An improvement in per share metrics post-transaction (after issuing additional shares).
The firm which is purchasing a company (the buyer).
The difference between the price an acquiring company pays to purchase a target company and the net original cost of the target utility company's assets. An acquisition adjustment is the premium paid for acquiring a company more than its tangible assets or book value.
Adjusted EBITDA differs from EBITDA in that adjusted EBITDA normalizes income and expenses since different companies may treat each type of income and expense differently
The joining of one or more companies into a complete new entity.
The acquirer purchases only the assets of the target company (not the shares).
One of the poor reasons to make a merger. If the target’s P/E ratio is lower than the acquirer’s P/E ratio, the EPS of the acquirer increases after the merger; however, it is purely an accounting, numerical phenomenon, and no value or synergies are created.
Partial divestiture of a business unit in which a parent company sells minority interest of a child company to outside investors. A company undertaking a carve-out is not selling a business unit outright but, instead, is selling an equity stake in that business or spinning the business off on its own while retaining an equity stake.
The portion of the purchase price given to the target in cash form.
Confidential Information Memorandum (CIM)
A description of the business including its history, products, markets, management, facilities, competition, financial statements, product literature, and a review of its key investment considerations and growth potential. This document is used to market a business to potential buyers.
Debt Issuance Fees
Underwriting fees charged by investment banks to issue debt in connection with the transaction.
A worsening of per share metrics post-transaction (after issuing additional shares).
Discounted Cash Flow (DCF) Valuation
A method of valuing a project, company, or asset using the concepts of the time value of money. All future cash flows are estimated and discounted by using cost of capital to give their present values
An investigation into the risks and opportunities of an investment. Its aim is to give the potential buyer an insight into the target, so that he can minimize potential negative effects of the acquisition. The overall due diligence work consist of very distinct sub-processes such as a (a) financial, (b) legal, (c) commercial, (d) operational, (e) environmental, (f) organisational, (g) integration, (h) insurance and (i) pension due diligence.
a provision written into some financial transactions whereby the seller of a business will receive additional payments based on the future performance of the business sold.
Earnings before interest, taxes, depreciation and amortization.
Economies of Scale
Fixed costs decrease because merged companies can eliminate departments with repetitive functions or gain operational efficiencies.
Economies of Scope
A gain of more specialized skill or technology due to a merger.
The economic measure reflecting the market value of a business. It is a sum of claims by all claimants: creditors and shareholders.
Equity Issuance Fees
Underwriting fees charged by investment banks to issue equity in connection with the transaction.
Excess Purchase Price
The value of the purchase price over and above the net book value of assets (total purchase price minus the net book value of assets).
An agreement between advisor and client guaranteeing an exclusive relationship between both parties.
Expression of Interest (EOI)
Letter from buyer to seller indicating general value and terms a buyer is willing to pay for a company. The letter is non-binding on both parties.
A company acquires a target that either makes use of its products to manufacture finished goods or is a retail outlet for its products.
Fully Diluted Shares Outstanding
The number of shares a company has outstanding after options, convertible securities, etc., are exercised.
The difference between the price paid for the target and its book value.
The board of directors and management of the target company do not approve of the takeover. They will advise the shareholders not to accept the offer.
An asset that can be assigned a fair value; can include both tangible and intangible assets.
A financial services company or corporate division that engages in advisory-based financial transactions on behalf of individuals, corporations, and governments
Letter of Intent (LOI)
A letter signed by the target and potential acquirer, stating the intent to pursue a mutual agreement. The letter binds both parties to exclusivity and secrecy.
This is the acquisition of a company using significant amounts of debt to increase returns on investment.
Net Book Value of Assets
Book value of assets minus book value of liabilities.
Non Disclosure Agreement (NDA)
An agreement where two interested parties pledge to retain secrecy around the information they come into contact with. Signatories to NDA's are potential acquirers, consultants, internal management.
Restructuring a company’s debt and equity mixture, most often with the aim of making a company’s capital structure more stable; a partial sale of a company which allows a seller a liquidity event plus retention of partial ownership of stock, generally by a private equity investor.
Cost savings and revenue enhancements that are expected to be achieved in connection with a merger/acquisition.
The firm that is being acquired (the seller).
A short-term loan a vendor makes to a customer that is secured by goods the customer buys from the vendor.
A derivative security that gives the holder the right to purchase securities (usually common stock) from the issuer at a specific price within a certain timeframe.
The capital of a business which is used in its day-to-day trading operations, calculated as the current assets minus the current liabilities.