shares to the acquirer at an agreed price and within an agreed time. The standard outcome of a tender offer is usually a merger.
VERTICAL MERGER
A merger between a customer and a company or a supplier and company both of which have complementary offerings to each other.
WORKING CAPITAL
The cash required and used by a company to meet is financial obligations.
GET IN TOUCH WITH IBA CORPORATE
If you’re considering selling your business (or you want help in finding the right business to buy), please call us, email us, or fill in the contact form on our site.