Common M&A Terms Cheat Sheet, Exercises of Lease Finance and Investment Banking

Download Common M&A Terms Cheat Sheet and more Exercises Lease Finance and Investment Banking in PDF only on Docsity! 1 Common M&A Terms Cheat Sheet Startup Checklist Accretion Improving the per-share metrics after acquisition (after issuing additional shares). Acquirer The company that is buying a company in the acquisition. Acquisition The acquiring of the controlling interest or ownership of another company. Amalgamation/Consolidation The combining of one or more companies into a new company. None of the combining companies remain, forming a completely new legal entity. Asset Deal The acquirer only purchases the assets of the target company (not its shares) Backward Integration A company acquires a target producing the raw material or the ancillaries that the acquirer uses to guarantee a continuous supply of raw materials. Bootstrapping Generally used with startup companies, indicating the financing of the business efforts with personal, existing, and often scarce resources. Bottom Line The net income "line item" of the income statement Business Cycle A recurring expansion and contraction of the economy, with the average cycle lasting three to four years. COMMON M&A TERMS CHEAT SHEET 2 Capital Expenditure – CAPEX A large expenditure acquiring a new capital asset or improves the useful life of an existing capital asset. Spreading or expensing the costs over the useful life of the asset. A company's CAPEX needs are a consideration when valuing any business and with any large CAPEX needs reducing the amount of cash a buyer could expect from their investment. Capitalization The term is used to describe the overall size of a company's equity, debt, and permanent capital and can be calculated by multiplying shares outstanding by the current market price. Capital Structure The mixture of debt and financing the company uses to finance its growth. The invested capital of the business it uses to reinvest for growth. Cash Consideration The portion of cash used to acquire a company. Cash Flow Cash that flows from the efficient use of assets or the business operations. The long-term value of companies comes from the generation of cash flows, not earnings. There are many definitions, but the general definition includes cash from operations less the company's capital expenditures. Covenants Different provisions in the legal agreements concerning loans, bonds, and lines of credit. Lenders use them to protect their position with other borrows concerning the line of progression. Deal Structure Concerns how a company completes the purchase or merger with another company, regarding the amount of cash, stock, debt refinancing, and any other considerations. Dilution After issuing additional shares, the worsening condition of per-share metrics. Discontinued Operations The company's stopping or discontinuation of operations and reporting these items separately on the income statement. COMMON M&A TERMS CHEAT SHEET 5 Companies merging in the same line of business, such as Daimler and Chrysler, usually to gain synergies. Hostile Takeover The management and board of directors do not approve of the takeover and advise shareholders to reject any deal. Identifiable Assets Any asset that can be assigned a fair value, including both intangible and tangible assets. Indication of Interest A non-binding letter from the acquirer to the potential target indicating fair value estimates and terms the acquirer is ready to pay for the target. Intangibles Intangible assets including goodwill, patents, trademarks, and deferred charges. Typically includes anything, not of a physical nature. Intrinsic Value The estimated value of the company's cash flows using a discounted cash flow model. Letter of Intent (LOI) The non-binding letter containing all the major provisions of the deal, signed by both the acquirer and target. Leveraged Buyout The acquisition of a company uses tremendous amounts of debt, hoping to achieve increased return on the investment. Liquidation Value The value of the business's assets after they are sold off and turned to cash, in the event of a bankruptcy. Merger The acquiring company receives all of the target company's assets/shares after the target company stops existing. Net Book Value of Assets COMMON M&A TERMS CHEAT SHEET 6 The book value of a companies assets is less than the book value of companies liabilities. Net Cash/Net Debt Deal Assumes that the purchase price includes the target retains all of the target's balance sheet cash and pays off the target's interest-bearing debt. Net Debt Total cash on the balance sheet minus the total debt on the balance sheet. Normalized Earnings Taking a long-term view of earnings by adding up total over a longer period, such as five or ten years, and then dividing by total years. It is intended to smooth out anomalies or unusual items and to use for comparisons. Offer Price The acquirer's offered price per share Other Closing Costs Any due diligence fees, legal fees, or accounting fees related to the closing of the deal. Post-Money Valuation The approximate market value assigned to a company after a financing round among venture capitalists or angel investors is finished. Pre-Money Valuation The approximate market value assigned before any financing from venture capitalists or angel investors. Preferred Stock A type of stock that gives its shareholders certain rights, privileges, and preferences above the rights of common shareholders. Pro Forma Shares Outstanding The total number of shares outstanding after issuing all additional equity and the closing of any deal finalized. Purchase Price Allocation COMMON M&A TERMS CHEAT SHEET 7 The allocating of assets and liabilities by the acquirer and determining the total purchase price from breakdown. Recapitalization Reorganizing a company's debt and equity mix to stabilize a company's capital structure. Restructuring Charges Any fees or charges related to debt repayments as a part of restructuring. Revenue Enhancements Any increases to revenue from cross-selling, price changes, or up-selling. Sandbagging The target company stalls, waiting for a better deal while playing along with potential acquirer. Sensitivity Analysis A technique of testing the sensitivity of different inputs in a model to certain assumptions, and Share Exchange Ratio The acquirer's share price is divided by the offer price. Share Issuance Discount A way of determining how many shares the target will receive based on any discounts to the current market price. Share/Stock Deal A method of purchasing the company's total assets and liabilities by acquiring all the target's shares. Stock Consideration The acquirer's stock was granted to the target company based on the portion of the purchase price agreed to in the deal. Subsidiary