Business acquisition glossary

Acquisition entrepreneurship: Buying and taking responsibility for an existing business as a path to entrepreneurship.
Acquisition process: The steps involved in finding, negotiating, investigating, financing and completing a business purchase.
Adjusted EBITDA: An estimate of sustainable operating earnings after explicitly justified adjustments to reported EBITDA.
Amortization: The scheduled repayment of a loan’s principal over time.
Asset-based lending: Borrowing sized in part against the eligible lending value of identifiable assets.
Bank debt: Borrowing from a bank under agreed repayment, pricing, security and conduct terms.
Bolt-on acquisitions: Acquisitions added to an existing company or group rather than built as a wholly separate platform.
Brokers: Intermediaries who help sellers find buyers, buyers find businesses, or borrowers find lenders.
Buyer equity: The buyer or sponsor’s ownership interest and any cash capital they contribute to the acquisition.
Capital call: A request under fund documents for LPs to supply part of their committed capital.
Capital stack: The combination of debt, seller funding and equity used to finance a transaction.
Carried interest: A manager's contractual share of fund gains after the applicable distribution conditions are met.
Cash flow: The timing and amount of money entering and leaving a business.
Collateral: Assets or rights pledged to support a lender’s recovery if obligations are not met.
Committed capital: Capital LPs promise to a fund under its terms before the manager selects every investment.
Covenants: Contractual promises and tests that constrain a borrower’s finances or actions.
Customer concentration: Dependence on a small number of customers or a shared source of demand.
Debt pricing: The interest, fees and other financial costs attached to a borrowing arrangement.
Debt service: Cash required to meet debt interest and principal payments during a period.
Deferred consideration: An agreed part of the purchase price scheduled for payment after completion.
Direct lender: A private lender that originates a loan directly to an operating business under its credit mandate.
Due diligence: Investigation that tests the purchase assumptions and identifies risks before a binding commitment.
Earn-outs: Purchase payments whose entitlement or amount depends on agreed future performance conditions.
EBITDA: Earnings before interest, tax, depreciation and amortization; an operating comparison measure rather than spendable cash.
Enterprise value: The value of the operating business before agreed adjustments for cash, debt and other balances.
Equity value: The value attributable to shareholders after the agreed adjustments from enterprise value.
Fund term: The planned life of a fund, including time after new investments end for repayments or exits.
General partner (GP): The fund entity or manager role responsible for investment decisions and fund obligations under its documents.
Government-backed lending: Lending associated with a public support or guarantee scheme whose terms depend on its specific program.
Hurdle or preferred return: A threshold in a fund's distribution rules that affects when incentive economics become payable; it is not a guaranteed return.
Independent sponsor: A deal leader who assembles acquisition equity for each transaction rather than drawing from a committed fund.
Institutional debt: Borrowing from a bank, credit organization or investment firm under its lending mandate.
Investment period: The part of a fund's life when its manager may make new investments under the agreed mandate.
Investor equity: Capital supplied for an ownership claim rather than a scheduled loan repayment.
IRR and MOIC: MOIC compares an investment's total value with the amount invested; IRR also accounts for cash-flow timing.
Letter of intent: A preliminary record of the proposed purchase economics and the conditions for progressing a deal.
Leverage: The use of borrowing to fund ownership, often measured as debt divided by annual earnings.
Limited partner (LP): An investor who commits capital to a fund and holds rights defined by its governing documents.
Management: The people, responsibilities and reporting systems that keep the acquired business operating and accountable.
Management fee: A fund charge supporting the manager's work, calculated on a stated base such as commitments or invested capital.
Mezzanine debt: Junior acquisition debt ranking behind senior borrowing, sometimes combining cash interest, accrued interest and equity-linked rights.
Paid-in-kind (PIK) interest: Interest added to a debt claim instead of paid in cash when due, increasing the amount eventually owed.
Personal guarantees: A person’s contractual promise to meet specified obligations if the primary borrower does not.
Pledge arrangement: An advance agreement for investors to review qualifying deals while retaining a choice on each investment.
Preferred equity: Equity with negotiated economic priority over another share class, such as priority in exit proceeds.
Private credit: Credit supplied outside deposit-taking banking, often using capital committed by investors to a lending strategy.
Receivables finance: Financing supported by eligible amounts customers owe for sales already made.
Refinancing: Replacing or revising existing borrowing with a new financing arrangement.
Returns and exits: How shareholders realize value through distributions, sales or other liquidity events.
Roll-ups: Building a group through repeated acquisitions of businesses intended to fit a common strategy.
Rollover equity: An ownership interest the seller retains or receives as part of the consideration for a sale.
Seller financing: Purchase consideration the seller leaves at risk after completion through an agreed later-payment structure.
Senior debt: Debt granted priority over specified other claims under the financing arrangements.
Sourcing: Creating and qualifying a pipeline of businesses whose owners may consider a sale.
Subordination: An agreement that places one creditor’s rights behind another’s in specified circumstances.
Target selection: Choosing businesses whose economics, financing needs and operating demands fit the buyer.
Unitranche: A single borrower-facing loan that blends risk which could otherwise be split across separate debt tranches.
Valuation multiples: A price expressed as a multiple of a clearly defined measure of annual earnings.
Working capital: Money tied up in the everyday cycle of customers, stock, suppliers and other operating balances.