Reference
M&A Glossary: 124+ Terms Explained Simply
From asset deal to working capital: this glossary explains more than 124 key terms from mergers & acquisitions in a clear and practical way. Written for business owners, investors and advisers in the DACH region.
M&A runs on terms from the English-speaking world. Whether due diligence, EBITDA multiple or letter of intent: anyone who wants to buy, sell or value a company needs to speak the language of transactions. This glossary gives an alphabetical overview of all relevant terms with practical explanations.
A
- Absichtserklärung (LOI)
- German term for the letter of intent. The Absichtserklärung documents the key points of a planned transaction and is often also called heads of terms. Letter of intent. See also: Letter of Intent (LOI)
- Acquisition Finance (Akquisitionsfinanzierung)
- Financing of a company takeover, typically as a combination of equity, senior debt and, where needed, mezzanine capital. How the acquisition finance is structured affects the achievable purchase price, the buyer's return on equity and the financial stability of the acquired company. In the DACH Mittelstand, senior leverage levels of 2.5x to 4.0x net debt/EBITDA are market standard. See also: Leverage, LBO (Leveraged Buyout), Mezzanine Capital
- Add-on Acquisition
- Purchase of a smaller company by an existing platform investment of a private equity investor. Add-on acquisitions serve to broaden the product portfolio, expand geographically or realise economies of scale. They are a central element of the buy-and-build strategy and require systematic deal origination. Deal origination. See also: Buy-and-Build
- Antitrust Law (Kartellrecht)
- Competition rules that limit the concentration of market power through mergers. In Germany the Federal Cartel Office (Bundeskartellamt, BKartA) reviews deals, in Austria the Federal Competition Authority (Bundeswettbewerbsbehörde, BWB), in Switzerland the Competition Commission (WEKO) and at EU level the European Commission. Transactions above certain revenue thresholds must be notified before closing (merger control). Antitrust clearance is a common condition precedent. See also: Conditions Precedent
- Asset Deal
- Transaction structure in which individual assets of a company are transferred, as opposed to a share deal, in which the shares are sold. The asset deal gives the buyer tax advantages through the step-up of hidden reserves, but it is more complex contractually, because every contract, permit and employment relationship has to be transferred individually. Asset deal vs. share deal. See also: Share Deal, Hidden Reserves (Stille Reserven)
- Auction Process
- Structured bidding process in which several potential buyers are approached at the same time and compete to acquire a company. The auction process maximises the achievable purchase price, but it increases effort and complexity. A broad auction (wide approach) is distinguished from a targeted auction (approach to selected bidders). The opposite is the proprietary sale (exclusive negotiation). See also: Proprietary Deal Flow, Longlist, Shortlist
B
- BIMBO (Buy-In Management Buy-Out)
- Combination of management buy-in and management buy-out: an external management team takes over the company together with the existing management. The BIMBO combines the advantages of both models, continuity through the existing team and fresh impetus through external know-how. Often financed with private equity backing. See also: Management Buy-Out (MBO), Management Buy-In (MBI)
- Bolt-on Acquisition
- Synonym for add-on acquisition. Smaller acquisitions that are integrated directly into an existing platform investment. Bolt-ons are typically smaller than the platform and are acquired at lower multiples, which makes multiple arbitrage possible. See also: Add-on Acquisition, Multiple Arbitrage
- Break-up Fee
- Contractually agreed compensation payment that falls due if one party walks away from a transaction that is already well advanced. Break-up fees are meant to secure the seriousness of the negotiations and compensate the other side for the effort incurred. Typical size: 1 to 3 per cent of the transaction value.
- Bridge Financing
- Short-term interim financing that bridges a gap until the final financing of a transaction is in place. Often used when closing is meant to happen faster than the long-term financing can be provided. Bridge loans are typically more expensive than regular debt financing.
- Bundesanzeiger (Federal Gazette)
- Official publication of the German federal government in which, among other things, the annual financial statements of companies subject to disclosure can be viewed. The Bundesanzeiger is an important source for preliminary research in deal origination and for identifying potential acquisition targets in the DACH region. Deal origination.
- Business Succession (Unternehmensnachfolge)
- Handover of company management and/or shares to a successor, whether within the family, to the existing management (MBO) or to an external buyer. In the DACH region, business succession affects tens of thousands of companies every year and is a central driver of the M&A market in the Mittelstand. See also: Management Buy-Out (MBO)
- Business Valuation (Unternehmensbewertung)
- Determining the economic value of a company. The most common methods are the DCF method, the multiples valuation and the capitalised earnings method (Ertragswertverfahren). In the DACH Mittelstand, valuation via EBITDA multiples dominates. See also: Discounted Cash Flow (DCF), Multiple, EBITDA Multiple, Net Asset Value (Substanzwert)
- Buy-and-Build
- Acquisition strategy in which a private equity investor acquires a platform investment and builds it into a larger company through targeted add-on acquisitions. The aim is to realise economies of scale, increase the valuation multiple (multiple arbitrage) and create a market-leading position. See also: Add-on Acquisition, Platform Acquisition, Multiple Arbitrage
C
- Carve-Out
- Separation of a business unit from a group as a standalone entity, in order to sell it separately or take it public. Carve-outs require careful disentangling of shared services, IT systems and contracts. They are attractive acquisition opportunities for buyers, as the units often trade below their intrinsic value.
- Change of Control
- Clause in contracts (e.g. lease, loan or customer contracts) that is triggered when ownership changes. Change-of-control clauses can trigger a termination right or a consent requirement and must be reviewed carefully in due diligence, as they can have a significant impact on the transaction value. See also: Due Diligence
- Closing
- Completion of the transaction: the point at which ownership is actually transferred and the purchase price is paid. Closing follows signing and depends on the conditions precedent being met. Depending on the transaction, the gap between signing and closing can range from a few days to several months. See also: Signing, Conditions Precedent
- Closing Accounts
- Purchase price mechanism in which the final purchase price is determined on the basis of a balance sheet drawn up as of the closing date. Deviations in working capital, net debt and cash lead to a purchase price adjustment after closing. Unlike the locked box, the seller bears the risk until closing here, which can lead to disputes over the closing balance sheet. See also: Purchase Price Mechanism (Kaufpreismechanismus), Locked Box, Working Capital
- Commercial Due Diligence
- Part of due diligence that focuses on the market position, competitive situation, customer structure and growth prospects of the target company. Commercial DD validates the business strategy and the sustainability of the revenue base, and is particularly relevant for testing the assumptions in the business plan. Due diligence.
- Completion Accounts
- Synonym for closing accounts. Balance sheet as of the completion date that serves as the basis for calculating the final purchase price. See also: Closing Accounts
- Conditions Precedent
- Conditions in the purchase agreement (SPA) that must be met before closing. Typical conditions precedent include antitrust clearances, consents from contract partners under change-of-control clauses and the absence of a material adverse change. See also: Closing, Change of Control, Material Adverse Change (MAC), Antitrust Law (Kartellrecht)
- Consolidation (Konsolidierung)
- Bringing together companies within a fragmented market segment. Consolidation is often driven by private equity investors through buy-and-build strategies. Typical consolidation sectors in the DACH region are IT services, building technology, dental, physiotherapy and facility management. See also: Buy-and-Build
- Contingent Consideration
- Conditional purchase price component whose amount depends on future events or metrics. An earn-out is the most common form of contingent consideration. For accounting purposes, the fair value at the acquisition date must be recognised as a liability (IFRS 3). See also: Earn-Out
- Covenant
- Contractual condition in loan agreements that obliges the borrower to meet certain financial ratios, e.g. a maximum leverage ratio (net debt / EBITDA) or a minimum interest cover. Covenants protect the lenders and are particularly relevant in leveraged buyouts. See also: LBO (Leveraged Buyout), Leverage
D
- Datenraum (VDR)
- German term for the virtual data room, in which confidential company documents are made available for due diligence. The VDR gives potential buyers and their advisers controlled access, logs every access and protects sensitive information. Common providers in the DACH region are Drooms, Intralinks and Merrill Datasite. See also: Due Diligence
- Deal Flow
- The stream of investment and acquisition opportunities that reaches an investor or buyer. The quality and quantity of deal flow depend largely on the deal origination strategy. A distinction is made between proprietary and intermediated deal flow. Deal origination strategy, Building deal flow. See also: Proprietary Deal Flow
- Deal Origination
- Systematic process of identifying, assessing and approaching potential acquisition targets. Deal origination covers market mapping, target assessment and proactive outreach. Professional deal origination is the key to proprietary deal flow. What is deal origination?, Sourcing deals. See also: Market Mapping, Proprietary Deal Flow
- Deal Sourcing
- Often used as a synonym for deal origination. In the narrower sense, deal sourcing means the operational search for acquisition targets, while deal origination covers the whole strategic process from the investment thesis to the approach. See also: Deal Origination
- Deferred Consideration
- Deferred purchase price payment in which part of the purchase price falls due at a later date, regardless of the company's performance. Unlike an earn-out, the amount of deferred consideration is already fixed at closing. It serves the buyer as implicit financing and the seller as security for the transition period. See also: Earn-Out, Closing
- Discounted Cash Flow (DCF)
- Valuation method in which a company's future free cash flows are discounted to their present value. The discount rate reflects the company-specific risk and is often determined via the WACC. The DCF method is considered theoretically sound, but it requires numerous assumptions. See also: WACC, Free Cash Flow
- Distressed M&A
- Takeovers out of a crisis: acquisitions of companies in financial difficulty, restructuring or insolvency. Distressed M&A requires specialist know-how in insolvency law, restructuring and accelerated due diligence. Valuations are typically well below market multiples, while the risks and the integration are more complex. See also: Due Diligence
- Divestiture
- Sale of part of a company, a subsidiary or a business unit. Divestitures can be strategically motivated (focus on the core business), required by regulators (antitrust remedies) or financially necessary (debt reduction). They are the counterpart to an acquisition and often create attractive buying opportunities for PE investors. See also: Carve-Out
- Drag-Along
- Clause in the shareholders' agreement that gives the majority shareholder the right to force minority shareholders to sell alongside on the same terms. The counterpart is the tag-along clause. Drag-along rights are standard in private equity investments and secure the investor's exit. See also: Tag-Along, Exit
- Due Diligence
- Systematic and detailed review of a target company before an acquisition. Due diligence typically covers the financial, legal, tax and commercial workstreams. The aim is to identify risks, validate the business figures and underpin the purchase price. Due diligence. See also: Financial Due Diligence, Legal Due Diligence, Tax Due Diligence, Commercial Due Diligence
E
- Earn-Out
- Variable purchase price component tied to the company's future performance, typically to EBITDA or revenue targets over a period of two to three years. Earn-outs are used when buyer and seller have different views on valuation, and they bridge that gap. They incentivise the seller to stay operationally engaged after closing. See also: Closing, Contingent Consideration
- EBIT
- Earnings before interest and taxes. Unlike EBITDA, depreciation and amortisation are not added back. EBIT is the preferred valuation basis for capital-intensive companies, where depreciation reflects a real economic loss of value. See also: EBITDA, EBITDA Multiple
- EBITDA
- Earnings before interest, taxes, depreciation and amortisation. In M&A practice, EBITDA is the central metric for a company's operating earnings power, as it strips out financing and depreciation effects. It serves as the basis for valuation via multiples and allows companies of different size and capital structure to be compared. See also: EBITDA Multiple, EBITDA Adjustments (EBITDA-Bereinigung)
- EBITDA Adjustments (EBITDA-Bereinigung)
- Adjustment of reported EBITDA for one-off, non-operating or owner-related items, in order to show a company's sustainable earnings power. Typical adjustments cover owner salaries set too high or too low, one-off legal costs, rents not at market level and extraordinary income. See also: Normalised EBITDA
- EBITDA Multiple
- Ratio of enterprise value to EBITDA. The EBITDA multiple is the most widely used valuation measure in Mittelstand M&A. Typical values range between 4x and 12x depending on the sector. EBITDA multiples table for the DACH region. See also: Enterprise Value, EBITDA
- Enterprise Value
- Total value of a company, made up of the equity value plus net debt. Enterprise value is the reference figure for EBITDA multiples and represents the price a buyer would have to pay for the whole operating business, regardless of the financing structure. See also: Equity Value, Net Debt, EBITDA Multiple
- Equity Value
- Value of a company's equity. Equity value is enterprise value minus net debt. It equals the amount the buyer pays for the company's shares and is the relevant figure for the seller. See also: Enterprise Value, Net Debt
- Escrow
- Escrow account in which part of the purchase price (typically 5 to 15 per cent) is held for a defined period. The escrow protects the buyer against breaches of warranty and is released to the seller once the warranty period has expired, provided no claims have been made. In DACH practice, the escrow is increasingly being replaced by W&I insurance. See also: Representations & Warranties, Warranty & Indemnity (W&I) Insurance
- Exclusivity
- Agreement in the LOI that obliges the seller not to hold parallel talks with other interested parties for a defined period (typically 6 to 12 weeks). The exclusivity clause protects the buyer during the costly due diligence. Experienced advisers recommend granting exclusivity only in return for clear concessions on the purchase price. See also: Letter of Intent (LOI), Due Diligence
- Exit
- Sale of a holding by an investor, typically after a holding period of three to seven years. Exit routes include the sale to a strategic buyer (trade sale), the sale to another financial investor (secondary buy-out), a stock market listing (IPO) or a buy-back by management (MBO). The exit is the central value realisation event for private equity investors. See also: Private Equity, Trade Sale, Secondary Buy-Out (SBO)
F
- Financial Due Diligence
- Part of due diligence that reviews the target company's financial position. The focus is on the sustainability of earnings (quality of earnings), working capital, capital expenditure needs (CapEx) and net debt. Financial DD is typically carried out by audit firms. Due diligence. See also: Quality of Earnings, Working Capital
- Finder's Fee
- Introduction fee paid to a person or firm that put buyer and seller in touch. Finder's fees are typically 1 to 3 per cent of the transaction volume. Unlike an M&A adviser, the finder plays no active role in the transaction itself. See also: Success Fee, Retainer
- Firmenwert (Goodwill)
- German term for goodwill. Difference between the purchase price paid and the fair value of the identifiable assets and liabilities. Goodwill represents intangible values such as the customer base, brand, know-how and market position. It is capitalised on the buyer's balance sheet and, under IFRS, must be tested for impairment every year (impairment test). See also: Goodwill, Purchase Price Allocation (PPA)
- Free Cash Flow
- Operating cash flow minus capital expenditure (CapEx). Free cash flow shows how much liquidity a company has freely available after maintaining and expanding its operations, for debt repayment, distributions or further acquisitions. It is the basis for the DCF valuation. See also: Discounted Cash Flow (DCF)
G
- Goodwill
- Goodwill (Firmenwert) arises on the balance sheet when the purchase price exceeds the fair value of the identifiable net assets. It reflects the value of intangible factors such as market position, customer relationships and brand awareness. See also: Firmenwert (Goodwill)
- Growth Capital
- Equity investment in an established company that needs capital for expansion, internationalisation or acquisitions, without the owner giving up the majority. Growth capital is a segment of private equity and is often structured as a minority stake. It differs from the classic buyout through the investor's minority position. See also: Private Equity
H
- Handelsregister (Commercial Register)
- Public register that records key information on companies, including company name, registered office, legal form, managing directors and share capital. The Handelsregister can be viewed at handelsregister.de and is an indispensable source for research in deal origination and legal due diligence. Deal origination. See also: Legal Due Diligence
- Heads of Terms
- Synonym for letter of intent. Document that summarises the key points of an intended transaction, including purchase price, structure, timetable and exclusivity. See also: Letter of Intent (LOI)
- Hidden Reserves (Stille Reserven)
- Difference between the book value and the actual market value of an asset. Hidden reserves arise from conservative accounting, undervalued real estate or intangible assets that were not capitalised. In an asset deal, hidden reserves are stepped up, which gives the buyer tax depreciation advantages. See also: Asset Deal
- Holdback
- Retention of part of the purchase price (typically 5 to 20 per cent) as security for the buyer. The holdback is released after a defined period, provided there are no breaches of warranty or claims. Similar to an escrow, but without an escrow account: the amount stays with the buyer. See also: Escrow, Warranty (Garantie)
- Holding Company
- Company whose primary purpose is to hold and manage stakes in other companies. In M&A, holding companies are often used as acquisition vehicles and offer tax and liability advantages when structuring transactions.
- HR Due Diligence
- Review of the HR position as part of due diligence. The focus is on employment contracts, works agreements, pension obligations, staff turnover, dependence on key people and company culture. HR DD matters particularly in Mittelstand deals, because retaining top performers after closing is decisive for a successful integration. See also: Due Diligence, Post-Merger Integration (PMI)
I
- Indicative Offer
- Non-binding offer that an interested party submits on the basis of initial information (typically the information memorandum). It contains an indicative purchase price range, the planned transaction structure and key assumptions. After the indicative offers have been reviewed, a shortlist of bidders is drawn up and admitted to due diligence. See also: Information Memorandum, Shortlist, Due Diligence
- Information Memorandum
- Detailed sales document provided to potential buyers after they have signed an NDA. It contains detailed information on the company: business model, financial history, market environment, management, growth potential and key metrics. The IM is the basis for the indicative offer. See also: NDA (Non-Disclosure Agreement), Indicative Offer
- Investment Thesis
- Strategic rationale for why a particular acquisition or investment creates value. The investment thesis defines the target sector profile, the intended value creation (e.g. through operational growth, synergies or multiple expansion) and the exit strategy. It is the starting point for systematic deal origination. Deal origination.
- IRR (Internal Rate of Return)
- The return at which the net present value of an investment equals zero. IRR is the central return metric for private equity investors and measures the annual return on the equity invested. Typical target IRRs in mid-market PE are 20 to 25 per cent. See also: Private Equity, Exit
J
- Joint Venture
- Jointly owned company in which two or more partners set up or jointly run a separate business. Joint ventures can be used as an alternative to a full takeover, for example when entering new regions or combining complementary capabilities. Typical challenges are the governance structure and the exit arrangements for the partners.
K
- Kaufpreisallokation (PPA)
- German term for purchase price allocation. Allocation of the purchase price to the individual assets and liabilities acquired under IFRS 3. The PPA identifies and values tangible assets, intangible assets (customer relationships, brands, technology) and the remaining goodwill. It is required for accounting purposes after closing and has a significant impact on future depreciation and amortisation. See also: Firmenwert (Goodwill), Purchase Price Allocation (PPA)
- Key Man Clause
- Contractual arrangement that ties certain rights or obligations to the availability of a key person (e.g. managing director, fund manager). In M&A, key man clauses are often used to ensure that the previous owner stays with the company for a transition period after closing. See also: Closing
L
- LBO (Leveraged Buyout)
- Debt-financed takeover of a company in which a significant part of the purchase price is financed with debt (leverage). The debt is serviced by the acquired company from its cash flow. LBOs are a core business of private equity firms and require stable, predictable cash flows at the target company. See also: Private Equity, Leverage
- Legal Due Diligence
- Legal review as part of due diligence. The focus is on the corporate structure, material contracts, change-of-control clauses, intellectual property rights, employment relationships, litigation and regulatory compliance. The findings feed directly into the representations & warranties of the purchase agreement. Due diligence. See also: Change of Control, Representations & Warranties
- Lehman Formula (Lehman-Formel)
- Tiered fee structure for M&A advisers in which the success fee percentage falls as the transaction volume rises. Original formula: 5% on the first million, 4% on the second, 3% on the third and so on. Today a modified or double Lehman formula is often used in practice. See also: Success Fee, Retainer
- Letter of Intent (LOI)
- Declaration of intent that documents the key points of a planned transaction, including indicative purchase price, transaction structure, timetable and exclusivity agreement. The LOI is generally not legally binding, with the exception of the confidentiality and exclusivity clauses. Letter of intent. See also: Exclusivity, Heads of Terms
- Leverage
- Use of debt to finance an acquisition. The degree of leverage is often measured as the ratio of net debt to EBITDA. Higher leverage raises the return on equity, but it also increases the financial risk. In the DACH Mittelstand, leverage levels of 2x to 4x net debt/EBITDA are common. See also: Net Debt, EBITDA, LBO (Leveraged Buyout)
- Liquidation Value (Liquidationswert)
- Value of a company on immediate dissolution and individual sale of all assets, minus liabilities and liquidation costs. The liquidation value serves as the absolute floor and is typically well below the capitalised earnings value or the multiples valuation. It is relevant in distressed M&A and as a negotiating argument. See also: Net Asset Value (Substanzwert), Distressed M&A
- Locked Box
- Purchase price mechanism in which the purchase price is fixed on the basis of a historical balance sheet (e.g. the last annual financial statements). Between the reference date and closing, no value-reducing outflows (leakage) may leave the company. The locked box gives both sides price certainty and avoids later purchase price disputes. See also: Purchase Price Mechanism (Kaufpreismechanismus), Closing Accounts
- Longlist
- Broad list of potential buyers or acquisition targets drawn up as part of market mapping. The longlist is narrowed down to a shortlist using defined criteria (size, sector, geography, strategic fit). A structured longlist process is a core part of deal origination. Deal origination. See also: Market Mapping, Shortlist
M
- Management Buy-In (MBI)
- Takeover of a company by an external management team. Unlike in an MBO, the management comes from outside and brings in new skills and perspectives. MBIs carry more risk, as the new management does not yet know the company, but they offer opportunities for a strategic realignment. See also: Management Buy-Out (MBO), BIMBO (Buy-In Management Buy-Out)
- Management Buy-Out (MBO)
- Takeover of a company by the existing management, often with the support of a private equity investor. MBOs are a popular succession solution in the Mittelstand, as they ensure continuity and retain the management's know-how. See also: Management Buy-In (MBI), BIMBO (Buy-In Management Buy-Out)
- Market Mapping
- Systematic capture and analysis of all potential acquisition targets within a defined market segment. Market mapping covers identifying relevant companies, qualifying them against defined criteria and prioritising them in a longlist. It is a central building block of deal origination. Deal origination. See also: Longlist
- Material Adverse Change (MAC)
- Significant negative change in the target company's business position between signing and closing. A MAC clause in the purchase agreement gives the buyer the right to withdraw from the contract if a MAC event occurs. What counts as material is regularly the subject of intense negotiation. See also: Signing, Closing
- Merger (Fusion)
- Combination of two companies into a new legal entity. Unlike an acquisition, both parties in a merger are in principle on an equal footing. In practice a true merger is rare: more often it is a takeover communicated as a merger (merger of equals). In Germany and Austria, mergers are governed by the Transformation Act (Umwandlungsgesetz, UmwG) and the Merger Act (Verschmelzungsgesetz) respectively. See also: Post-Merger Integration (PMI)
- Mezzanine Capital
- Hybrid form of financing that sits between equity and senior debt. Mezzanine capital is typically subordinated to bank debt, but ranks ahead of equity. It is often used to close the financing gap in leveraged buyouts and offers the lender higher interest (typically 10-15%) and often an equity kicker. See also: LBO (Leveraged Buyout), Acquisition Finance (Akquisitionsfinanzierung)
- Multiple
- Valuation ratio that sets the company value against an earnings figure. The most common multiples are the EBITDA multiple, the EBIT multiple and the revenue multiple. Multiples allow a quick, comparative valuation and in practice are often used as the starting point for setting the purchase price. EBITDA multiples table. See also: EBITDA Multiple, Valuation Multiple (Bewertungsmultiple)
- Multiple Arbitrage
- Value creation strategy in which a company is bought at a lower multiple and sold on at a higher multiple. Multiple arbitrage typically arises from growth in size (larger companies achieve higher multiples), a change of sector or market cycles. It is a key value creation lever in buy-and-build strategies. See also: Buy-and-Build, Bolt-on Acquisition
N
- NDA (Non-Disclosure Agreement)
- Confidentiality agreement signed before sensitive company information is shared. In the M&A process, the NDA is typically concluded before the information memorandum is sent, and it governs the handling of confidential data, the return of documents and the consequences of a breach. See also: Information Memorandum
- Net Asset Value (Substanzwert)
- Sum of the individually valued assets minus liabilities. The net asset value serves as a floor and is often used to sense-check other valuation methods. It is particularly relevant for companies with a high level of fixed assets (real estate, machinery) and as a tax valuation approach in Switzerland (Circular No. 28 of the Federal Tax Administration, ESTV). See also: Liquidation Value (Liquidationswert), Business Valuation (Unternehmensbewertung)
- Net Debt
- The difference between interest-bearing liabilities and freely available cash. Net debt is the central bridge between enterprise value and equity value. Exactly which debt-like items count is regularly a subject of negotiation. See also: Enterprise Value, Equity Value
- Non-Compete (Wettbewerbsverbot)
- Contractual agreement that prohibits the seller, after closing, from competing directly with the sold company for a defined period (typically 2 to 3 years) and within a limited geographical area. Non-compete clauses are standard in the SPA and protect the buyer against loss of value through competition from the former owner. See also: SPA (Share Purchase Agreement), Non-Solicitation
- Non-Solicitation
- Contractual agreement that prohibits the seller, after closing, from actively poaching employees or customers of the sold company. Non-solicitation clauses are narrower than a full non-compete and protect the company's core sources of value: its people and its customer relationships. See also: Non-Compete (Wettbewerbsverbot), SPA (Share Purchase Agreement)
- Normalised EBITDA
- Adjusted EBITDA that has been corrected for one-off, non-operating and owner-related items. Normalised EBITDA is meant to reflect sustainable earnings power and is the decisive figure for the valuation. See also: EBITDA, EBITDA Adjustments (EBITDA-Bereinigung)
O
- Operational Due Diligence
- Review of a target company's operational processes, IT infrastructure, supply chains and production capacity. Operational DD identifies efficiency potential and risks in day-to-day business and provides important input for the business plan and the post-merger integration. Particularly relevant for industrial targets and technology-driven business models. See also: Due Diligence, Post-Merger Integration (PMI)
P
- Platform Acquisition
- First and largest acquisition in a buy-and-build strategy. The platform company serves as the base for further add-on acquisitions and typically provides the management team, the IT infrastructure and the operational processes for the consolidation. See also: Buy-and-Build, Add-on Acquisition
- Post-Merger Integration (PMI)
- Process of bringing two companies together after the transaction has completed. PMI covers the integration of organisational structures, IT systems, processes, cultures and teams. Careful PMI planning starts during due diligence and is decisive for realising the planned synergies. See also: Due Diligence, Synergies
- Private Equity
- Equity investment in unlisted companies by specialised investment firms. Private equity funds raise capital from institutional investors, acquire companies, develop them operationally and sell them after three to seven years (exit). In the DACH region, PE firms are significant buyers in the Mittelstand. PE investor vs. strategic buyer, Private equity deal flow. See also: Exit, LBO (Leveraged Buyout)
- Proprietary Deal Flow
- Exclusive investment opportunities that reach a buyer or investor without an intermediary or auction process. Proprietary deal flow comes from your own networks, direct approach and systematic deal origination. It typically leads to more favourable valuations and less competition in the bidding process. Building proprietary deal flow. See also: Auction Process
- Purchase Price Allocation (PPA)
- Allocation of the purchase price in the accounts to the assets acquired, the liabilities and the goodwill under IFRS 3 or US GAAP ASC 805. Intangible assets such as customer relationships, technology and brands must be identified and valued separately. The PPA affects future depreciation and amortisation and therefore the buyer's income statement. See also: Firmenwert (Goodwill), Kaufpreisallokation (PPA)
- Purchase Price Mechanism (Kaufpreismechanismus)
- Contractual arrangement that determines how the final purchase price is calculated. The two most common mechanisms are the locked box (fixed purchase price based on a reference date) and closing accounts (purchase price adjustment based on the actual balance sheet at closing). The choice of mechanism has a significant impact on how risk is shared between buyer and seller. See also: Locked Box, Closing Accounts
Q
- Quality of Earnings
- Analysis of earnings quality as part of financial due diligence. The quality of earnings analysis checks whether the reported earnings are sustainable, recurring and free of one-off effects. It forms the basis for the EBITDA adjustments and therefore has a direct impact on the purchase price. See also: Financial Due Diligence, EBITDA Adjustments (EBITDA-Bereinigung)
R
- Representations & Warranties
- The seller's representations and warranties in the purchase agreement (SPA) on the condition of the company. They typically cover statements on the accuracy of the annual financial statements, the completeness of material contracts, the absence of litigation and compliance with regulatory requirements. Breaches can trigger damages claims. See also: SPA (Share Purchase Agreement), Warranty & Indemnity (W&I) Insurance, Warranty (Garantie)
- Retainer
- Ongoing fee paid to an M&A adviser during the mandate, regardless of whether the transaction succeeds. The retainer secures the adviser's commitment and covers ongoing costs. It is typically credited against the success fee on a successful completion. See also: Success Fee, Lehman Formula (Lehman-Formel)
- Roll-Over
- Reinvestment by the seller of part of the sale proceeds in the company taken over by the buyer. In a roll-over, the seller typically keeps 10 to 30 per cent of the shares and shares in the future increase in value. Private equity investors use roll-overs to give the seller a stake in continued success and to secure the seller's commitment after closing. See also: Private Equity, Closing
- Run-Rate
- Projection of current business performance onto a full year. The run-rate is used to annualise figures such as EBITDA or revenue in transactions during the year. For fast-growing companies, the run-rate reflects future earnings power better than historical annual figures, but it carries the risk of overestimation. See also: EBITDA, Normalised EBITDA
S
- Secondary Buy-Out (SBO)
- Sale of a portfolio company by one private equity investor to another PE investor. Secondary buy-outs are a common form of exit and account for around 25 to 35 per cent of all PE exits in the DACH region. The new investor typically pursues its own value creation strategy, e.g. further growth, internationalisation or buy-and-build. See also: Exit, Private Equity
- Seller's Note (Verkäuferdarlehen)
- Loan from the seller to the buyer as part of the purchase price financing. The seller's note is typically subordinated and repaid over two to five years. For the seller it is a signal of confidence in the company's future, and it makes financing easier for the buyer, especially in transactions with limited access to bank finance. See also: Acquisition Finance (Akquisitionsfinanzierung)
- Shortlist
- Shortened list of the most promising buyers or acquisition targets, derived from the longlist. The shortlist results from deeper analysis and prioritisation against criteria such as strategic fit, financial strength and readiness to transact. See also: Longlist
- Signing
- Signature of the purchase agreement (SPA). Signing marks the contractual agreement, but it is not yet the transfer of ownership. That only happens at closing, once all conditions precedent have been met. In simple transactions, signing and closing can coincide. See also: Closing, Conditions Precedent, SPA (Share Purchase Agreement)
- SPA (Share Purchase Agreement)
- Purchase agreement for shares, the central contract document in a share deal. The SPA governs the purchase price and purchase price mechanism, representations & warranties, conditions precedent, liability provisions and all ancillary agreements. See also: Share Deal, Purchase Price Mechanism (Kaufpreismechanismus), Representations & Warranties, Conditions Precedent
- Squeeze-Out
- Compulsory exclusion of minority shareholders by the majority shareholder against cash compensation. In Germany a squeeze-out is possible from a stake of 90 per cent (under stock corporation law) or 95 per cent (under takeover law). In Austria the squeeze-out is governed by the GesAusG. The adequacy of the cash compensation is often the subject of court appraisal proceedings.
- Strategic Buyer
- Company that acquires another company for strategic reasons, for example to broaden its product portfolio, expand geographically or realise synergies. Strategic buyers tend to pay higher multiples than financial investors, as they can price in synergies. PE investor vs. strategic buyer. See also: Synergies, Multiple, Private Equity
- Success Fee
- Success-based fee for an M&A adviser that only falls due on a successful completion (closing). The success fee is typically calculated as a percentage of the enterprise value or equity value, and in the Mittelstand is often between 2 and 5 per cent. See also: Closing, Enterprise Value, Equity Value, Retainer, Lehman Formula (Lehman-Formel)
- Synergies
- Value creation potential that arises from combining two companies. A distinction is made between cost synergies (e.g. savings through shared administration, pooled purchasing) and revenue synergies (e.g. cross-selling, access to new markets). Quantifying synergies is a central part of setting the purchase price and of post-merger integration. See also: Post-Merger Integration (PMI)
T
- Tag-Along
- Clause in the shareholders' agreement that gives a minority shareholder the right to sell their shares on the same terms when the majority shareholder sells. The counterpart is the drag-along clause. Tag-along rights protect minority shareholders from being left behind in a changed shareholder structure. See also: Drag-Along
- Target
- Company identified for an acquisition. In deal origination, targets are systematically identified, qualified and prioritised. The approach is made directly or through M&A advisers. Deal origination.
- Tax Due Diligence
- Tax review as part of due diligence. It covers the analysis of tax risks (e.g. from tax audits, transfer pricing, VAT), the review of tax loss carryforwards and the optimisation of the transaction structure from a tax perspective. Due diligence. See also: Transaction Structure
- Term Sheet
- Similar to the letter of intent: a compact document that summarises the key commercial and legal terms of a planned transaction. Term sheets are often used in venture capital and growth capital, while the LOI is more common in classic M&A. See also: Letter of Intent (LOI)
- Trade Sale
- Sale of a company (often a PE portfolio company) to a strategic buyer. The trade sale is the most common exit route for private equity investors and tends to achieve the highest valuations, as strategic buyers can price in synergies. See also: Exit, Strategic Buyer, Secondary Buy-Out (SBO)
- Transaction Structure
- Overall architecture of an M&A transaction, including the choice between asset deal and share deal, the financing structure (leverage), the purchase price mechanism and any earn-out components. The structuring has significant tax, legal and economic consequences. See also: Asset Deal, Share Deal, Leverage, Purchase Price Mechanism (Kaufpreismechanismus), Earn-Out
- Transaction Value
- Total value of a transaction, which besides the purchase price also includes liabilities assumed, earn-out components and other consideration. The transaction value can differ from the enterprise value, for example if not all debt is assumed or additional agreements exist. See also: Enterprise Value, Earn-Out
- Transition Services Agreement (TSA)
- Transitional agreement under which the seller provides certain services to the buyer for a defined period after closing (e.g. IT services, accounting, HR). TSAs are particularly relevant in carve-outs, when the acquired company still depends on the selling group's infrastructure. See also: Carve-Out, Closing
V
- Valuation Multiple (Bewertungsmultiple)
- Ratio that sets the company value against an earnings figure. The most common multiples are the EBITDA multiple and the EBIT multiple. Valuation multiples allow a quick comparison of companies within a sector and serve as the starting point for setting the purchase price. EBITDA multiples by sector. See also: EBITDA Multiple, Multiple
- Vendor Due Diligence
- Due diligence commissioned by the seller and made available to potential buyers. Experience shows that vendor DD increases transaction certainty, speeds up the process and can lead to higher multiples, as it strengthens buyers' confidence in the business figures. See also: Due Diligence, Multiple
- Vendor Loan (Verkäuferdarlehen)
- Synonym for seller's note. Loan from the seller to the buyer as part of the acquisition finance. Typically subordinated to the bank financing and with an interest rate above market level. See also: Seller's Note (Verkäuferdarlehen), Acquisition Finance (Akquisitionsfinanzierung)
- Virtual Data Room (VDR)
- Virtual data room (Datenraum) in which confidential company documents are made available for the due diligence review. The VDR is standard in professionally run M&A processes. See also: Datenraum (VDR)
W
- WACC
- Weighted average cost of capital of a company. The WACC is used as the discount rate in the DCF method and is made up of the weighted cost of equity and cost of debt. A higher WACC leads to a lower company value. See also: Discounted Cash Flow (DCF)
- Warranty (Garantie)
- Assurance given by the seller in the purchase agreement (SPA) on the condition of the company as of the reference date, e.g. the accuracy of the annual financial statements, the absence of litigation or the completeness of material contracts. Warranties protect the buyer and can lead to damages claims if breached. See also: Representations & Warranties, Warranty & Indemnity (W&I) Insurance
- Warranty & Indemnity (W&I) Insurance
- Insurance policy that covers the risk of losses from breaches of the representations & warranties in the purchase agreement. W&I insurance is now standard in the DACH M&A market and allows the seller to limit their liability while the buyer is still protected. Premiums are typically 1 to 2 per cent of the sum insured. See also: Representations & Warranties, Escrow
- Working Capital
- Difference between short-term current assets (receivables, inventories) and short-term liabilities (trade payables, other short-term debt). Working capital is a central part of the purchase price mechanism: if the actual working capital at closing deviates from the agreed normal level, the purchase price is adjusted accordingly. See also: Purchase Price Mechanism (Kaufpreismechanismus)
Häufig gestellte Fragen
What is the difference between enterprise value and equity value?
Enterprise value covers the total value of a company including debt. Equity value is enterprise value minus net debt. In a company sale, the enterprise value is usually determined first via a multiple and then bridged to the equity value, which is the actual purchase price for the shares.
What does EBITDA mean and why does it matter so much in M&A?
EBITDA stands for earnings before interest, taxes, depreciation and amortisation. It is the central metric for a company's operating earnings power, as it strips out financing and depreciation effects. In M&A practice, EBITDA is the basis for valuation via multiples and allows companies of different size and capital structure to be compared.
What is the difference between an asset deal and a share deal?
In a share deal, the shares in the company are transferred. In an asset deal, individual assets and contracts are transferred. The share deal is more common in practice, as it is structurally simpler. The asset deal gives the buyer tax advantages through the step-up of hidden reserves, but it is more complex contractually, because every contract has to be transferred individually.
What happens in a due diligence?
Due diligence is the systematic review of a target company by the potential buyer. It typically covers financial, legal, tax and commercial workstreams, and in some cases IT and HR. The aim is to identify risks, validate earnings power and underpin the purchase price. The findings feed directly into the purchase agreement (SPA), in particular the warranties and indemnities.
What is a letter of intent (LOI) and is it binding?
A letter of intent (LOI), or declaration of intent, documents the key points of a planned transaction, including the indicative purchase price, the deal structure and the timetable. The LOI is generally not legally binding, with the exception of individual clauses such as confidentiality and exclusivity. It is the basis for the subsequent due diligence and purchase agreement negotiation.
What is an earn-out and when is it used?
An earn-out is a variable purchase price component tied to the company's future performance, typically to EBITDA or revenue targets over two to three years. Earn-outs are used when buyer and seller have different expectations of future development. They bridge the valuation gap and incentivise the seller to stay operationally engaged after closing.
What is the difference between a strategic buyer and a financial investor?
A strategic buyer is a company from the same or a related sector that wants to realise synergies through the acquisition, for example cost savings, market access or technology. A financial investor (e.g. a private equity firm) acquires companies primarily to increase their value and sell them on later (exit). Strategic buyers tend to pay higher multiples, as they can price in synergies.
How long does a typical M&A process take in the Mittelstand?
A structured sale process in the Mittelstand typically takes six to twelve months. The preparation phase (documents, valuation, buyer identification) takes around two to three months, the approach and negotiation three to four months, and due diligence through to closing a further two to four months. Proprietary deals without an auction process can close faster, while complex transactions requiring regulatory approvals can take 18 months.
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Disclaimer: the definitions on this page are for general information only and do not constitute legal, tax or investment advice. For binding advice, please consult a qualified M&A adviser, lawyer or auditor.