Entering an M&A transaction is scary enough, but it can be even more frightening when it’s your first time. A basic understanding of M&A jargon used during transactions can lead to a much smoother process.
Mergers and acquisitions are among the most common business techniques companies of all sizes use to expand or sell.
Here are some of the most used terms you should know before moving forward with your next merger or acquisition!
The individual or business purchasing a company or part of a company in an acquisition. Also known as the buyer.
The purchasing of majority ownership of a target company.
The buyer purchases only the assets of a target company.
Cash or other assets are added to an M&A transaction to make the value of the trade equal.
When the existence of a merger results in the financial downfall of a company.
The term describes a company’s permanent capital, long-term debt, and equity.
A company’s mix of debt and equity financing.
The portion of the purchase price is to be paid in cash.
The net cash or cash equivalents moving in and out of the business.
The merging of companies with businesses in unrelated activities.
A binding agreement between parties in a mergers and acquisitions deal that outlines both sides’ rights and obligations.
An audit or investigation of a target company that may determine whether a purchaser decides to move forward with the investment. This allows both parties to research the deal’s facts before a purchase agreement is signed.
A provision in the contract grants the seller of a business to obtain compensation if specific metrics are met.
Earnings before interest, taxes, depreciation, and amortization.
Exclusivity (No Shop Clause)
A requirement that prevents a company from soliciting or negotiating other deals while negotiating with a potential investor, group of investors, or acquirers.
The board of directors of the target company approves of the takeover and will advise the shareholders to accept the offer.
The target company merges directly into the acquiring company.
It occurs when two companies operate in the same industry and offer similar products or services.
The board of directors of the target company does not approve of the takeover and will advise the shareholders to deny the offer.
A company’s estimated value using discounted cash flow analysis.
Letter Of Intent (LOI)
An expression of the parties’ intent to enter the transaction with a summary of the terms of the deal.
Occurs when two companies seek to form a partnership and join forces for the greater good. These types of M&A transactions typically occur with companies of similar size in the same industry.
A defensive tactic used by a target company to reverse a hostile takeover situation.
A defensive tactic used by a target company to deter a hostile takeover by making the company undesirable.
Allows smaller private companies to go public while avoiding a conventional IPO’s time-consuming and expensive process.
A defensive tactic used by a target company to prevent a hostile takeover by bringing any progress to a halt.
The buyer purchases an ownership stake in the company being acquired.
The acquiring company completely takes over the target company but preserves its brand reputation.
The concept that two companies are worth more combined than they are separately.
The business is being acquired during an M&A transaction.
When two companies in a similar supply chain combine, this method features forward and reverse merger components.
Ready For Your Next M&A Deal? Let Us Help!
Now that you have a better understanding of the most common terms used during an M&A deal, you can feel more confident during the process.
We know M&A deals can be complex, but we’ve got your back. Our experienced team of M&A attorneys can help you from start to finish with every step.