LSP GROWTH BLOG

M&A Jargon Buster

Welcome to the Jargon Buster — We understand that navigating through the world of mergers and acquisitions can be tough. That’s why we’ve created this blog post, to walk you through the most commonly used business and legal terms often encountered in the structuring, negotiation, and execution of an M&A deal.

EBITDA

The acronym EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It is a way of evaluating a company’s performance without factoring in financial decisions or the tax environment.

Bottom line

A company’s bottom line is the Total Profit Made on an income statement, minus all the losses incurred including the cost of goods, tax, and interest payments on debts.

Letter of Intent

A Letter of Intent (LOI) expresses the parties’ intent to enter into a merger and acquisition (“M&A”) transaction and summarizes the primary terms of the deal.

Due diligence

It’s the process of verification, investigation, or audit of a potential deal. The objective is to confirm the accuracy of the seller’s information and appraise its value.

Blind Teaser

A “Blind” Teaser (i.e., anonymous, on a no-name basis) is a one or two-page document that is used to introduce a business to potential buyers.

Finder’s Agreement

This Finder’s Agreement for Acquisition is between the Business Broker and the seller who desires to hire the Broker’s services to identify a potential buyer to purchase all or a portion of the company’s business and assets.

Premiumization

Premiumization is a Growth Strategy that aims to achieve higher prices by adding value to a brand.

Growing inorganically

Inorganic growth means expanding your business through mergers or acquisitions. This immediately expands your assets, your income, and your market presence.

Accountability Charts

An Accountability Chart is similar to the traditional Organizational Chart, but instead of being built around titles and hierarchies, it’s developed around functions and accountabilities.

Value creation

From a financial perspective, value is said to be created when a business earns revenue (or a return on capital) that exceeds expenses (or the cost of capital). However, value creation can be defined broadly for small & medium-size businesses because their owners may define value in many ways. When broadly defined, value creation is increasingly being recognized as a better management goal than strict financial measures of performance.

Client dependence

Client dependence, also known as customer concentration, is when a company’s financial performance becomes dependent on one or a few clients. Small and medium-sized businesses that are diversified are likely to achieve strong financial performance.

Cash-flow

It’s the money coming in and going out of a company or organization during a specific accounting period. Cash flow can be an indication of whether a company is likely to remain solvent, and understanding how to improve cash flow is a fundamental part of maintaining a successful business.

KPIs

Key performance indicators (KPIs) are essentially a set of quantifiable measurements used to gauge a company’s overall performance. KPIs vary between companies and between industries, depending on performance criteria. Indicators tied to the financials typically focus on revenue and profit margins.

Gap analysis

The gap analysis also referred to as a needs analysis, is the process companies use to compare their current performance with their desired, expected performance. It is used to reexamine goals and figure out whether you are on the right track to accomplishing them.

Gap analysis

Change management

Organizational change is necessary for companies to succeed and grow. Change management drives the successful adoption and usage of change within the business. It allows employees to understand and commit to the shift and work effectively during it.

Feedback & improvement loop

In business, this refers to the process of using customer and employee feedback to create a better product, service, or workplace environment. Any organization can improve by adopting and using feedback & improvement loops.

Corporate governance

Corporate governance is the set of rules, processes or laws by which businesses are operated, regulated or controlled. Good corporate governance helps create an environment of trust, transparency and accountability which is key to fostering long-term investment, financial stability and business integrity.

Closing

It refers to the completion of a transaction and the transfer of ownership. It is the date from which the buyer has actual control over the business acquired.

Business valuation

Many business owners are uncertain about what their businesses are currently worth. A Business Valuation is a quantitative and qualitative exercise that helps to determine the economic value of a company. It is used by investors, sellers, and buyers to determine the fair value of a business.

Post-merger integration

Post-merger integration is the process of bringing two or more companies together with the aim of maximizing potential efficiencies and synergies to ensure that the deal lives up to its predicted value.

Escrow

To guard against any post-closing financial loss, buyers may insist on placing a portion of the purchase price in an escrow account managed by a third party (generally a bank). The size of the holdback is typically calculated as a percentage of the purchase price.

Earn-out

An earn-out, also known as contingent consideration, is a contractual mechanism between a buyer and seller whereby, in addition to an upfront payment, future payments are promised to the seller upon the achievement of specific milestones.

C-level executives

A C-level executive is an employee at the top of an organization’s hierarchy who makes key strategic decisions that affect the entire business. In a translation company, it could be the Managing Director, the Head of Sales & Marketing or Production.

M&A Jargon Buster

EBITDA

Bottom line

Letter of Intent

Due diligence

Blind Teaser

Finder’s Agreement

Premiumization

Growing inorganically

Accountability Charts

Value creation

Client dependence

Cash-flow

KPIs

Gap analysis

Gap analysis

Change management

Feedback & improvement loop

Corporate governance

Closing

Business valuation

Post-merger integration

Escrow

Earn-out

C-level executives

Mergers & Acquistions

Business Consulting

Executive Coaching

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