Your Glossary and FAQ for our Website

A

• Add-back

• Adjusted EBITDA

• Anti-Embarrassment Clause

• Asset Deal

• Auction process

• Premium (Control Premium)

• Deferred Consideration

B

• Bidding process

• Bolt-on / Add-on Acquisition

• Break-up Fee

• Bridge Financing

• Business Plan

• Buy-Side Advisory

• Balance Sheet Quality (Quality of Earnings)

C

• Cap Table

• Carve-out

• Cash-free / Debt-free

• Cash flow

• Closing

• Closing Accounts

• Closing Conditions

• Club Deal

• Confidential Information Memorandum (CIM)

• Comparable Companies (Trading Comps)

• Control Premium

• Covenants

D

• Data Room / Virtual Data Room (VDR)

• Debt Advisory

• Debt Pushdown

• Deal Structure

• Deferred Consideration

• Discounted Cashflow (DCF)

• Drag-Along

• Due Diligence

E

• Earn-out

• EBITDA

• Equity Bridge

• Equity Story

• Enterprise Value (EV)

• Escrow

• Exclusivity / No-Shop

• Exit Options

F

• Fairness Opinion

• Financial Covenants

• Financial Modeling

• Fixed Purchase Price

• Founders’ Vesting

G

• Goodwill

• Governance (Corporate Governance)

• P&L Adjustment (Adjustments)

• Guarantees & Indemnifications

H

• Hurdle Rate

• Hold Separate

• Harmonization (Post-Merger Integration)

• HGB vs. IFRS (Transactions)

I

• Indicative Offer (IOI)

• Intercreditor Agreement

• Interest Coverage Ratio

• IPO (Initial Public Offering)

• IRR (Internal Rate of Return)

• Information rights

J

• Annual Financial Statement Analysis

• Joint Venture

K

• Purchase Price Factor (Multiple)

• Purchase Price Mechanism (Locked Box vs. Closing Accounts)

• KPI (Key Performance Indicators)

• Capital structure

• Change of Control Clause

L

• Letter of Intent (LOI)

• Leverage

• Leveraged Buyout (LBO)

• Locked-Box Mechanism

• Liquidity Planning

M

• Management Buyout (MBO)

• Management Presentation

• Material Adverse Change (MAC)

• Mezzanine Capital

• Minority Interest (Non-controlling Interests)

• Multiples (EV/EBITDA etc.)

• Merger Control

• Market Analysis & Market Sizing

N

• NDA (Confidentiality Agreement)

• Net Debt (Net Financial Liabilities)

• Net Working Capital (NWC)

• No-Shop / Exclusivity Agreement

• Non-binding Offer (NBO)

O

• Disclosure Obligations (Disclosure)

• Option Rights (Call/Put Option)

• Operating vs. Finance Lease

• Organizational Liability

P

• PIK Interest

• Purchase Price Allocation (PPA)

• Post-Merger Integration (PMI)

• Precedent Transactions

• Purchase Price Adjustment

• Private Equity

• Process Letter

Q

• Quality of Earnings (QoE)

• Quasi-Equity

• Quick Ratio (Acid Test)

R

• Ratchet

• Reps & Warranties (Guarantees & Assurances)

• Roll-up Strategy

• ROI (Return on Investment)

• Residual Value / Terminal Value

• Restricted Payments

S

• Senior Debt

• Sale & Leaseback

• Share Deal

• Share Purchase Agreement (SPA)

• Synergies

• Subordinated Debt

• Stapled Financing

• Sell-Side Advisory

T

• Tag-Along

• Teaser

• Term Sheet

• Terminal Value

• Transaction costs

• Treasury Shares (own shares)

U

• Unitranche

• Company valuation

• Revenue Multiplier

• Restructuring / Conversion

V

• Vendor Due Diligence (VDD)

• Vendor Loan

• Vesting (Employee Participation)

• Pre-emption Rights

• Valuation Methods

W

• WACC (Weighted Average Cost of Capital)

• W&I Insurance (Warranty & Indemnity)

• Working Capital

• Working-Capital-Adjustment

X

• XIRR (Internal Rate of Return Function in Excel)

• Cross-Default

Y

• YoY (Year-over-Year)

• Yield Curve

Z

• Target Image / Operating Model

• Interest coverage ratio

• Yield curve

• Interest rate risk

Add-back

Definition:

An add-back refers to a correction item in the context of company valuation, in which certain one-off or non-operating expenses are removed from the income statement. The aim is to present an adjusted result (e.g. Adjusted EBITDA) that realistically reflects the sustainable earning power of a company.

Important aspects:

• 
  Typical add-backs:
  One-off legal and consulting costs, restructuring expenses, severance payments, non-recurring losses.

• 
  Purpose:
  Smoothing of results, better comparability with peers, more realistic basis for purchase price determinations.

• 
  Risk:
  Excessive or aggressive add-backs can distort the value and trigger distrust among investors.

Practical example:

A company reports an EBITDA of €10 million. This includes one-off restructuring costs of €1 million. These are taken into account as an add-back, resulting in an Adjusted EBITDA of €11 million – the basis for multiples.

Adjusted EBITDA

Definition:

Adjusted EBITDA is a key figure in the M&A process. It shows the operating earnings power of a company, adjusted for one-off, non-operating or non-sustainable effects.

Aspects:

• Calculation: EBITDA + Add-backs – extraordinary income.

• Important for: Company valuation (multiples), covenants, purchase price negotiations.

• Discussion: Buyers and sellers must agree on adjustments.

Example:

A SaaS company achieves EBITDA of €5 million. Add-backs: €0.5 million legal costs, €0.2 million severance payments. Adjusted EBITDA: €5.7 million. Valued with a 10x multiple, this results in a company value of €57 million.

Anti-Embarrassment Clause

Definition:

An Anti-Embarrassment Clause is a protective clause in company purchase agreements. It obliges the buyer to subsequently pay compensation to the seller if he resells the target company within a certain period of time at a higher price.

Aspects:

• Prevents “bargain sales” with immediate resale.

• Typical term: 12–24 months.

• Calculation: Difference between purchase price and resale price.

Practical example:

An investor buys a company for €50 million. Six months later, he sells it for €70 million. Due to the anti-embarrassment clause, he must transfer part of the profit (e.g. 50%) to the original seller.

Asset Deal

(Already elaborated here, see above – approx. 350 words).

Auction Process

Definition:

An auction process is a structured sales process in which several potential buyers are approached in parallel and asked to submit offers. The aim is to maximize the purchase price through competition.

Aspects:

• Process: Teaser → NDA → CIM → indicative offers → management presentations → due diligence → final offers.

• Advantages: Higher price, better conditions.

• Risks: Information leaks, high effort for sellers.

Practical example:

A medium-sized mechanical engineering group is offered in a competitive bidding process with 10 interested parties. After two rounds, the purchase price increases by 25% compared to a bilateral process.

Premium (Control Premium)

Definition:

The premium or control premium is the price premium that a buyer pays to take control of a company. It reflects synergies, strategic advantages and the ability to directly influence management decisions.

Aspects:

• Typical amount: 20–40% above stock market price.

• Dependent on synergies, competitive situation, market attractiveness.

• Often paid in takeovers of listed companies.

Practical example:

A listed company has a share price of €100. A strategic buyer offers €130 per share. The premium is 30%.

Deferred Consideration

Definition:

Deferred Consideration describes a part of the purchase price that is not paid immediately, but with a time delay after closing.

Aspects:

• Reasons: Risk distribution, liquidity conservation, earn-out component.

• Typical structures: Fixed later payment, linked to conditions.

• Advantages for buyers: lower risk; disadvantages for sellers: dependence on future development.

Practical example:

Purchase price: €20 million, of which €15 million immediately and €5 million after 24 months, provided that certain sales thresholds are reached.

Bidding Process

Definition:

A bidding process is a structured company sale process in which several prospective buyers compete simultaneously. The aim is to maximize the purchase price through competitive pressure and to achieve the best mix of price, terms and transaction security for the seller.

Aspects:

• Process: Sending of teaser and CIM → indicative offers (NBOs) → management presentations → due diligence → final offers.

• Advantages: Price maximization, selection of investors, better negotiating position.

• Disadvantages: High process complexity, risk of information leaks.

Practical example:

A medium-sized automotive supplier is offered in a bidding process. Six investors submit offers; the competition increases the final purchase price by 20% compared to a bilateral process.

Bolt-on / Add-on Acquisition

Definition:

A bolt-on acquisition is the acquisition of a smaller company by an existing portfolio company of a financial investor. The aim is to expand the core business, leverage synergies and gain market share.

Aspects:

• Typical for Private Equity: Platform strategy + bolt-ons.

• Advantages: Faster scaling, access to new customers, technologies or markets.

• Risks: Integration problems, cultural differences.

Practical example:

A private equity investor acquires an IT service platform in Germany. Subsequently, three regional IT system houses are acquired as bolt-ons in order to grow geographically.

Break-up Fee

Definition:

A break-up fee is a contractually agreed compensation payment that a buyer receives from the seller if a transaction fails despite an agreement. The aim is to secure the buyer’s expenses (e.g. due diligence costs).

Aspects:

• Amount usually 1–3% of the transaction value.

• Applies in particular to exclusivity agreements.

• Can encourage buyers to bid more aggressively.

Practical example:

A buyer invests €1 million in consulting costs. The seller cancels the process and sells to another bidder. The agreed break-up fee of €2 million compensates the buyer.

Bridge Financing

Definition:

Bridge financing is a short-term interim financing that bridges the period until the final financing of a transaction.

Aspects:

• Use: Bridging until capital increase, refinancing or issuance.

• Typical term: a few months.

• Risk: high costs, as short-term and flexible.

Practical example:

A private equity fund needs €50 million for a closing before the committed bank financing is available. It uses a bridge loan with a term of three months.

Business Plan

Definition:

The business plan is a strategic document that presents the development, goals and financial planning of a company. It is a central instrument in the context of corporate financing, M&A transactions and investor approaches.

Aspects:

• Contents: Market analysis, competition, strategy, financial planning (3–5 years), risks.

• For buyers: Basis for valuation and due diligence.

• For sellers: Presentation of the equity story.

Practical example:

A start-up creates a business plan that shows sales growth of 20% p.a. This serves as a basis for investors to assess the valuation and commitment of capital.

Buy-Side Advisory

Definition:

Buy-Side Advisory refers to the advice given to buyers in company acquisitions. The aim is to identify and evaluate suitable target companies and to successfully complete the transaction.

Aspects:

• Services: Sector screening, approach, company valuation, due diligence, contract negotiations.

• Advantages: Market knowledge, deal security, optimized purchase prices.

• Typical clients: Strategists, private equity, family offices.

Practical example:

A family office wants to invest in the healthcare market. The buy-side advisor identifies three suitable targets and conducts the negotiations until closing.

Balance Sheet Quality (Quality of Earnings, QoE)

Definition:

Quality of Earnings (QoE) describes the sustainability and reliability of a company’s earnings situation. As part of due diligence audits, it is examined whether the reported EBITDA reflects the actual operating earnings power.

Aspects:

• Focus: One-off effects, aggressive accounting, seasonal fluctuations.

• Goal: Buyer wants to ensure that profits are sustainable.

• Result: Report (QoE Report) by independent auditors.

Practical example:

A company reports EBITDA of €15 million. The QoE report shows that €3 million comes from one-off project income. Adjusted EBITDA is €12 million.