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M&A dictionary

This dictionary should provide you a brief overview of the most important terms used for company

These industry typical terms are explained and basic definitions are provided. The dictionary will give
you a first overview; due to the complexity of the topic on hand we would recommend you to inform
yourself further.


An acquisition is the purchase of one company, from the point of view of the buyer.

Added Value
The increase of value of a product at each stage of its production, exclusive of initial costs.

Alt Gesellschaft (Alt-GmbH)
Appears in an MBO transaction, original company (Alt-GmbH) whose operation is continued in the new company. Counterpart: new company (Neu-GmbH).

An item of property owned by a person or company.

All positions on the left side of the balance sheet. Distinction is made between non-current assets (intangible and tangible assets), current assets (inventories, receivables) and cash (bank deposits, securities).

Asset Sales Deal
Possible form of a buyout, a part of the purchase price is financed by the sale of assets of the acquired company.


Not only the management, but also parts of the employees acquire the company.

Represents an objective pursued in the company's strategy plan.

Blind Email
A blind e-mail should provide you and your company the necessary anonymity at the beginning of a transaction. Let us know your email address in the course of your registration. Your ad does not contain your email address, but an individual ID. Possible prospects will send an inquiry to you via the ID without seeing your personal email address. Thus we ensure the highest standards of anonymity for you.

Break-Even-Point (Gewinnschwelle)
When reaching the breakeven point a company is able to cover its fixed and variable costs on its own.

Buffer (Puffer)
A designation for unused cash reserves or credit lines.

Burn Rate
Indicates the speed at which a company uses capital.

Business marketplace
Business marketplaces are part of the general Internet penetration and can be found in many forms on the web. Business marketplaces should provide potential business sellers and buyers a corporate platform to offer and to find the right partner for the future. A broad variety of different offers are provided regarding this topic on the Internet. Generally, one can differentiate between free business marketplaces and marketplaces advisory background. Business marketplaces with advisory background usually have influence when ads are being created and are often able to accompany the sale or purchase process. Therefore these platforms often charge a fee (one time fees for ads, fees for successful transactions, general consulting fee). The free business marketplaces on the other side are mostly free of charge. Here every businessman can post an advertisement and thus get in contact with potential partners.

Business plan
A business plan is the detailed presentation of a business model and should be prepared for presentations to potential investors. It contains information about the product, the market, the management of the company and a financial plan.

Buy-and-Build Strategy
This strategy pursues the goal to from a larger group of companies (holding) through acquisitions.

Buy Back
An exit strategy in which the original shareholders buy back shares of the company.

Buy option
Gives a prospective buyer the possibility, but not the obligation, to buy a company or shares of a company.

Buyer market
Buyers dominate the market, i.e. the supply of goods exceeds demand. Counterpart: seller's market.

A BuyCo may be established during a corporate transaction. This new company buys the old company, making it the purchasing company.


Stands for "Compound Annual Growth Rate" (Annual growth rate).

Capital Gain
The term Capital Gain refers to the gain realized by sales of company shares.

Surplus of cash and cash equivalents of an enterprise, i.e. the sum of all cash income minus all non-cash expenses.

Cash-Flow Deal
Classical form of a MBO, based on the free cash flow of company. The repatriation of funds and the interest thereon are borne exclusively by the cash flow of the company.

Bring a business transaction to a satisfactory conclusion.

Participation in a company with minority stake. Normally the lead investors takes care of the investment.

In this case, several investors invest in a company, one of them acts as lead investor.

Company marketplace
There are numerous company marketplaces on the Internet nowadays. These platforms aim to bring corporate buyers and other interested parties together. The offer of this platforms varies strongly. There are two main groups, the one with consultancy background and the other free Internet services. Services with consultants in the background also have influence on the presentation of the respective offers, free platforms offer the service to publish the advertisement and have no influence on the respective ad. Another distinguishing feature are the costs involved. There are company marketplaces free of charge, as for e.g., and there are also company marketplaces which require the payment of fees to use their service.These fees may be for publishing advertisements online as well as incurred consulting for support and revision of the ads. on the other side provides such services free of charge and thus represents an open and free platform with the aim to create direct contact between sellers and buyers.

Confidentially agreement
Contract to ensure the confidentiality of all information exchanged during a selling process.


An amount of money borrowed by one party from another.

Discounted-Cash-Flow Methode (DCF Methode)
A valuation method used to estimate the attractiveness of an investment opportunity. Discounted cash flow (DCF) analysis uses future free cash flow projections and discounts them (using the WACC = weighted average cost of capital) to arrive at a present value, which is used to evaluate the potential of an investment.

Due Diligence
A comprehensive appraisal of a business undertaken by a prospective buyer, especially to value its assets and liabilities and evaluate its commercial potential.


Early Stage (Financing)
Early Stage is the general term for the seed stage (before the business start) and the start-up phase (business development). In the Early Stage businesses often need external financing in order to develop the company. "Venture Capital" is often used.

EBIT (Earnings Before Interest and Taxes)
It represents the earnings of a company excluding the taxes and interest payments. The ratio is useful to compare companies internationally, since national tax rates are not considered. In addition, the profitability is presented without taking into account the interest expense.

The EBIT margin is the EBIT in relation to sales. The EBIT margin shows how profitable a company conducts its business before interest and taxes

EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization)
The measure enables a comparison of the operating performance of companies that use different financial statements standards (IAS, HGB, US-GAAP).

Ownership interest or claim of a holder of common stock or some types of preferred stock of a company.

Equity Kicker
Agreement in favour of the lender of a company to get a share of the company's profits. A lender is given the option to acquire shares of the company at a later date, often at special rates.

Earning power
The earning power is the value of a company's future success. To evaluate the earning power value of the discounted cash flow. It is computed using the interest rate (see German income approach).

Executive Summary
Summary of a longer report or proposal of a company.

Exit means the selling of one investors’ share in a company (e.g. buy-back, trade sale, secondary purchase, Going Public, …).

Strategy often developed prior to an investment to achieve the greatest possible profit for the investor.

Expansion Financing
The company has reached its break-even point. The now available funds will be used to expand production or to diversify the product range in order to expand the company's business.


Fair Value
The fair value is used under US GAAP and IAS as a general term for all market-related valuation. The fair value of an asset or a liability is the amount at which two independent parties would be willing to exchange or settle the liability against the asset. The general problem of corporate participations is determining the value of the shares. The nominal value of the company takes the equity in the balance sheet into consideration but not the potential earning power of the company in the future. It is advisable to use dynamic or market comparative company reviews that reflect a fair bandwidth of the company’s value.

First Round Financing
= First round of financing of a company; i.e. the company receives the first external equity.


German income approach
The German income approachis a standard for the valuation of a property that produces a continuously future cash flows.

Going Private
Repurchase of a company from the stock market toprivate ownership.

Going Public
The process of a first offering of a company on the stock market (see IPO).

Gründungsfinanzierung (Start-up Financing)
Financing of a newly founded company, the company’s business model is still under construction.


Hands Off
Passive support of a company, the equity owner is not engaged in the operational business.


IAS (International Accounting Standards)
Internationally recognized corporate reporting standards commonly used in Europe.

Institutional investors
Institutional investors are for example credit institutions, pension funds, insurance companies and large companies. Counterpart: private investors.

Internal rate of return
The internal rate of return is the interest rate for which the net present value of the investment is equal to zero. It can be considered as yield benchmark for an investment.

IPO (Initial Public Offering)
First public offering of shares of a company on a stock exchange.


Joint Venture
Cooperation of independent companies.


Later Stage Financing
= Later-stage financing; Companies get capital for acquisitions, expansions or bridge financing.

LBO (Leverage-Buy-Out)
Mainly leveraged corporate takeover.

Lead Investor
One investors out of a group of investors who seek investment in a company. The lead investor is responsible for both the organization of the funding and the supervision of the deal.

LMBO (Leverage-Management-Buy-Out)
Combination of MBO and LBO. The management buys the company; the purchase is financed mainly by debt.

Letter of Intent
Written declaration made in advance of a transaction where a potential buyer expresses his interest in purchasing a company. In return, the seller agrees not to negotiate with other interested parties.

Leverage is the ratio of debt relative to equity. A higher leverage can increase a company's profitability and risk (see "leverage effect").

Leverage effect
A higher level of debt may increase the return on equity. This is only true if the return on assets is higher than the payable interest in borrowing.

Liquidation value
The sum of all sale prices if all the existing assets of a company would be sold immediately.


Make or Buy
Fundamental decision whether a service or a product is manufactured ("make”) or purchased ("buy").

Management Buy-In
Acquisition of a company by an external management team. Usually the managers are supported by private equity or venture capital companies to finance the purchase price of the company.

Management Buy-Out
Purchase of a company by the internal management. Private equity or venture capital companies may support the financing of the purchase price.

A merger is a fusion of two or more businesses into a single company. It could be a so-called "friendly takeover" where there is no clear buyer and seller.

Merger & Acquisition (M&A)
M & A is the business involved in corporate transactions mainly conducted by independent advisors and investment banks.

Mezzanine capital occupies a special role between debt and equity. On the balance sheet it is treated as equity, resulting in an improvement in the capital structure on the balance sheet. Fiscally it is treated as equity, thus it does not affect the companies EBIT.

A form of company valuation using similar companies. Generally, a distinction is made between trading multiples and transaction multiples. Trading multiples are based on the prices of comparable listed companies. More common for the SME sector are transaction multiples are ratios based on completed corporate sales. The transactions in a particular sector are collected, the purchase price ratio is used to calculate a multiple (e.g. purchase price to sales). Since several transactions constitute the Multiple, an industry-typical factor is calculated, which reflects the risks and opportunities of a particular sector.


Net asset value
Valuation approach focusing on a company's balance sheet, for this purpose the assets of the company are evaluated based on criteria such as the market value, replacement value or liquidation value. The total asset value is decreased by provisions and liabilities.

Net asset valuation                                                    
Way of determining the company value based on its net asset value.

Net Present Value
Net present value of a future asset. A future value (e.g., cash flow) will be discounted to the present value.

Neu Gesellschaft (Neu GmbH)
A company newly founded during a MBO/MBI process. This company continues to operate the previous company in its new legal form. Counterpart: Alt GmbH.


Offene Beteiligung (Open Investment)
Direct investment by acquisition of company shares. Counterpart: Stille Gesellschaft.

An option allows one party to execute a contract with predefined parameters, both parties agreed on in advance.


Pay Back
The amount generated when selling a company (i.e. capital invested + capital gains).

Package of investments owned by an institution or individual.

Pricing is the process of finding a selling price for a company. In contrast to a valuation, pricing is a subjective way of determining a company’s value.

Private Equity
General term for equity investments outside the stock exchange. For example, Venture Capital, Mezzanine, MBO, MBI and LBO.

Private Investors
Individuals investing on their own behalf using their own equity.

Purchase contract
The purchase agreement is necessary to conclude a business transaction.

Purchase price
The purchase price of a company is the price both parties have agreed on and thus the market price. Due to the different conceptions of the buyer and seller on the purchase price a strong deviation from the calculated value of the company is possible.


Quick Ratio
The quick ratio (also 2nd degree liquidity) measures a company's ability to repay short-term debt by cash and cash equivalents. 
Formula: (Receivables + cash flow) / current liabilities


Return on Investment (RoI)
Measures the return on capital employed. ROI is based on the total return on capital or individual investments only.
Formula: Net Income / Total Assets

For individual investments:
Formula: Investment income / invested capital

Return on Sales (RoS)
Ratio of profit to sales.
Formula: profit / turnover


Financing instrument, used to release short-term cash.

Secondary Purchase
Exit type; Sale of company shares (in most cases: Investment Company A to Investment Company B).

Seed Capital
Early stage financing of a promising business model.

Stage before the formal company formation.

Sell option
Gives a prospective seller the possibility, but not the obligation, to buy a company or shares of a company.

Seller market
Sellers dominate the market, i.e. the demand of goods exceeds supply. Counterpart: buyer market.

Senior Debt
Debt that company must repay first in case of a bankruptcy.

Common abbreviation for "small and medium enterprises". That includes all persons or corporations that employ fewer than 250 employees and have not more than 50 million EUR turnover. The term SME is often used as a synonym for the German “Mittelstand”.

Stage immediately after starting a business (following the seed phase).

Stille Gesellschaft (Silent Investment)
Also „Stille Beteiligung“, a special version of a German GmbH. Often with a fixed duration, a fixed-yield and a fixed performance-related component.

Subordinated Debt
In case of a company liquidation, these borrowings have low entitelment to a refund of their capital.

SWOT = Strengths, Weaknesses, Opportunities, Threats. The SWOT analysis is well suited to assess a company’s business situation. Strengths and weaknesses refer to the company itself, while opportunities and threats evaluate the market environment.

The benefits to be realized after a merger or acquisition are called synergy. Mainly potential savings and increase efficiency are referred to as synergy.


A company suitable for a corporate acquisition or equity investment.

Track Record
The success or experience of a company or manager. Track records are used to identify successful or failed investments and companies.

Trade Sale
Sale of company shares to a strategic investor (industrial investor).


Unique Selling Proposition (USP)
Inimitable factor or consideration presented as the reason that one product or service is better than the competition .

US Generally Accepted Accounting Principles; these accounting policies are mainly used in the US.


Venture Capital
Venture Capital refers to capital that is invested in young, growth-oriented and mostly High-tech companies.

Venture Capital-Companies (VC)
Venture capital companies are mostly focused on young high-tech companies. Most VC firms collect money in closed-end funds (mainly institutional investors) and invest in a broad portfolio of small companies to achieve a good risk diversification in a volatile sector.


Managerment leaving a company in order to participate in an MBI.

Procedure to determine a company's value, various valuation methods may be used. The result of the value determination can depend the valuation method used.

Working Capital
Working capital is current assets minus current liabilities (Accounts payable, other liabilities, "Accrued earnings”) it shows to which extent short-term available assets are not needed to cover short-term liabilities and can therefore be used for procurement of the production and the sales process.