If you’re considering a startup M&A, then you might need some guidance and education to help you prepare — particularly if you’re undertaking your first exit.
Even for experienced people, some of the M&A terminology can be confusing. When you’re the seller, the stakes are high. That’s something we understand at NorthStar Venture Partners because we’ve been on both sides of the table.
To help you out, we’ve compiled this ultimate startup M&A glossary cheat sheet to help you get ready for those negotiations.
The growth of assets and earnings that occurs due to business expansion. This term usually applies to the buyer in M&As.
The person whose company is being acquired, also referred to as the Seller or the Target.
The person or organization doing the buying, also known as the Buyer or the Offeror.
The purchase of a controlling interest (at least 50%) in another company.
A way of assessing a company’s financial performance by compensating for profits and expenses, including capital gains, investments, loss revenues and tax liabilities, to arrive at a more accurate picture of the organization’s financial health.
When two or more companies join together to form a larger organization with greater resources and impact than either individual entity had on its own.
A type of acquisition that involves only the assets of the Acquiree, not its shares.
When a company acquires a target that produces necessary raw materials or performs ancillary services for the Acquirer, with the goal of protecting the supply chain.
The base year is the earliest year used to calculate a financial trend or set of trends.
Any company that makes an unwanted purchase offer (in other words, a hostile takeover) to a potential target.
An excessively optimistic purchase price that exceeds the value of the company’s assets and good will.
The calculated value of a company after subtracting its intangible assets and liabilities from its total assets.
Capital Asset Pricing Model
A model used by Acquirers to calculate the rate of return that makes acquiring a target worthwhile.
A company’s net cash income less its net cash expenses.
A merger in which a company buys another company in the same industry with the intention of diversifying its product offerings.
When an officer in a company seeks out mergers and acquisitions with the intention of using the company’s growth to increase their compensation.
Confidential Business Profile
A confidential marketing document distributed by the seller to potential buyers, usually after the buyers sign a non-disclosure agreement. Its intention is to provide an overview of the finances of the target company.
Covenant not to Compete
Also known as a non-compete clause, this is an agreement signed by the seller agreeing not to compete directly with the buyer of their company.
The most highly valued assets of a business and a common driver of acquisitions.
A combination of assets to finance a deal which may include cash, consulting agreements, notes and stocks.
The process of investigating a target’s assets prior to signing the acquisition agreement.
A provision in the acquisition agreement requiring the Acquirer to make future payments based on the performance of the target.
The market capitalization of a target, plus the long-term debt minus any short-term investments and cash on hand, it represents the total an Acquirer must pay to take over a business.
Fair Market Value
The basis for an acquisition when the Acquirer and the Acquiree approach a sale from a position of knowledge and without pressure.
An offer too good to refuse.
A merger between two entities in the same sector or industry.
The value of a target as calculated by its financial assets rather than the market value.
An acquisition by the management team that uses an organization’s future revenue as collateral for a loan.
A financial institution that brokerages an acquisition.
The price per share offered by an Acquirer to an Acquiree.
The percentage of the purchase price given to the Acquiree as shares of the Acquirer’s stock.
When an acquisition maintains a target company’s name to preserve their brand recognition, market share and other intangibles.
Transaction Close Date
The date when an acquisition is expected to be complete.
The acquisition of targets in a company’s supply chain.
The opposite of a Black Knight — a buyer who swoops in to prevent a hostile takeover.
Before entering any negotiation, you should know the terms that prospective buyers are likely to use. Studying this glossary will help you go in with your eyes open, fully prepared and ready to make the best deal possible.
Ready to sell your startup? Our experienced M&A advisors are here to help. Click here to learn more about how NorthStar Venture Partners guides founders through the selling process.