Resources
Clear, definitive explanations of the mergers, acquisitions, and private-equity terminology every business owner encounters before a transaction.
A preliminary agreement between buyer and seller outlining key deal terms and exclusivity.
A non-binding legal document outlining the proposed valuation, deal structure, working capital expectations, and exclusivity period before formal due diligence begins. It establishes the baseline negotiation framework before definitive purchase agreements are drafted.
A detailed third-party financial audit analyzing recurring, normalized EBITDA.
An independent accounting examination commissioned by buyers to verify the accuracy, sustainability, and true operational nature of historical earnings. It evaluates add-backs, revenue recognition policies, and working capital cycles to confirm real adjusted EBITDA.
Legitimate one-time or owner-discretionary expenses added back to net income.
Non-operating, discretionary, or one-off expenses (such as above-market owner compensation, personal expenses run through the business, or non-recurring legal fees) added back to EBITDA to show normalized economic earning power for the next buyer.
A contingent purchase price portion paid post-close based on milestone performance.
A contractual risk-sharing mechanism where a percentage of the purchase price is held back and paid over 1 to 3 years only if the business hits agreed revenue, gross margin, or EBITDA targets after acquisition. Used frequently to bridge buyer-seller valuation gaps.
A valuation ratio measuring Enterprise Value relative to Adjusted EBITDA.
The primary valuation multiple used in mid-market M&A, calculated as Enterprise Value divided by annual Adjusted EBITDA. Multiples vary by industry, customer concentration, recurring revenue percentage, and operational founder dependence.
A critical valuation risk where key business functions rely solely on the owner.
A condition where sales relationships, architectural knowledge, employee retention, or strategic decisions depend exclusively on the founder. Private equity and strategic buyers heavily discount or pass entirely on businesses with high founder dependency.
The baseline net working capital target delivered to the buyer at closing.
The negotiated dollar amount of normalized working capital (current operational assets minus current operational liabilities) that the seller agrees to leave in the business at close. Gaps below the peg reduce cash proceeds dollar-for-dollar at settlement.
Reinvesting a portion of transaction proceeds into the buyer's holding company.
An arrangement where the selling founder rolls over 10% to 30% of their equity into the acquiring entity or PE fund. This aligns incentives for transition periods and gives founders a second payout ('second bite of the apple') when the sponsor sells.
Proactive operational, legal, and financial preparation 9 to 24 months before sale.
The multi-month discipline of identifying and mitigating the 9 core factors buyers scrutinize before engaging investment bankers. Proper readiness reduces diligence friction, eliminates renegotiation discounts, and protects enterprise value.