Knowledge Base
BankingBeast Glossary
Plain-English definitions for sell-side and buy-side process, debt and credit markets, valuation methods, and the diligence workstreams that get a transaction closed.
A
AICPA SSVS No. 1 / VS Section 100 — valuation vs calculation engagement
The AICPA's valuation standard distinguishes a valuation engagement, which produces a conclusion of value, from a calculation engagement, which produces a calculated value using agreed limited procedures.
Adjusted EBITDA
Adjusted EBITDA is earnings before interest, tax, depreciation and amortization after normalizing adjustments, and it is not a GAAP measure.
Agreement Among Lenders (AAL)
An Agreement Among Lenders is the contract between the tranches inside a unitranche facility, and the borrower is typically not a party to it.
Asset purchase agreement (APA)
An asset purchase agreement transfers identified assets and assumes only identified liabilities, leaving the rest with the seller entity.
B
Break-up fee and expense reimbursement
A break-up fee or expense reimbursement is a payment owed when a deal fails for a defined reason, most often to compensate a buyer for sunk diligence cost.
Business broker
A business broker intermediates the sale of smaller privately held companies, generally below the size band where a registered M&A advisor operates.
Buy-side advisor / searcher
A buy-side advisor works for the acquirer: sourcing targets, running process, and coordinating diligence and financing toward a signature.
C
D
Debt service coverage ratio (DSCR)
Debt service coverage ratio measures cash available for debt service against required debt service over a period.
Discount for lack of marketability (DLOM)
A discount for lack of marketability reduces value to reflect that an interest cannot be sold quickly at low cost.
Discounted cash flow (DCF)
A discounted cash flow values a business as the present value of the cash it is forecast to generate, discounted at a rate reflecting the risk of that forecast.
E
Earnout
An earnout defers part of the purchase price and conditions it on the business hitting defined post-closing targets.
Escrow and holdback
An escrow or holdback sets aside part of the purchase price as security for the buyer's post-closing claims.
Exclusivity / no-shop letter
An exclusivity or no-shop letter is the binding promise that the seller will stop talking to other buyers for a defined period.
F
First-out / last-out (FOLO)
First-out / last-out is the internal split of a unitranche facility into a lower-return priority tranche and a higher-return subordinated one.
Full-standby seller note
A full-standby seller note is seller financing on which no payments of principal or interest may be made for the life of the SBA loan.
I
Indemnification in an SPA
Indemnification is the contractual mechanism by which a seller compensates a buyer for losses from breached representations, subject to a basket, a cap and a survival period.
Indemnity cap
The indemnity cap is the ceiling on the seller's aggregate indemnification exposure for breaches of general representations.
Indication of Interest (IOI)
An indication of interest is a non-binding letter stating a value range and the conditions attached to it, used to select who advances past the first round.
Intercreditor agreement
An intercreditor agreement governs the relationship between separate facilities with different lien or payment priorities.
Investment thesis / acquisition criteria
An investment thesis states why this acquirer buys anything at all: the sector, the size band, the business-model criteria, and the value-creation hypothesis.
L
M
Management-adjusted EBITDA bridge
A management-adjusted EBITDA bridge is the schedule that walks reported earnings to the adjusted figure a seller is asking a buyer to pay a multiple on.
Materiality scrape
A materiality scrape reads materiality qualifiers out of the representations for the purpose of calculating losses, so that immaterial breaches still count once the basket is cleared.
Mergers and acquisitions — definition and scope
Mergers and acquisitions is the transfer of ownership or control of a business, executed as a stock purchase, an asset purchase, or a statutory merger.
N
NDA / confidentiality agreement in M&A
In an M&A process the NDA is the gate between the teaser and the CIM: it binds the buyer on confidentiality before any identifying information moves.
Net working capital peg
The net working capital peg is the agreed normal level of working capital the business is expected to be delivered with at closing.
Non-reliance provision
A non-reliance provision states that the buyer relies only on the representations written into the agreement and not on anything else it was shown or told.
P
Q
R
Representation and warranty insurance (RWI)
Representation and warranty insurance transfers the risk of a breach of the seller's representations from the seller to an insurer.
Representations and warranties
Representations and warranties are the seller's statements of fact about the business, made as of signing and usually again as of closing.
Revenue Ruling 59-60 and its eight factors
Revenue Ruling 59-60 sets out eight factors for determining the fair market value of stock in a closely held corporation.
S
SBA 7(a) acquisition loan
An SBA 7(a) acquisition loan is a partially government-guaranteed bank loan used to finance a change of ownership of a small business.
SOFR
SOFR is the Secured Overnight Financing Rate published by the Federal Reserve Bank of New York, and the floating-rate base for essentially all US leveraged loans after LIBOR.
Sandbagging
Sandbagging is a buyer claiming for breach of a representation it already knew was untrue before closing.
Screening memo
A screening memo is the short internal document that decides whether a target is worth real diligence spend.
Second lien debt
Second lien debt holds a junior security interest in the same collateral as the first lien, not a junior claim on payment.
Specific indemnity
A specific indemnity covers one identified problem, usually from dollar one and often uncapped, outside the general indemnification package.
Stock purchase agreement (SPA)
A stock purchase agreement transfers the equity of the target company, carrying its liabilities with it unless they are specifically allocated back.
T
Teaser (blind profile)
A teaser is a one to two page anonymous profile of a company for sale, circulated before any NDA is signed.
Terminal value
Terminal value is the portion of a discounted cash flow that represents everything beyond the explicit forecast period.
The searcher / independent sponsor as buyer
A searcher or independent sponsor is a buyer who acquires one company at a time and assembles the capital around the specific transaction.
The three valuation approaches under IVS 105
IVS 105 sets out three valuation approaches — market, income and cost — and the methods that sit beneath each.