A

Adjusted EBITDA (AEBITDA): A normalized EBITDA calculation that includes add-backs for personal and non-recurring expenses, subject to verification.

Asset Sale: A transaction where the buyer purchases specific business assets, excluding liabilities, cash, and accounts receivable.

B

Break-Up Fee: A penalty fee paid by a party that backs out of a signed letter of intent (LOI), compensating for due diligence costs.

Buyer (Financial): A private equity group or institutional investor acquiring businesses to build a portfolio.

Buyer (Strategic): An operating company acquiring businesses for growth, often within the same industry.

C

Confidentiality Agreement (NDA): A legally binding contract that prevents the unauthorized disclosure of proprietary business information.

Covenants: Legal promises within a business agreement, such as a non-compete clause.

D

Definitive Purchase Agreement (DPA): A legally binding contract finalizing the sale of a business, subject to ownership transfer conditions.

Divestiture: The process of selling an asset or subsidiary.

Days Sales Outstanding (DSO): A financial metric indicating the average time required to collect accounts receivable.

Due Diligence: A thorough evaluation of a business’s financial, operational, and legal records by a prospective buyer.

E

Earn-Out: A financial incentive allowing the seller to receive additional payments post-sale by achieving specified performance targets.

EBITDA: Earnings Before Interest, Taxes, Depreciation, and Amortization—a key financial metric used to assess a company’s valuation.

Enterprise Value: The estimated market value of a business based on valuation multiples and financial performance.

G

General & Administrative (G&A) Expenses: Operating expenses not directly tied to production, such as salaries, rent, and office costs.

Gross Profit: Revenue minus the cost of goods sold (COGS), excluding administrative and discretionary expenses.

L

Letter of Intent (LOI): A preliminary, non-binding agreement outlining key terms of a potential business sale, subject to due diligence.

M

Mergers & Acquisitions (M&A): The process of buying, selling, or merging businesses.

N

Non-Recurring Operating Expenses: One-time, extraordinary costs that are excluded from EBITDA calculations to present normalized financial performance.

P

Promissory Note: A contractual obligation where the buyer agrees to pay a portion of the purchase price over time, often with interest.

R

Recast Financials: Adjusted financial statements reflecting the true earning potential of a business by normalizing expenses.

Representations & Warranties: Legally binding statements about the business’s financial and operational condition that the seller guarantees to be true.

S

Stock Sale: A transaction where the buyer acquires ownership of the entire company, including all assets and liabilities.

T

Transactional Attorney: A legal expert specializing in business sales, mergers, and acquisitions.

V

Valuation: The process of determining a company’s fair market value based on financial metrics, industry trends, and market conditions.

Value Drivers: Business characteristics that enhance enterprise value, such as recurring revenue, profitability, and market positioning.

Understanding these key M&A terms can help business owners and investors make informed decisions during business transactions. If you’re considering selling or acquiring a business, partnering with an experienced business broker ensures a smooth, well-structured process.