Glossary Terms

The funds needed for a business’s day-to-day operations, often negotiated during an acquisition to ensure sufficient liquidity after the deal closes.

A framework highlighting that successful acquisitions require strategic, cultural, and financial alignment between the buyer and seller.

A tax benefit in asset deals where the buyer resets the tax basis of acquired assets to their purchase price, potentially lowering future tax liabilities.

An investment model where investors back an entrepreneur to find, acquire, and manage a business, with the entrepreneur typically taking the CEO role post-acquisition.

Predictable income expected to persist over time, such as from subscriptions or contracts. It’s a critical factor when assessing acquisition targets.

Investment firms that provide capital to private companies, often aiming to enhance operations and achieve a profitable exit. They play a significant role in consolidating industries like technology.

Similar to ARR but calculated monthly, this metric tracks predictable revenue streams, such as subscriptions, and is key to evaluating business models.

A measure of an investment’s annualized profitability, often used by investors (e.g., in search funds) to assess the potential returns of an acquisition.

A financial metric used to evaluate a company’s operating performance and profitability, often applied in M&A to determine valuation.

The investigation process buyers undertake to verify a target company’s financial, legal, and operational details before an acquisition. It’s critical for assessing risks and ensuring an informed purchase decision.

Rights allowing majority shareholders to force minority shareholders to agree to the sale of the company.

The cost of acquiring a new customer, used to assess scalability and marketing efficiency.

A table that shows the ownership stakes, equity dilution, and value of equity in a company.

The structure of a company's board of directors, including founders, investor representatives, and independent members, often formalized during Series A.

Provisions protecting investors from equity dilution in future funding rounds, often by adjusting share price.

A payout method where investors receive their capital and preferred returns before others, commonly used in private equity and search fund deals.

An acquisition where the buyer purchases the seller’s shares, taking over the entire business, including all liabilities. It’s simpler than an asset deal but carries more risk for the buyer.

Financing provided by the seller as part of the purchase price, repaid over time by the buyer. It’s often used in smaller deals to align interests and ease cash flow demands.

Loans backed by the U.S. Small Business Administration, often used to fund small business acquisitions with lower upfront capital requirements.

An analysis conducted during due diligence to evaluate the reliability and sustainability of a company’s earnings, ensuring reported cash flows are accurate.

Refers to external capital (from investors or lenders) used to finance an acquisition. It requires aligning goals and understanding the terms of the funding.

The process of merging with or acquiring businesses to achieve growth, operational synergies, or market expansion.

A contractual agreement where the seller commits to covering certain losses or liabilities that arise post-sale, protecting the buyer from unexpected issues.

A payment structure where part of the purchase price depends on the business’s future performance. It’s commonly used to bridge valuation gaps and align the interests of buyers and sellers, especially in lower-middle-market deals.

A type of acquisition where the buyer purchases specific assets and liabilities of a business, avoiding the full scope of the seller’s liabilities. This approach offers a tax advantage called a step-up in basis but can involve logistical complexities.

The reduction in ownership percentage for existing shareholders when new shares are issued in a funding round.

A short-term loan that converts into equity at a later funding round, often used before Series A.

The rate at which a company spends its cash reserves, critical for determining how long funding will last.

The annualized revenue from subscription-based services, used as a key growth metric in funding rounds.