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Merger & Acquisition (M&A) Acronyms, Abbreviations and Definitions

Mergers and Acquisitions

Here we summarize common Mergers & Acquisitions (M&A) acronyms, abbreviations and definitions used in the M&A process.

The M&A Process

One of the first documents used in the M&A process is a one to three page no-names summary description of the opportunity typically called a teaser.  If the teaser is of interest then parties will sign an NDA or CA (Non-Disclosure Agreement or Confidentiality Agreement) to receive more detailed information about the company.  The comprehensive information document is called a CIM or just IM or sometimes OM (Confidential Information Memorandum or Information Memorandum or Offering Memorandum).

In order to assess whether parties reviewing the CIM are worthy of moving forward they are typically asked to issue a non-binding EOI or IOI (Expression of Interest or Indication of Interest) which will identify a valuation range, rationale for their interest and transaction structure parameters.

If the EOI is acceptable, potential purchasers are provided with more information typically in the form of monthly income statements, revenue and customer analyses and whatever else is important to the potential purchaser under the circumstances.  At this stage the potential purchaser and seller will meet in person and a Data Room is set up that will contain the actual contracts to allow the purchaser to verify that everything that has been represented to date is actually true (these days data rooms are typically virtual data rooms online).

Subsequent to this an LOI (Letter of Intent) is sought and upon signing the LOI, a period of exclusive due diligence is awarded to the single final successful party.  Once the potential purchaser is sufficiently comfortable, work will begin on the PSA (Purchase and Sale Agreement) and signature on this document and its many companions will consist of the closing.

Transaction Structure

The PSA can be in the form of a Share Purchase Agreement (SPA) or an Asset Purchase Agreement (APA) and will define the deal structure which may contain a hold-back and/or a VTB (Vendor Take Back).  A hold-back is cask kept in escrow typically for a period of less than one year and contingent on such things as receivables being paid, customers being retained or any indemnity claims the purchaser may have a right to as defined in the PSA.  A VTB or vendor note is a purchase loan from the seller to the buyer.  This is typically subordinated to a senior lender (i.e. a bank) and is usually of a term longer than one year.

There can also be earn-outs or earn-ins.  An earn-out is a component of the purchase price that is contingent on future performance of the business and and earn-in provides the buyer with a greater amount of equity over time based on performance.  An earn-in is often used in MBOs where the buying management team partners with Private Equity to complete the deal.

Finance and Valuation Terms

On the financial/valuation side, there are acronyms such as EBT, EBIT and EBITDA (Earnings Before Tax, Earnings Before Interest and Tax, Earnings Before Interest, Taxes and Depreciation and Amortization (i.e. non-cash items), EV and TEV (Enterprise Value and Total Enterprise Value, which equals equity plus funded debt), FYE (Fiscal Year End), LTM (Last Twelve Months), and YOY (Year Over Year).

When it comes to business plans, you will see the term TAM (Total Addressable Market) and with respect to revenues, they will be characterized by type, you will see MRR and ARR (Monthly Recurring Revenue and Annual Recurring Revenue).  New acronyms pop up every day so check back here we will try to keep this updated.

Recommended Further Reading

For more on how long an acquisition takes, see: How Long Does it Take to Sell a Business?

For a more in depth review of CIMs, NDAs and PSAs, see:  Terminology and Documentation

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