A

Add-back

An expense added back to reported profit when calculating adjusted EBITDA because it is considered personal, exceptional or unlikely to continue under new ownership.

Example: A director's private healthcare costs may be added back if the buyer will not incur the same expense.

Adjusted EBITDA

EBITDA adjusted to remove exceptional, non-recurring or owner-specific costs to give a clearer view of the underlying profitability of a business.

Adjusted EBITDA is often used when valuing a business and assessing how much acquisition debt it can support.

Acquisition

The purchase of all or part of one business by another company or individual.

Acquisition finance

Funding used specifically to help finance the purchase of a business.

It may include bank debt, specialist acquisition lending, asset finance, private equity, seller finance or a combination of different funding sources.

Asset purchase

A transaction where the buyer purchases selected assets and liabilities of a business rather than acquiring the shares in the company itself.

The buyer and seller agree exactly which assets, contracts, employees and liabilities will transfer.

Asset valuation

A method of valuing a business primarily by assessing the value of its assets and liabilities.

It can be particularly relevant for asset-heavy businesses.

B

Balance sheet

A financial statement showing a company's assets, liabilities and shareholders' equity at a particular point in time.

Buyers and funders use the balance sheet to assess the financial strength of a business.

Binding offer

A formal offer that creates legally enforceable obligations, subject to the specific conditions included within it.

This is different from an indicative or non-binding offer.

Bolt-on acquisition

The acquisition of a business that complements an existing company or group.

A bolt-on may add customers, products, locations, skills or market share to the existing business.

Break clause

A contractual provision that allows one or more parties to terminate an agreement if specified conditions are met.

Bridging finance

Short-term funding used to bridge a temporary gap in finance.

In business transactions, it may occasionally be used where permanent finance is expected to become available later.

Business broker

An adviser or intermediary who helps business owners market and sell their company and may introduce potential buyers.

Business valuation

The process of estimating how much a business is worth.

Valuation may take account of profitability, assets, cash flow, market conditions, growth prospects and comparable transactions.

Buyer

The individual, management team, company or investment organisation acquiring the business.

Buy-in management buyout (BIMBO)

A transaction in which existing managers join with one or more external buyers to acquire the company.

It combines elements of a management buyout and a management buy-in.

C

Capital expenditure

Money spent by a business on long-term assets such as property, machinery, equipment or technology.

Often abbreviated to CAPEX.

Capital gains tax

A tax that can apply when an individual disposes of an asset that has increased in value.

The tax position when selling a business depends on the structure of the transaction and the seller's individual circumstances.

Capital repayment holiday

A period at the start of a loan during which the borrower may pay interest without repaying the capital element.

Often abbreviated to CRH.

Completion

The point at which the transaction legally completes and ownership of the business or shares transfers to the buyer.

Completion normally takes place after the transaction documents have been signed and all required conditions have been satisfied.

Completion accounts

Financial statements prepared around the completion date and used to calculate any final adjustments to the purchase price.

These may account for factors such as cash, debt or working capital.

Completion payment

The amount of the purchase price paid to the seller when the transaction completes.

Any remaining amount may be paid later through deferred consideration, an earn-out or another arrangement.

Confidentiality agreement

An agreement restricting how confidential information may be used or disclosed.

Also commonly referred to as a non-disclosure agreement or NDA.

Consideration

The total amount or value given by the buyer in return for acquiring the business.

Consideration can include cash, shares, deferred payments or other forms of value.

Contingent consideration

A portion of the purchase price that only becomes payable if specified future conditions are met.

An earn-out is a common form of contingent consideration.

Corporate finance adviser

A professional adviser who supports business owners, buyers or investors with transactions such as acquisitions, sales, valuations, funding and deal structuring.

Covenant

A contractual promise or restriction.

In acquisition finance, loan agreements may include financial covenants that the business must continue to meet.

D

Data room

A secure digital location used to store and share confidential documents during a business transaction.

Buyers and their advisers typically use the data room during due diligence.

Deal origination

The process of identifying and sourcing potential businesses to acquire.

Also known as deal sourcing.

Deal structure

The way a transaction is organised financially and legally.

It can include the amount paid at completion, deferred consideration, seller finance, earn-outs, external debt and retained equity.

Debt finance

Money borrowed to finance a transaction that must be repaid according to agreed terms.

Debt service

The cash required to meet interest and capital repayments on borrowing.

Debt service coverage ratio

A measure comparing the cash available to repay debt with the amount of debt repayments due.

Funders may use it when assessing whether an acquisition is affordable.

Deferred consideration

Part of the agreed purchase price that is paid to the seller after completion rather than immediately.

Unlike an earn-out, deferred consideration is normally fixed and not dependent on future performance.

Example: A £2 million deal may involve £1.5 million at completion and £500,000 paid over the following two years.

Depreciation

An accounting charge that spreads the cost of a tangible asset over its useful life.

Because depreciation is a non-cash accounting expense, it is added back when calculating EBITDA.

Disclosure

The process by which the seller provides information to the buyer about matters that may affect the warranties given in the sale agreement.

Disclosure letter

A document in which the seller formally discloses exceptions to warranties contained in the sale and purchase agreement.

Due diligence

The detailed investigation of a business before a transaction completes.

Due diligence may cover financial, legal, commercial, tax, operational, technology, environmental and HR matters.

E

Earn-out

Part of the purchase price that is dependent on the business achieving agreed targets after completion.

Targets may relate to revenue, profit, EBITDA or other performance measures.

Example: A seller may receive an additional £300,000 if the business achieves a specified EBITDA level during the first year after completion.

EBITDA

Earnings before interest, tax, depreciation and amortisation.

EBITDA is commonly used as a measure of underlying operating profitability and often forms the basis of a business valuation.

Enterprise value

The value attributed to the operating business before adjusting for items such as cash and debt.

In many SME transactions, a valuation multiple is applied to maintainable EBITDA to calculate enterprise value.

Equity

Ownership in a company.

A person owning 20% of the shares in a company has a 20% equity interest.

Equity finance

Funding provided in return for an ownership stake in the company rather than through a loan.

Exclusivity

A period during which the seller agrees not to negotiate with other potential buyers.

It is often agreed once Heads of Terms have been signed.

Exit

The point at which an owner or investor sells their interest in a business.

Exit strategy

A plan for how and when a business owner or investor intends to realise the value of their investment.

F

Financial buyer

A buyer primarily acquiring a business as an investment rather than because it has a direct strategic fit with another company.

Private equity firms are a common example.

Financial due diligence

An analysis of the financial performance and position of the target business.

It may examine revenue, profitability, EBITDA, cash flow, working capital, debt and the quality of financial reporting.

Financial forecast

An estimate of the future financial performance of a business.

Forecasts often include revenue, profit, cash flow and balance sheet projections.

Funding package

The combination of financing sources used to complete an acquisition.

It could include buyer capital, bank debt, specialist lending and deferred consideration.

G

Goodwill

The intangible value of a business above the value of its identifiable net assets.

Goodwill may reflect factors such as reputation, customer relationships, brand value and intellectual property.

Gross profit

Revenue minus the direct cost of producing the goods or services sold by the business.

H

Heads of Terms

A document setting out the principal commercial terms agreed between the buyer and seller before the detailed legal documents are prepared.

It may cover:

• Purchase price
• Deal structure
• Payment terms
• Exclusivity
• Due diligence
• Timetable
• Seller involvement after completion

Heads of Terms are also sometimes referred to as a Letter of Intent or LOI.

High net worth individual

An individual with substantial personal wealth who may invest directly in businesses or acquisitions.

Whether someone formally qualifies as a high net worth investor depends on the relevant regulatory definition.

Holdback

Part of the purchase price retained temporarily following completion.

A holdback may be used to protect the buyer against specific risks, claims or post-completion adjustments.

I

Indicative offer

A preliminary, usually non-binding offer setting out the amount a buyer may be willing to pay and the proposed structure of the transaction.

Indicative terms

Preliminary funding terms provided by a lender before final credit approval.

They may include the proposed loan amount, interest rate, term and repayment structure.

Information Memorandum

A detailed document prepared to provide prospective buyers with information about a business being marketed for sale.

Commonly abbreviated to IM.

It may cover:

• Company history
• Products and services
• Customers
• Management
• Market position
• Financial performance
• Growth opportunities

Intellectual property

Intangible assets created or owned by a business.

Examples include trademarks, patents, designs, software, copyright and proprietary processes.

Interest cover

A measure of a company's ability to pay interest on its borrowings from its profits.

Investor

An individual or organisation providing capital in expectation of achieving a financial return.

J

Joint venture

An arrangement in which two or more parties work together on a business opportunity while sharing ownership, risk or returns.

K

Key person dependency

The extent to which a business relies heavily on one individual for its performance, relationships or operations.

Heavy reliance on the owner can represent a risk for a buyer.

Key performance indicator

A measurable indicator used to assess business performance.

Commonly abbreviated to KPI.

L

Letter of Intent

A document summarising the key proposed terms of a transaction.

Also commonly referred to as Heads of Terms or an LOI.

Leverage

The use of borrowed money to finance a transaction or investment.

A highly leveraged acquisition uses a relatively large amount of debt compared with the buyer's equity contribution.

Locked box

A pricing mechanism where the purchase price is based on a historical balance sheet and is fixed before completion, subject to agreed protections against value being extracted by the seller.

Long stop date

The final date by which certain conditions must be satisfied or the transaction completed before one or more parties can terminate the agreement.

M

Maintainable EBITDA

The level of EBITDA that a buyer considers sustainable under normal trading conditions.

It may differ from both reported and adjusted EBITDA if certain historic earnings are considered unlikely to continue.

Management buy-in

A transaction in which an external individual or management team acquires a business and takes responsibility for managing it.

Commonly abbreviated to MBI.

Management buyout

A transaction in which members of the existing management team acquire all or part of the business from its current owners.

Commonly abbreviated to MBO.

Management presentation

A meeting during the sale process where the management team presents the business to prospective buyers and answers detailed questions.

Mergers and acquisitions

The general term for transactions involving the buying, selling and combining of businesses.

Commonly abbreviated to M&A.

Multiple

A number applied to a financial measure such as EBITDA when calculating the value of a business.

Example: A business with £500,000 maintainable EBITDA valued at 5x EBITDA would have an implied enterprise value of £2.5 million.

N

Net asset value

The value of a company's assets minus its liabilities.

Commonly abbreviated to NAV.

Net debt

A company's borrowings and similar financial liabilities less its available cash.

Net profit

The profit remaining after all operating expenses, interest and taxes have been deducted.

Non-binding offer

An offer expressing a buyer's current intention without legally committing them to complete the purchase on those terms.

Non-compete clause

A contractual restriction preventing a seller from competing with the business for an agreed period after completion.

Non-disclosure agreement

A legal agreement designed to protect confidential information shared during a transaction.

Commonly abbreviated to NDA.

Non-Executive Director

A board member who provides independent oversight, advice and expertise without being responsible for the day-to-day management of the business.

O

Offer

The terms proposed by a buyer to acquire a business or shares in a company.

One-off cost

An unusual or non-recurring business expense that is not expected to arise regularly.

One-off costs may sometimes be adjusted when calculating maintainable EBITDA.

Owner dependency

The extent to which a business relies on its current owner for sales, operations, customer relationships or decision-making.

High owner dependency can reduce the attractiveness or value of a business to buyers.

P

Personal capital

Money contributed by a buyer from their own funds towards an acquisition.

Funders often expect buyers to invest some of their own capital into the transaction.

Post-completion

The period after legal completion of the transaction.

Private equity

Investment made into privately owned companies by professional investment firms or funds.

A private equity investor typically acquires an equity stake and aims to increase the value of the business before eventually exiting the investment.

Proof of funds

Evidence showing that a buyer has access to the money required to complete the proposed transaction.

Purchase price

The agreed amount being paid by the buyer for the business or shares being acquired.

Purchase price adjustment

A change to the final amount paid for the business based on agreed calculations such as cash, debt or working capital at completion.

Q

Quality of earnings

An assessment of how sustainable and reliable a company's reported earnings are.

A buyer may examine whether profits are supported by recurring trading activity or distorted by unusual items and accounting adjustments.

R

Recurring revenue

Revenue that is expected to repeat regularly, often through contracts, subscriptions or repeat customer relationships.

High levels of recurring revenue can make a business more attractive to buyers.

Retained equity

A shareholding retained by the seller after the transaction completes.

Example: A buyer may acquire 80% of the business while the seller retains the remaining 20%.

Retirement sale

The sale of a business where the owner's principal reason for selling is retirement.

Return on investment

A measure of the return generated relative to the amount invested.

Commonly abbreviated to ROI.

S

Sale and Purchase Agreement

The principal legal contract governing the sale of a company or business.

Commonly abbreviated to SPA.

The SPA usually sets out the purchase price, payment terms, warranties, indemnities and other contractual obligations.

Seller

The individual or organisation disposing of some or all of its ownership in a business.

Seller finance

Funding effectively provided by the seller to help the buyer complete the transaction.

Part of the purchase price is paid at a later date rather than at completion.

Also known as vendor finance.

Share purchase

A transaction in which the buyer purchases shares in the company itself.

The company continues to own its existing assets, contracts and liabilities.

Share Purchase Agreement

The legal agreement governing the sale and purchase of shares in a company.

Also commonly abbreviated to SPA.

Signing

The point at which the transaction documents are formally signed.

Signing and completion may occur at the same time or on different dates.

Skin in the game

An informal expression referring to the buyer investing their own money into a transaction.

SME

Small and medium-sized enterprise.

The exact definition varies depending on the context, but the term is generally used to describe businesses below certain employee, turnover or balance sheet thresholds.

Strategic buyer

A company acquiring another business because it offers strategic benefits.

These might include access to new customers, markets, products, technology or operational synergies.

Synergy

A benefit expected to arise from combining two businesses.

Examples include cost savings, cross-selling opportunities or increased purchasing power.

T

Target business

The company or business that a buyer is considering acquiring.

Teaser

A short, usually anonymous summary of a business being marketed for sale.

Its purpose is to generate initial interest without revealing the identity of the company.

Term sheet

A document summarising the key terms of a proposed financing or investment arrangement.

Trade buyer

A company operating in the same or a related industry that acquires another business for strategic reasons.

Transaction

The overall process through which ownership of a business changes hands.

Transaction costs

The professional and other costs associated with completing a sale or acquisition.

These may include:

• Legal fees
• Financial due diligence
• Tax advice
• Corporate finance fees
• Funding fees
• Valuation costs

Turnover

The total sales revenue generated by a business over a particular period.

V

Valuation multiple

The multiple applied to a financial measure such as EBITDA, revenue or profit when estimating the value of a business.

Vendor

Another term for the seller of a business.

Vendor due diligence

Due diligence commissioned by the seller before or during a sale process.

The resulting report may then be provided to prospective buyers.

Vendor finance

An arrangement where the seller allows part of the purchase price to be paid at a later date.

Also known as seller finance.

Venture capital

Equity investment typically provided to early-stage or high-growth businesses with significant growth potential.

Venture capital is generally more associated with growth companies than traditional SME business acquisitions.

W

Warranty

A contractual statement made by the seller about the condition or circumstances of the business.

If a warranty proves to be incorrect, the buyer may be able to bring a claim subject to the terms of the SPA.

Warranty and indemnity insurance

Insurance designed to cover certain losses arising from breaches of warranties or indemnities in a business sale.

Often abbreviated to W&I insurance.

Working capital

The short-term capital used in the day-to-day operation of a business.

It is commonly calculated using current assets and current liabilities.

Working capital adjustment

An adjustment to the purchase price where the level of working capital at completion differs from an agreed target or normal level.

Common Business Sale and Acquisition Abbreviations

Using This Business Buying and Selling Glossary

The terminology used in a transaction can change depending on whether you are buying or selling a business and how the deal is structured.

For more detailed guidance, explore our resources on how to buy a business, how to sell a business, business valuation, due diligence, acquisition finance, Heads of Terms and completing a business transaction.