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Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) is a financial metric used to assess a company's operational performance. It modifies the standard EBITDA by excluding non-recurring, irregular, or non-cash expenses to provide a more accurate reflection of ongoing profitability.

Angel investors are affluent individuals who provide capital to startups or early-stage companies in exchange for equity ownership or convertible debt. These investors often offer not only financial support but also valuable business expertise and mentorship.

An anti-dilution provision is a clause in an investment agreement that protects an investor from dilution of their ownership percentage in the event that new shares are issued at a price lower than the investor originally paid. It is commonly included in venture capital and private equity agreements.

Bootstrapping in business refers to starting and growing a company using personal finances or the company’s operating revenues, rather than relying on external funding or venture capital. Entrepreneurs use their own resources and reinvest profits from initial sales to fund further growth, emphasizing financial independence and careful cash flow management.

A bridge loan is a short-term loan used to meet immediate financing needs while waiting for more permanent funding. It serves as a temporary solution to bridge the gap between the need for funds and the availability of long-term financing.

A Cap Table, or Capitalization Table, is a detailed spreadsheet or document that outlines the equity ownership, types of shares, and ownership percentages of a company. It includes information on founders, investors, and employees, as well as the dilution of shares over time through various funding rounds and option grants.

A clawback provision is a contractual clause that allows an employer or investor to reclaim previously distributed compensation or bonuses from an employee or executive. This provision is typically included in employment contracts, bonus agreements, and investment terms to protect against misconduct, underperformance, or financial restatements.

Common stock represents ownership in a corporation, giving shareholders voting rights and a residual claim on corporate earnings in the form of dividends. Common shareholders have the potential for capital appreciation but are last in line for asset claims in case of liquidation.

A control premium is the additional amount an investor pays over the current market price of shares to acquire a controlling interest in a company. This premium reflects the value of the control benefits that come with a majority ownership stake, such as the ability to influence corporate strategy and decisions.

A convertible note is a type of short-term debt that converts into equity, typically in conjunction with a future financing round. Instead of repaying the loan in cash, the investor receives shares in the company.

In the context of debt, a covenant is a clause in a loan agreement or bond indenture that imposes certain conditions or restrictions on the borrower. Covenants are designed to protect the interests of lenders by ensuring that the borrower maintains a certain level of financial health and operates within agreed parameters. These conditions can be financial (financial covenants) or operational (non-financial covenants) and are critical in debt agreements to mitigate risk.

Discounted Cash Flow (DCF) Valuation is a financial method used to estimate the value of an investment based on its expected future cash flows. These cash flows are adjusted to their present value using a discount rate, typically the company's weighted average cost of capital (WACC). This approach helps determine the intrinsic value of a company or asset.

Double-trigger acceleration is a clause in an employee's stock option or restricted stock agreement that accelerates the vesting schedule of their equity upon the occurrence of two specific events. Typically, these events are a change in company ownership (such as an acquisition) and the subsequent termination of the employee without cause.

Drag-Along Rights are provisions in a company's shareholder agreement that allow majority shareholders to force minority shareholders to join in the sale of the company. This ensures that potential buyers can acquire 100% of the company without any holdouts from minority shareholders.

Due diligence is a comprehensive appraisal of a business undertaken by a prospective buyer to evaluate its assets, liabilities, and overall financial health. This process aims to confirm all material facts and assess the potential risks and benefits associated with a transaction.

An earn-out is a financial arrangement used in M&A transactions where the seller receives additional compensation based on the future performance of the acquired business. This contingent payment is typically tied to achieving specific financial targets or milestones over a defined period post-acquisition.

In Mergers and Acquisitions (M&A) transactions, escrow is a financial arrangement where a portion of the purchase price is held by a neutral third party. This ensures that funds are available to address any claims, indemnities, or post-closing adjustments that may arise. The escrow account holds the funds until all specified conditions are met, protecting both the buyer and the seller from potential risks and ensuring compliance with the agreed terms.

Exclusivity in Mergers and Acquisitions (M&A) transactions refers to an agreement where the seller grants the buyer an exclusive right to negotiate the deal for a specified period. During this exclusivity period, the seller agrees not to entertain offers or engage in negotiations with other potential buyers. This arrangement ensures that the buyer can conduct due diligence and finalize the terms of the transaction without the risk of competing bids.

An exit strategy is a planned approach to selling ownership in a business to achieve a financial return. It outlines how investors and owners will exit the investment, converting ownership stakes into cash or other assets.

A financial investor in Mergers and Acquisitions (M&A) transactions refers to an individual or institution that provides capital to acquire equity stakes in companies. Unlike strategic investors, who seek synergies with their existing operations, financial investors primarily aim for financial returns on their investments. They typically include private equity firms, venture capitalists, and hedge funds.

An Information Memorandum (IM) is a comprehensive document used in Mergers and Acquisitions (M&A) to provide potential buyers with detailed information about the business for sale. It includes financial data, company history, operational details, market analysis, and future projections. The IM aims to attract buyers by presenting a clear and compelling overview of the company's value and potential.

An Initial Public Offering (IPO) is the process by which a private company offers shares of its stock to the public for the first time. This transition allows the company to raise capital from public investors, thereby increasing its funding base for expansion and other corporate purposes. An IPO involves various steps, including regulatory filings, underwriting by investment banks, and setting an initial share price.

Leverage in Mergers and Acquisitions (M&A) refers to the use of borrowed capital to finance the acquisition of a company. By using leverage, buyers can increase their purchasing power and potentially enhance returns on investment. This borrowed capital typically comes in the form of loans or bonds and is often used in leveraged buyouts (LBOs), where the target company's assets and cash flows are used as collateral for the debt.

A Leveraged Buyout (LBO) is a financial transaction in which a company is acquired using a significant amount of borrowed money. The assets and cash flows of the company being acquired usually serve as collateral for the loans. The goal is to enable investors, typically private equity firms, to purchase the company with a relatively small amount of equity and maximize the return on their investment by using leverage.

Liquidation preference is a term used in venture capital and private equity agreements that specifies the order and amount of payments to investors in the event of a liquidation event, such as the sale, merger, or dissolution of a company. It ensures that investors receive their initial investment back (or a multiple of it) before any remaining proceeds are distributed to other shareholders, including the founders and employees.

A Management Buy-out (MBO) is a transaction in which a company's management team purchases the assets and operations of the business they manage. This type of buy-out is typically financed through a combination of personal investment by the management team, along with external financing from banks, private equity firms, or other investors. The goal of an MBO is often to give the management team greater control and ownership of the company.

Mergers and Acquisitions (M&A) involve the consolidation of companies or assets through various types of financial transactions. These transactions can include mergers, where two companies combine to form a new entity, and acquisitions, where one company purchases another. M&A is a crucial strategy for businesses looking to grow, diversify, or achieve competitive advantages in the market.

Mezzanine financing is a hybrid form of funding that combines debt and equity features, typically used by companies to finance growth or acquisitions. It often involves subordinated debt with warrants or options for the lender to convert into equity in case of default.

Multiples valuation is a financial measurement technique used to estimate the value of a company by comparing it to similar companies using financial ratios, or "multiples." Common multiples include Price-to-Earnings (P/E), Enterprise Value-to-EBITDA (EV/EBITDA), and Price-to-Sales (P/S). This method is widely used because it allows for quick comparisons and is relatively straightforward to apply.

A Non-Disclosure Agreement (NDA) is a legally binding contract that establishes a confidential relationship between parties, ensuring that any shared sensitive information remains protected and undisclosed to unauthorized third parties. NDAs are commonly used in business transactions, including Mergers and Acquisitions (M&A), to safeguard proprietary information, trade secrets, financial data, and other confidential details exchanged during negotiations and due diligence.

Preferred stock is a class of ownership in a corporation that has a higher claim on assets and earnings than common stock. Preferred shareholders receive dividends before common shareholders and have priority in the event of liquidation, but they typically do not have voting rights.

A Private Equity Fund is an investment vehicle created to pool capital from accredited investors and institutions to invest in private companies. These funds typically focus on acquiring, restructuring, and eventually selling businesses to generate high returns. Managed by private equity firms, these funds invest in a variety of sectors and stages of company development, including venture capital, growth equity, and leveraged buyouts.

Pro rata rights, also known as participation rights or preemptive rights, allow existing investors to maintain their ownership percentage in a company by participating in future funding rounds. These rights give investors the option to purchase additional shares before the company offers them to new investors.

Recapitalization is a corporate restructuring strategy aimed at changing a company's capital structure. This involves altering the mix of debt and equity to stabilize the company’s balance sheet, improve financial health, or achieve specific strategic goals.

Relative valuation is a method used to assess the value of an asset by comparing it to the values of similar assets in the market. This approach relies on market multiples derived from comparable companies or transactions, such as price-to-earnings (P/E) ratios, enterprise value-to-EBITDA (EV/EBITDA), and price-to-book (P/B) ratios.

Representations and warranties (R&W) are statements made by the seller (and sometimes the buyer) in a merger or acquisition agreement to provide assurances about various aspects of the business being sold. These statements cover a wide range of topics, including financial condition, legal compliance, ownership of assets, and operational status. They serve to inform the buyer about the true state of the business and protect against potential risks or misrepresentations.

A reverse merger is a process where a private company becomes a publicly traded company by acquiring a publicly listed shell company. This method allows the private company to bypass the lengthy and complex initial public offering (IPO) process.

A roll-up merger is a strategy where a company consolidates multiple small companies within the same industry into a larger entity. This approach is used to achieve economies of scale, expand market reach, and increase operational efficiency.

A Share Purchase Agreement (SPA) is a legal contract between a buyer and a seller that outlines the terms and conditions of the sale and purchase of shares in a company. It serves as the primary document governing the transaction, specifying the rights and obligations of both parties, the purchase price, and other critical details necessary to complete the sale.

A Special Purpose Acquisition Company (SPAC) is a publicly traded company created solely to raise capital through an initial public offering (IPO) for the purpose of acquiring an existing private company. This allows the private company to go public without going through the traditional IPO process.

A stock payment, also known as a stock-for-stock transaction, occurs in Mergers and Acquisitions (M&A) when the acquiring company uses its own shares to pay for the shares of the target company. Instead of cash, the shareholders of the target company receive shares in the acquiring company, effectively making them shareholders in the combined entity.

A strategic investor is an individual or company that invests in another business with the primary goal of achieving synergies that enhance the strategic objectives of both parties. Unlike financial investors, who are primarily focused on returns, strategic investors seek to create value through business integration, expanding market reach, leveraging complementary products or technologies, and achieving cost efficiencies.

Synergies in Mergers and Acquisitions (M&A) refer to the potential financial benefits that are expected to arise from the combination of two companies. The idea is that the combined entity will be more valuable than the sum of its parts due to enhanced efficiencies, cost savings, and increased revenue opportunities. Synergies can be broadly categorized into operational synergies and financial synergies.

Tag-Along Rights, also known as co-sale rights, are provisions that protect minority shareholders by allowing them to sell their shares if a majority shareholder sells theirs. This ensures that minority shareholders can participate in any sale and receive the same terms as the majority shareholder.

A teaser, also known as an investment teaser, is a brief document used in Mergers and Acquisitions (M&A) to spark interest among potential buyers or investors. It provides a high-level overview of the target company without disclosing its identity. The teaser is designed to entice interested parties to sign a Non-Disclosure Agreement (NDA) to receive more detailed information, typically in the form of a Confidential Information Memorandum (CIM).

A term sheet is a non-binding agreement that outlines the basic terms and conditions under which an investment will be made or an acquisition will take place. It serves as a blueprint for the definitive agreements to be drafted later, providing a framework for the final deal. In Mergers and Acquisitions (M&A), a term sheet sets the groundwork for the transaction, ensuring that both parties agree on the fundamental aspects before committing to detailed due diligence and legal documentation.

A valuation cap is a term used in convertible note financing that sets the maximum conversion price for the note, giving early investors the advantage of converting their investment into equity at a lower valuation if the company’s future valuation exceeds the cap. This mechanism protects early investors by ensuring they receive a favorable equity position relative to later investors.

A vesting schedule is a timeline that outlines when employees gain full ownership of employer-provided equity, such as stock options or retirement benefits. Vesting schedules are common in employee compensation plans to incentivize long-term commitment.

A waterfall structure is a financial model used to distribute returns among different classes of investors in a hierarchical manner. It specifies the order and priority in which investors receive returns, typically used in private equity, venture capital, and real estate investments.