Glossary

Anti-dilution clauses protect investors against economic dilution when the company raises capital in a later round at a lower valuation (a down round). The two most important variants are ‘full...

ARR refers to the annualised recurring revenue of a subscription-based business model, typically in the SaaS sector. On a monthly basis, the same logic is reported as MRR (monthly recurring...

In an asset deal, the buyer acquires individual assets, contracts and liabilities rather than shares in a company. This structure allows a selective takeover of assets and is particularly relevant...

The auction process is a central component of a structured M&A process, in which several potential buyers are approached in parallel and invited, in defined phases, to submit offers. The...

Bridge financing is a short-term interim financing that closes a liquidity gap until a planned subsequent event, e.g. a financing round, a sale or an IPO. It is frequently structured...

The burn rate describes a company’s monthly net cash outflow, usually in the case of start-ups before profitability has been reached. Together with the available cash, it determines the runway,...

Buy-and-build refers to a growth strategy in which a platform company is expanded in a targeted manner through the acquisition of further companies (so-called ‘add-ons’). The aim is to realise...

Buy-side refers to the acquiring side of a transaction. Buy-side advisory supports companies or investors in the identification, approach, valuation and acquisition of target companies. The advisory process typically comprises...

CAC quantifies the average cost of acquiring a new customer, including marketing and sales expenditure. A clean CAC definition distinguishes between blended CAC (all channels) and paid CAC (paid acquisition...

The cap table documents a company’s ownership structure, including common and preferred shares, options, convertible loans, virtual participation programmes and liquidation preferences. It shows how shares, voting rights and proceeds...

Carried interest is the performance-related remuneration of the fund managers (the GP / general partner) of a private equity or venture capital fund. The market-standard arrangement is a waterfall structure:...

A carve-out is the separation of a business division, a subsidiary or a product portfolio out of a larger company, with the aim of an independent sale or standalone positioning....

The churn rate refers to the proportion of customers or revenue that a company loses in a given period. A distinction is commonly drawn between customer churn (customer attrition) and...

Closing is the legal and economic completion of a transaction, at which the purchase price, the company shares (or the assets in an asset deal) and supporting documents are exchanged....

Under the closing-accounts method, the final purchase price is determined only after completion of the transaction, on the basis of a balance sheet drawn up as at the closing date....

Company valuation determines the value of a company on the basis of recognised valuation methods such as multiples (trading and transaction) or DCF. In M&A practice this yields a valuation...

Convertible loans are short-term debt instruments that convert into equity in a later financing round. Discounts or valuation caps are frequently applied. In the DACH environment they are an established...

A cross-border transaction is an M&A transaction involving parties from different countries. It brings additional complexity in relation to tax, regulation, FDI screening (foreign direct investment), antitrust law, currency hedging...

The data room is today an almost exclusively virtual platform (VDR) in which company information is made available for the due diligence of potential buyers. Access can be granted selectively...

The discounted cash flow method values a company based on its discounted future free cash flows. The core elements are the detailed planning of operating cash flows, an appropriate discount...

Distressed M&A comprises transactions involving companies in financial difficulty, ranging from special situations through protective-shield and self-administration proceedings to transfers out of insolvency. The drivers are regularly liquidity shortages, covenant...

Drag-along rights oblige minority shareholders to sell their shares alongside a majority (or an investor holding a corresponding right) when that party sells to a third party. Tag-along rights grant...

Dry powder refers to the capital that private equity or venture capital funds have already raised but not yet invested. A high volume of dry powder signals a degree of...

Due diligence is the systematic examination of the target company by the buyer and its advisers ahead of a transaction. Typical workstreams are commercial, financial, tax, legal, IT, HR and...

An earn-out is a variable purchase price component that is linked to the achievement of defined targets (e.g. revenue, EBITDA) in the years following closing. Earn-outs can bridge differing valuation...

EBITDA stands for ‘earnings before interest, taxes, depreciation and amortisation’ and measures operating profit before interest, taxes and depreciation/amortisation. It is regarded as an approximation of operating earning power and...

Enterprise value describes the total value of a company’s operating business, independent of its financing structure. It is used as the reference figure for multiple-based valuations (such as EV/EBITDA or...

The equity bridge is the reconciliation from enterprise value to equity value. Typical items are net debt, pension provisions, further debt-like items, non-operating assets as well as deviations from the...

An escrow account is a trust account on which part of the purchase price is deposited to secure potential warranty or indemnity claims. Deposit periods of 12 to 36 months...

Employee participation programmes bundle incentives for key personnel to share in the company’s success. An ESOP (‘employee stock option plan’) grants options over real shares. The former ‘dry income’ problem...

In an M&A process, a bidder will regularly request a period of exclusivity in which to conclude the negotiations and due diligence. Under so-called negotiation exclusivity, the seller may not...

An exit refers to the sale of a shareholding, typically by financial investors or founders. Common exit channels are a sale to a strategic buyer, a sale to a financial...

Family offices are asset-management vehicles of individual wealthy families (single family office) or of several families (multi-family office). In the M&A market they form a distinct group of buyers and...

Financial investors are professional capital providers such as private equity and venture capital funds, which take stakes in companies to exit at a profit after a holding period. In contrast...

In the corporate finance context, the term fundraising has two meanings: (a) corporate fundraising refers to the raising of capital by a company, typically from venture capital, growth or strategic...

Gross margin describes the difference between revenue and the directly attributable variable costs and, in substance, usually corresponds to the first-level contribution margin. It is the most important indicator of...

Growth capital is minority or majority capital for already established, growing companies, intended to finance further expansion, e.g. internationalisation, product development or add-on acquisitions. In contrast to classic venture capital,...

A holding structure bundles corporate shareholdings within a superordinate company. Ahead of a planned company sale it is frequently established to make use of tax or liability-related effects. The most...

An indicative offer (non-binding offer, NBO) is a non-binding indication of the purchase price by a potential buyer after reviewing the information memorandum. Besides the price indication, it contains details...

The information memorandum is the central sales document in the M&A process. It presents the company, its business model, the market, the financials, the management and the value potential in...

An initial public offering refers to a company’s flotation on the stock exchange and the associated first-time public offering of shares to a broad group of investors. It is one...

The internal rate of return is the internal yield of an investment and thus the discount rate at which the net present value of all cash inflows and outflows equals...

The letter of intent is a — generally largely non-binding — declaration of intent that documents the essential key points of a planned transaction, such as the purchase price, transaction...

In a leveraged buyout, an investor — typically a private equity fund — acquires a company using a significant proportion of debt. The financing is based essentially on the future...

The liquidation preference governs the order and amount in which investors are served from the proceeds ahead of other shareholders on an exit or a liquidation. The market standard is...

A lock-up agreement obliges certain shareholders not to dispose of their shares for a defined period. In the context of an IPO, a lock-up is market standard and typically extends...

Under the locked-box method, the purchase price is fixed as at a date in the past (the ‘locked-box date’) based on audited balance-sheet data. Between the locked-box date and closing,...

The longlist is the broad selection of potential buyers or investors identified at the start of an M&A process. In addition to general information, it contains an assessment of the...

Lifetime value indicates the contribution margin expected from a customer over the entire customer relationship. Methodologically, it is typically derived from average revenue, gross margin and customer retention or repeat-purchase...

M&A stands for ‘mergers & acquisitions’ and covers company mergers and takeovers. At its core it is about the sale or purchase of entire companies or parts of companies, including...

A MAC clause entitles the buyer, under narrowly defined conditions, to refrain from completing the transaction if a material deterioration in the business situation occurs between signing and closing. Thresholds,...

In a management buyout, the existing management acquires a company or part of a company, frequently with the support of a financial investor. In a management buy-in, an external management...

Valuation multiples relate the enterprise value to a central financial metric, for example as enterprise value/EBITDA or enterprise value/revenue. They are usually derived from listed comparable companies (‘trading multiples’) and...

The NDA is a confidentiality agreement concluded before the exchange of sensitive company information. Typical provisions concern the use, disclosure, retention and return of information as well as non-solicitation undertakings...

Net debt is, in principle, the sum of interest-bearing liabilities less cash and cash equivalents. In M&A transactions, however, this definition is regularly supplemented by further items. So-called ‘debt-like items’...

Net revenue retention measures the revenue development within a fixed, defined cohort of existing customers over a fixed period (typically 12 months), including up-/cross-sells, price adjustments, downgrades and churn. An...

Post-merger integration comprises the strategic, organisational and operational bringing-together of two companies after a transaction. It concerns organisation, systems, processes, culture and staff, and is decisive for whether the envisaged...

Pre-emption rights grant existing shareholders the right to participate on a priority basis in transfers of shares or capital increases. In capital increases they protect the shareholding quota against involuntary...

The pre-money valuation refers to the company’s value immediately before a financing round; the post-money valuation is the value including the newly raised capital. The distinction is decisive for calculating...

Private equity refers to off-market equity capital that is typically invested in established companies via closed-end funds. Majority or significant minority stakes are typical, along with a holding period of...

The purchase price mechanism defines how, and as at which date, the final purchase price is determined. The market standards are locked-box and closing-accounts mechanisms, supplemented by clear rules on...

The quality-of-earnings analysis examines, as part of financial due diligence, the sustainability and robustness of the reported result. Areas examined include, for example, the visibility or predictability of revenue, customer...

The term ratchet is used in transaction agreements for two different mechanisms that should be kept separate. (a) Management ratchet (sweet equity): a contractual adjustment of management’s shareholding quota in...

Ready-to-exit describes the state in which a company is prepared, procedurally and substantively, for an upcoming sale. This typically includes robust financial and planning figures, orderly contract management, the clearing-up...

In a reinvestment (roll-over), sellers reinvest part of the sale proceeds into the buyer’s structure and thereby remain indirectly invested in the company. In private equity transactions such a reinvestment...

Reps & warranties are the representations and warranties that the seller gives in the company purchase agreement regarding the condition, characteristics and risks of the company. They form the basis...

SaaS describes software provided as a cloud-based service on a subscription model. The model generates predictable, recurring revenue (ARR/MRR) and offers high scalability at comparatively low marginal costs. SaaS companies...

A secondary transaction is the sale of existing shares in a company or a fund to a new investor, without any new capital flowing to the company — e.g. on...

In a share deal, shares in the target company are acquired; the company passes to the buyer with all of its contracts, rights and obligations. A share deal is typically...

Signing refers to the execution of the final transaction documents, in particular the company purchase agreement. The transaction is only completed economically at closing, once all conditions precedent have been...

The SPA is the central contract in a share deal and governs, among other things, the purchase price, the purchase price mechanism, warranties, indemnities, liability and conditions precedent. In negotiating...

Strategic buyers are operating companies that acquire a target for strategic reasons — for example market entry, access to technology, cross-selling or consolidation. Compared with financial investors, they are more...

The teaser is an anonymised short profile of the company that is sent out to potential buyers as a first step. It is intended to arouse interest without revealing the...

The term sheet summarises the essential economic and legal key points of a planned transaction or financing, e.g. the valuation, the structuring of the purchase price and the timetable for...

The transaction structure describes the precise legal and economic design of a transaction, including the derivation of the purchase price, reinvestment, financing, earn-out, vendor loan, deferred payments, etc. It is...

Vendor due diligence is a due diligence commissioned by the seller before the start of the process, the results of which are made available to potential buyers. It creates transparency...

A vendor loan is a loan granted by the seller to the buyer to finance part of the purchase price. It is frequently used to close financing gaps between the...

Venture capital refers to equity capital invested in young companies — often not yet profitable — with high growth potential. VC investors typically take minority stakes and aim to actively...

Vesting refers to the time-staggered allocation of shares or options to founders and employees. The cliff sets a minimum period of service before which no tranches are allocated (vested). In...

W&I insurance covers losses arising from unknown breaches of warranties and — depending on the structure — certain indemnities under the company purchase agreement. Known issues and expressly disclosed matters...

The waterfall provision determines the order in which proceeds from an exit or a liquidation are distributed among the different classes of capital. Typically, debt is served first, then preferred...

Net working capital refers to a company’s operating net current assets. It typically comprises inventories and trade receivables less short-term, non-interest-bearing operating liabilities. It thus reflects the short-term financing requirement...