Every M&A Term You Need to Know

The purchase of one business or a controlling interest in one business by another party. An acquisition can be structured as a share purchase (buying the shares of the company) or an asset purchase (buying specific assets of the business).

EBITDA adjusted to remove one-off, non-recurring, or non-cash items that distort the underlying earnings of the business. Common adjustments include owner salary above market rate, one-off legal costs, and non-cash stock compensation. Buyers and sellers often disagree on what constitutes a legitimate adjustment.

The annualised value of recurring subscription revenue. For a SaaS business, ARR is calculated by multiplying monthly recurring revenue (MRR) by 12. ARR is the primary valuation metric for subscription software businesses.

A legal agreement governing the purchase of specific assets of a business rather than its shares. The buyer acquires defined assets (and typically assumes defined liabilities) rather than the entire legal entity. Common in digital business transactions where the buyer wants to avoid inheriting unknown liabilities.

Two primary structures for acquiring a business. In a share purchase, the buyer acquires the shares of the company and inherits all assets and liabilities. In an asset purchase, the buyer acquires specific assets and assumes only specified liabilities. Each structure has different tax, legal, and commercial implications for both parties.

A fee payable by one party to the other if the transaction does not complete due to a specified reason. Break fees are used to compensate a buyer for the cost of due diligence if the seller withdraws, or to compensate a seller if the buyer walks away without cause. Typically 1-3% of the transaction value.

Advisory services provided to a buyer in an M&A transaction. A buy-side advisor helps identify targets, conduct initial assessment, structure offers, manage due diligence, and negotiate transaction terms on behalf of the acquirer.

Tax payable on the profit from the sale of a business or asset. CGT treatment varies significantly by jurisdiction, holding period, and transaction structure. Tax planning before a sale can materially affect the net proceeds received by the seller.

A provision in a contract that is triggered when ownership of a business changes hands. Common in customer contracts, supplier agreements, software licences, and employment agreements. Change of control clauses can allow the counterparty to terminate the contract or require consent to the transfer, which can affect deal structure and value.

The rate at which customers or revenue is lost over a given period. Gross churn measures the percentage of customers or revenue lost. Net churn accounts for expansion revenue from existing customers. High churn is one of the most significant value-compression factors in SaaS and subscription business transactions.

A detailed document prepared by the seller's advisor describing the business for sale. A CIM typically includes business overview, financial performance, customer analysis, technology description, team structure, growth opportunities, and transaction process details. Distributed to qualified buyers after NDA execution.

Financial statements prepared as at the date of completion of a transaction, used to calculate the final purchase price adjustment. Completion accounts are used to ensure the buyer receives the business with the agreed level of working capital and net debt.

Conditions that must be satisfied before a transaction can complete. Common conditions precedent include regulatory approvals, third-party consents, financing conditions, and the accuracy of representations and warranties. Failure to satisfy a condition precedent can give either party the right to walk away from the transaction.

The total cost of acquiring a new customer, including sales, marketing, and onboarding costs. CAC is assessed alongside customer lifetime value (LTV) to evaluate the efficiency of the growth model. A high CAC relative to LTV signals poor unit economics.

The degree to which revenue is dependent on a small number of customers. A business where one customer represents more than 15-20% of revenue has significant concentration risk. Buyers typically apply a discount or structure earnouts to protect against the loss of a concentrated customer post-acquisition.

A secure online repository where transaction documents are stored and shared with qualified buyers during due diligence. A well-organised deal room accelerates due diligence and signals operational maturity to buyers.

A portion of the purchase price that is paid after completion, either on a fixed schedule or contingent on performance targets. Deferred consideration includes earnouts, vendor loans, and holdbacks. It is used to bridge valuation gaps between buyer and seller.

A document provided by the seller to the buyer that qualifies the representations and warranties given in the transaction agreement. The disclosure letter identifies known exceptions to the warranties, protecting the seller from warranty claims for disclosed matters.

The process by which a buyer investigates a target business before completing an acquisition. Due diligence covers financial, legal, commercial, technical, and regulatory aspects of the business. The scope and depth of due diligence varies by transaction size and complexity.

Earnings Before Interest, Tax, Depreciation, and Amortisation. A measure of operating profitability that excludes financing costs and non-cash charges. EBITDA is the most common valuation metric for profitable businesses. EBITDA multiples vary by industry, growth rate, and market conditions.

A deferred payment structure where part of the purchase price is contingent on the business achieving agreed performance targets after closing. Earnouts are used to bridge valuation gaps, retain seller motivation post-acquisition, and allocate risk between buyer and seller. Common targets include revenue, EBITDA, or customer metrics over a 12 to 36 month period.

The total value of a business, including both equity and debt. Enterprise value is calculated as equity value plus net debt (debt minus cash). When a business is valued at a multiple of EBITDA or revenue, the resulting figure is typically enterprise value, not equity value.

The value of the equity in a business, calculated as enterprise value minus net debt. Equity value is what the seller actually receives in a transaction (before tax). The distinction between enterprise value and equity value is important in transactions involving significant cash balances or debt.

A period during which the seller agrees not to negotiate with other potential buyers while the preferred buyer conducts due diligence and finalises transaction documents. Exclusivity periods typically range from 30 to 90 days. Granting exclusivity too early or for too long weakens the seller's negotiating position.

The degree to which a business relies on its founder for operations, sales, customer relationships, or product development. High founder dependency is one of the most common value-compression factors in small and mid-market digital business transactions. Buyers pay more for businesses that can operate independently of the founder.

The premium paid for a business above the fair value of its identifiable net assets. Goodwill represents intangible value including brand, customer relationships, workforce, and market position. In an asset purchase, goodwill is often separately identified and may be amortisable for tax purposes.

Revenue minus the direct cost of delivering the product or service, expressed as a percentage of revenue. Gross margin is a key indicator of business quality. SaaS businesses typically target 70-85% gross margins. Below 60% raises questions about infrastructure costs or professional services dependency.

A portion of the purchase price withheld by the buyer at closing and released to the seller after a specified period, subject to the absence of warranty claims. Holdbacks are used as security for the seller's indemnification obligations. Typically 10-20% of the purchase price held for 12-24 months.

An obligation by the seller to compensate the buyer for losses arising from a breach of representations and warranties or other specified events. Indemnification provisions define the scope, duration, and financial limits of the seller's liability post-closing.

A non-binding expression of interest from a buyer indicating the price and key terms on which they would be willing to acquire a business, subject to due diligence and documentation. Also referred to as an Expression of Interest (EOI) or Letter of Intent (LOI) in some markets.

The risk that the acquired business cannot be successfully integrated into the buyer's organisation, resulting in loss of customers, staff, or operational capability. Integration risk is a key consideration for strategic acquirers and is often reflected in deal structure through earnouts and transition service agreements.

A non-binding document outlining the key terms of a proposed transaction, including price, structure, exclusivity period, and conditions. The LOI signals serious intent and provides a framework for negotiating the binding transaction agreement. Also referred to as a Term Sheet or Heads of Agreement.

The total revenue expected from a customer over the duration of their relationship with the business. LTV is assessed alongside customer acquisition cost (CAC) to evaluate unit economics. A healthy LTV:CAC ratio is typically 3:1 or higher.

A transaction pricing mechanism where the purchase price is fixed at a historical balance sheet date (the locked box date) rather than adjusted based on completion accounts. The seller is restricted from extracting value from the business between the locked box date and completion. Common in European M&A transactions.

The predictable monthly revenue from active subscriptions. MRR is the foundational metric for SaaS and subscription businesses. New MRR, expansion MRR, contraction MRR, and churned MRR are tracked separately to understand the dynamics of revenue growth.

The factor applied to a financial metric (revenue, EBITDA, ARR) to arrive at a business valuation. For example, a business valued at 5x EBITDA with $2M EBITDA has an enterprise value of $10M. Multiples vary by industry, growth rate, market conditions, and deal-specific factors.

A confidentiality agreement executed between the seller and a prospective buyer before any confidential information about the business is shared. NDAs define what information is confidential, how it can be used, and the consequences of breach. All buyers execute NDAs before receiving a CIM.

A measure of revenue retained from existing customers over a period, including expansion revenue from upsells and cross-sells, minus contraction and churn. NRR above 100% means the business is growing revenue from its existing customer base without acquiring new customers. NRR above 110% is a significant premium driver in SaaS valuations.

An agreement by the seller not to compete with the acquired business for a specified period and within a specified geographic area after the transaction closes. Non-competes are standard in digital business transactions and are typically 2-4 years in duration. The enforceability of non-competes varies by jurisdiction.

A transaction where the business is not publicly listed for sale. Off-market deals are sourced through direct outreach, networks, and relationships. They are often preferred by sellers who want to maintain confidentiality and by buyers who want to avoid competitive auction processes.

A mechanism in the transaction agreement that adjusts the final purchase price based on the actual financial position of the business at closing. Common adjustments include working capital, net debt, and cash. The two main approaches are completion accounts and locked box.

A document sent to prospective buyers outlining the process for submitting indicative offers, the timeline, and the information available. Process letters are used in structured sale processes to manage buyer expectations and maintain competitive tension.

Statements of fact made by the seller about the business in the transaction agreement. Representations and warranties cover areas including financial statements, ownership, intellectual property, contracts, employees, and regulatory compliance. Breach of a warranty gives the buyer the right to claim compensation from the seller.

A structure where the seller retains a minority equity stake in the business post-acquisition rather than receiving full cash consideration. Rollover equity is common in PE-backed transactions where the buyer wants the seller to remain invested in the business's future performance.

An annualised projection of a financial metric based on recent performance. For example, a business generating $200K in revenue in the most recent month has a run rate of $2.4M. Run rate is useful for fast-growing businesses but can be misleading if recent performance is not representative of the full year.

A measure of the total financial benefit to a single owner-operator from a business, including net profit plus owner's salary, benefits, and discretionary expenses. SDE is used to value small businesses where the owner is also the primary operator. It is equivalent to EBITDA plus owner compensation.

Advisory services provided to a seller in an M&A transaction. A sell-side advisor prepares the business for sale, identifies and approaches buyers, manages the sale process, and negotiates transaction terms on behalf of the seller.

The binding legal agreement governing the purchase and sale of shares in a company. The SPA sets out the purchase price, payment terms, representations and warranties, conditions precedent, and post-closing obligations. The SPA is the primary transaction document in a share purchase.

A buyer that acquires a business for strategic reasons rather than purely financial returns. Strategic acquirers typically pay higher prices than financial buyers because they can realise synergies through combining the acquired business with their existing operations. Examples include a larger company acquiring a competitor, a supplier, or a business with complementary technology.

A fee paid to an M&A advisor upon successful completion of a transaction, calculated as a percentage of the transaction value. Success fees align the advisor's incentives with the client's outcome. Acquiry operates on a success fee model for sell-side mandates.

A brief, anonymised document describing a business for sale without identifying the company by name. Teasers are used in initial outreach to prospective buyers to gauge interest before requiring NDA execution. A well-crafted teaser generates interest without revealing confidential information.

A non-binding document outlining the key commercial terms of a proposed transaction. Equivalent to a Letter of Intent or Heads of Agreement. The term sheet forms the basis for negotiating the binding transaction agreement.

The total consideration paid in a transaction, including upfront cash, deferred payments, earnouts, assumed debt, and the value of any equity rolled over. Transaction value may differ from enterprise value depending on the specific deal structure and adjustments.

An agreement under which the seller provides specified services to the buyer for a defined period after closing to support the transition of the business. TSAs are common where the buyer needs time to establish its own infrastructure or where the business is being carved out of a larger organisation.

Due diligence conducted by the seller on its own business before going to market, typically prepared by an independent advisor. VDD accelerates the buyer's due diligence process, reduces information asymmetry, and can increase buyer confidence and price. Common in larger transactions.

A loan provided by the seller to the buyer to fund part of the purchase price. The buyer pays the seller over time with interest rather than paying the full amount at closing. Vendor loans are used to bridge financing gaps and can demonstrate the seller's confidence in the business's future performance.

Insurance that covers losses arising from breaches of representations and warranties in a transaction agreement. W&I insurance allows sellers to receive clean exits without retaining liability for warranty claims, and gives buyers a creditworthy counterparty for warranty claims. Common in transactions above $10M.

The difference between current assets and current liabilities. In M&A transactions, a working capital target is agreed and the purchase price is adjusted if the actual working capital at closing differs from the target. Working capital adjustments are a common source of post-close disputes.