M&A Glossary

The mean annual growth rate of an investment over a specified period longer than one year. Smooths out volatility to show consistent growth.

A detailed document prepared by the seller or their advisors describing the business, financials, and investment opportunity.

A valuation method that compares a target company to similar publicly traded companies using valuation multiples like EV/EBITDA or P/E ratios.

The amount a buyer pays above the current market price to acquire a controlling stake. Typically 20-40% above the unaffected stock price.

A valuation method that estimates the value of an investment based on its expected future cash flows, discounted back to present value using a discount rate (typically WACC).

The final, binding purchase agreement that sets forth all terms and conditions of the transaction.

A contractual provision where the seller receives additional payment if the business achieves specified performance targets post-closing.

Earnings Before Interest, Taxes, Depreciation, and Amortization. A measure of operating profitability that excludes non-cash charges and capital structure effects.

The total value of a company, calculated as market cap plus debt minus cash. Represents the value of the entire business to all capital providers.

A portion of the purchase price held by a third party to cover potential post-closing adjustments or indemnification claims.

The examination of financial records to detect fraud, irregularities, or misstatements. In M&A due diligence, forensic accounting is used to identify accounting red flags such as revenue recognition issues, related-party transactions, unusual journal entries, and inconsistencies between reported metrics and supporting documentation.

Cash generated by operations after capital expenditures. Represents cash available to pay dividends, reduce debt, or fund acquisitions.

Hart-Scott-Rodino Antitrust filing required for transactions above certain thresholds. Must wait for approval before closing.

A document presented to the Investment Committee summarizing the opportunity, thesis, risks, and recommendation.

The annualized return rate that makes the net present value of all cash flows equal to zero. Used by PE firms to measure investment performance.

An acquisition where a significant portion of the purchase price is funded by debt, with the target company's assets often serving as collateral. Common in private equity.

A non-binding document outlining the basic terms of a proposed transaction. Typically includes exclusivity provisions and sets the stage for due diligence.

A significant negative change in the target's business that may allow the buyer to terminate the deal or renegotiate terms.

The ratio of total value received to total capital invested. A MOIC of 2.0x means you doubled your money.

Current assets minus current liabilities. In M&A, often subject to adjustment mechanisms in the purchase agreement.

A confidentiality agreement signed before sharing sensitive information about a potential transaction.

A valuation method that analyzes prices paid in previous M&A transactions for similar companies to estimate value.

Mechanisms in the purchase agreement that adjust the final price based on actual working capital, debt, or cash at closing versus agreed targets.

A due diligence analysis that assesses the sustainability and accuracy of reported earnings, identifying one-time items, normalizing EBITDA, and evaluating pro forma adjustments. OloLand's QoE analysis automatically flags non-recurring revenues, unusual expense patterns, and working capital anomalies.

Representations and Warranties Insurance. Third-party insurance that covers breaches of reps and warranties, reducing seller liability.

A summary of significant issues or risks discovered during due diligence that may affect deal terms or valuation.

Statements of fact made by the seller about the business. Breaches may trigger indemnification claims.

The value of a business beyond the explicit forecast period in a DCF analysis. Often calculated using perpetuity growth or exit multiple methods.

A secure online repository where sensitive documents are stored and shared during due diligence. Tracks who views what.

The average rate of return a company must earn on its investments to maintain its current value. Calculated as a weighted average of cost of equity and cost of debt.