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The Ultimate Startup M&A Glossary Cheat Sheet

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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.

Accretion

The growth of assets and earnings that occurs due to business expansion. This term usually applies to the buyer in M&As.

Acquiree

The person whose company is being acquired, also referred to as the Seller or the Target.

Acquirer

The person or organization doing the buying, also known as the Buyer or the Offeror.

Acquisition

The purchase of a controlling interest (at least 50%) in another company.

Adjusted Earnings

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.

Amalgamation

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.

Asset Deal

A type of acquisition that involves only the assets of the Acquiree, not its shares.

Backward Integration

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.

Base Year

The base year is the earliest year used to calculate a financial trend or set of trends.

Black Knight

Any company that makes an unwanted purchase offer (in other words, a hostile takeover) to a potential target.

Blue Sky

An excessively optimistic purchase price that exceeds the value of the company’s assets and good will.

Book Value

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.

Cash Flow

A company’s net cash income less its net cash expenses.

Circular Merger

A merger in which a company buys another company in the same industry with the intention of diversifying its product offerings.

Compensation Manipulation

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.

Crown Jewels

The most highly valued assets of a business and a common driver of acquisitions.

Deal Structure

A combination of assets to finance a deal which may include cash, consulting agreements, notes and stocks.

Due Diligence

The process of investigating a target’s assets prior to signing the acquisition agreement.

Earnout

A provision in the acquisition agreement requiring the Acquirer to make future payments based on the performance of the target.

Enterprise Value

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.

Godfather Offer

An offer too good to refuse.

Horizontal Merger

A merger between two entities in the same sector or industry.

Intrinsic Value

The value of a target as calculated by its financial assets rather than the market value.

Leveraged Buyout

An acquisition by the management team that uses an organization’s future revenue as collateral for a loan.

Merchant Banker

A financial institution that brokerages an acquisition.

Offer Price

The price per share offered by an Acquirer to an Acquiree.

Stock Consideration

The percentage of the purchase price given to the Acquiree as shares of the Acquirer’s stock.

Subsidiary

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.

Vertical Integration

The acquisition of targets in a company’s supply chain.

White Knight

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.

Julien Meyer

Written by Julien Meyer

NorthStar Venture Partners is led by Julien Meyer, MBA. A veteran of the tech community, Meyer is a 3x startup founder with 2 exits, a published author, a Harvard Business School Leading with Finance Alum and a Top Rated Startup Consultant (UpWork, 2018). Meyer advised on over 50 successful transactions before starting NorthStar. His experience has helped him understand the unique challenges that founders experience when trying to exit their ventures.