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!
Acquirer
The individual or business purchasing a company or part of a company in an acquisition. Also known as the buyer.
Acquisition
The purchasing of majority ownership of a target company.
Asset Deal
The buyer purchases only the assets of a target company.
Black Knight
When a company attempts to acquire another company in a hostile takeover bid.
Boot
Cash or other assets are added to an M&A transaction to make the value of the trade equal.
Bootstrapping Effect
When the existence of a merger results in the financial downfall of a company.
Capitalization
The term describes a company’s permanent capital, long-term debt, and equity.
Capital Structure
A company’s mix of debt and equity financing.
Cash Consideration
The portion of the purchase price is to be paid in cash.
Cash Flow
The net cash or cash equivalents moving in and out of the business.
Conglomerate
The merging of companies with businesses in unrelated activities.
Deal Structure
A binding agreement between parties in a mergers and acquisitions deal that outlines both sides’ rights and obligations.
Due Diligence
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.
Earnout
A provision in the contract grants the seller of a business to obtain compensation if specific metrics are met.
EBITDA
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.
Friendly Takeover
The board of directors of the target company approves of the takeover and will advise the shareholders to accept the offer.
Forward Merger
The target company merges directly into the acquiring company.
Godfather Deal
When an acquiring company makes an irrefutable offer to a target company that would be hard to deny.
Horizontal Merger
It occurs when two companies operate in the same industry and offer similar products or services.
Hostile Takeover
The board of directors of the target company does not approve of the takeover and will advise the shareholders to deny the offer.
Intrinsic Value
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.
Merger
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.
Pac-Man Defense
A defensive tactic used by a target company to reverse a hostile takeover situation.
Poison Pill
A defensive tactic used by a target company to deter a hostile takeover by making the company undesirable.
Reverse Merger
Allows smaller private companies to go public while avoiding a conventional IPO’s time-consuming and expensive process.
Show Stopper
A defensive tactic used by a target company to prevent a hostile takeover by bringing any progress to a halt.
Stock Sale
The buyer purchases an ownership stake in the company being acquired.
Subsidiary
The acquiring company completely takes over the target company but preserves its brand reputation.
Synergy
The concept that two companies are worth more combined than they are separately.
Target Company
The business is being acquired during an M&A transaction.
Vertical Merger
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.
