Plain-English definitions of the M&A concepts every founder needs to understand before going to market. Written by a practitioner with 500+ closed transactions, not a law firm.
12 terms defined
A Quality of Earnings (QoE) report is an independent financial analysis — typically ordered by a buyer — that validates a seller's EBITDA, scrutinizes add-backs…
Read definition → Deal MechanicsA working capital peg is the agreed-upon target level of net working capital (current assets minus current liabilities) that the seller must deliver at closing.…
Read definition → Deal ProcessA Letter of Intent (LOI) is a non-binding term sheet that outlines the key economic and structural terms of an M&A transaction before a definitive purchase agre…
Read definition → Deal StructureAn earnout is a contingent payment structure where part of the purchase price is paid after closing, based on the business meeting agreed performance targets — …
Read definition → Deal ProcessA Confidential Information Memorandum (CIM) is the primary marketing document in a sell-side M&A process — a detailed, professionally prepared presentation of t…
Read definition → LegalRepresentations and warranties ("reps and warranties" or "R&W") are the seller's formal statements of fact about the business, made in the purchase agreement. T…
Read definition → ValuationEBITDA add-backs are adjustments to a company's reported EBITDA that add back owner-specific, non-recurring, or non-operational expenses to arrive at "adjusted …
Read definition → Deal StructureSeller financing (also called a seller note or seller carry) is when the business seller lends part of the purchase price to the buyer, to be repaid over time w…
Read definition → Deal ProcessDue diligence is the buyer's comprehensive investigation of a business between LOI signing and purchase agreement execution. It covers financial, legal, operati…
Read definition → ValuationEnterprise value (EV) is the total value of a business — what the buyer pays to acquire 100% of the company including its debt. Equity value is what the seller …
Read definition → Deal MechanicsDebt-free, cash-free (DFCF) is the standard assumption in lower middle market M&A transactions: the seller delivers the business free of financial debt, and ret…
Read definition → ValuationNormalized EBITDA (also called Adjusted EBITDA) is a company's earnings before interest, taxes, depreciation, and amortization, further adjusted to remove owner…
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