Accounting Period - The time period reflected by a set of financial statements, or the 12-month period a taxpayer uses to determine his or her income tax. ( Also called Fiscal Year).

Acquirer - The individual or company that is purchasing the stock of a Target company in stock purchase or the assets in an asset purchase, or the company which is acquiring a Target by means of a merger.

Acquisition - The process by which the stock or assets of a corporation are transferred to a buyer, either through a purchase of stock or a purchase of assets.

Adjusted (Recast) Book Value-The book value that results after one or more asset or liability amounts are added, deleted or changed from the respective book amounts.

Adjusted (Recast) Earnings-The earnings that result from the adjustment of historical financial statements, reflecting items that are unrelated to the ongoing business. (See also recasting.)

Adjusted Working Capital-Normal Working Capital (see definition below) excluding any debt in current liabilities. Synonymous with debt free working capital.

Any-and-all bid -A bid in which the acquiring company sets a price that it is willing to purchase shares and or assets at.

Arbitration - A form of alternative dispute resolution outside the courts, wherein the parties to a dispute agree to be bound by the decision of one or more arbitrators.

Asset acquisition-A form of acquisition whereby the seller of a corporation agrees to sell all or certain assets and, in some cases, liabilities of a company to a purchaser. The corporate entity is not transferred. Assets of the target company are purchased, rather than its shares

Asset Based Lending-A type of financing, commonly found in leveraged buyouts, based on a percentage of some value (book, liquidation, market, auction) of an asset. Asset based lenders typically analyze a target company's viability as a going concern and its ability to service debt from cash flow.

Assets - The property of a business which is defined in an asset purchase agreement, but which generally includes real estate, tangible personal property such as office equipment, manufacturing, automobiles and inventory, as well as intangible assets such as patents, copyrights and trademarks, and may include cash and securities.

Audited Financial Statements - Financial Statements which have been audited by a Certified Public Accountant in accordance with Generally Accepted Accounting Principles.

Balance sheet - A snapshot of a company's financial condition. Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its Fiscal Year.

Baskets and Caps-In negotiating indemnity provisions, the parties sometimes agree that a party need not indemnify the other unless the damages exceed a minimum amount, called a "basket." Sometimes baskets are a "true basket," where a seller is not liable for damages below that amount. Other times, the basket is merely a "threshold" or "tipping basket," in which case once that level of damages has been reached, the buyer can seek indemnity for all of its damages, including for those below the threshold. The parties may agree that certain liabilities (often for the breach of some of the representations and warranties) will not exceed a maximum level, called a "cap."

Book value - A determination of a company's balance sheet value by adding all current and fixed assets and then deducting all debts, other liabilities and the liquidation price of any preferred issues. Book value per common share is determined by dividing the book value by the number of common shares outstanding.

Break-Up Fee - A fee paid to a prospective Acquirer if a contemplated transaction is not consummated for reasons specified in the purchase agreement. Also called a Bust-up/Topping Fees-If the deal does not close, these fees may be paid to either the seller or buyer by the other to help cover costs incurred during the acquisition process.

Buy-Sell Agreement - An agreement among the shareholders of a company that governs how the owners of a business can sell their interests in the business, to whom, when, and at what price. The agreement includes provisions for death, disability, retirement, divorce, and voluntary and involuntary transfers. (Also called a Shareholder Agreement).

Capital Gains - The difference between an asset's purchase price and selling price, when the selling price is greater. Long-term capital gains (on assets held for a year or longer) are taxed at a lower rate than ordinary income. Individuals report capital gains on Form 1040, Schedule D.

Closing - The event when the required legal agreements (e.g., stock purchase agreement, asset purchase agreement or merger agreement) are implemented between the parties and shares or assets are exchanged for the consideration specified in the agreements. See also Effective Date.

Collar-A strategy using options that is designed to protect the seller who receives publicly traded stock in a transaction from price fluctuations in the stock.

Confidentiality Agreement - See Non-Disclosure Agreement below.

Covenant Not To Compete - An agreement often signed by an employee or a selling shareholder whereby they agree not to work for competitor companies or form a new competitor business within a specified period after termination of employment or the closing of the acquisition. Also called a "Non-Competition Agreement".

Data Rooms / Virtual Data Rooms-A "data room" is a place where a company's records and other due diligence materials are placed for inspection by prospective buyers. Data rooms can be a physical location. Alternatively, companies may scan those documents into a website, called a "virtual data room" to permit inspection from a distance through secure internet connections.

Deal Killers-Issues that cannot be resolved to the satisfaction of both parties.

Dissenters who believe their interests will be adversely affected by an acquisition and who work either overtly or covertly to subvert the transaction. May include executives fearing the loss of jobs, suppliers fearing the loss of an account, and irrational or prejudiced family members.

Deal Structure-The allocation of the consideration paid for a business. The components could include cash, notes, stock, consulting agreements, earnout provisions, and covenants not to compete. Many non-cash deal structure components have tax benefits to the seller.

Dealmaker-One who facilitates mergers and acquisitions including intermediaries, finders, and investors.

Due Diligence - A process undertaken by potential Acquirers to analyze and assess the desirability, value, and potential of a business which they may acquire.

Earn-Out/Earn-Up - A term in a stock purchase agreement or asset purchase agreement which entitles the seller to an increase in the purchase price if certain financial milestones are achieved. Buyers sometimes agree to only pay a portion of the purchase price if the business performs at specified levels over time. The deferred portion of the purchase price is referred to as an "earn-out." Earn-outs are often measured on sales, revenue or net income targets. Earn-outs can be used to help bridge disagreements over a target company's value, as well as to motivate the sellers to help contribute to the future success of the business.

EBITDA - "Earnings Before Interest, Taxes, Depreciation and Amortization": A measure of cash flow calculated as: Revenue - Expenses (excluding tax, interest, depreciation and amortization).

Effective Date - The date a contract (e.g., a stock or asset purchase agreement) is signed and becomes legally binding. Unless the contract is signed and closed the same day, there may be a period of time between the Effective Date and the Closing date.

Equity - The ownership interests in a company, generally in the form of stock or stock options.

Exclusivity - A provision in an agreement, such as a Term Sheet or Letter of Intent, in which the prospective seller agrees not to consider alternative offers or negotiate a separate deal from other suitors for a specific period of time.

Financial Statements - Financial reports of a company which include: Balance Sheet; Income statement (or Profit and Loss statement ("P&L"), Statement of retained earnings which explains the changes in a company's retained earnings over the reporting period; and Statement of Cash flows which reports a company's cash flow activities.

Fiscal Year - A 12-month period over which a company budgets its spending. A fiscal year may run over any period of 12 months. (See also Accounting Period).

GAAP - "Generally Accepted Accounting Procedures" are the common set of accounting principles, standards and procedures established by the Financial Accounting Standards Board that companies use to compile their Financial Statements.

Goodwill - An intangible asset which provides a competitive advantage, such as a strong brand and reputation. Following an acquisition, goodwill will appear on the balance sheet of the acquirer in the amount by which the purchase price exceeds the net tangible assets of the Target.

Holdbacks-Buyers may withhold payment of a portion of the purchase price (or that portion is placed into escrow with an escrow agent) to provide security for the seller's indemnity obligations. The withheld amounts are often referred to as a "holdback."

Indemnification - A contractual term whereby one party agrees to compensate the other party for any loss that the other party may suffer related to the contract or transaction. In stock and asset purchase agreements, it is typical for one party to indemnify the other party for a breach of Representations and Warranties made by such party.

Installment Sale - A sale of property where at least one payment is to be received after the tax year in which the sale occurs. See IRS Publication 537.

Intangible (Hidden) Assets The assets of a business that have value but are nonphysical and not shown on the balance sheet, such as patents, software, heavily depreciated fixed assets, strong contractual relationships and an experienced workforce.

Intellectual Property - A business's legally protectable intangible assets, including patents, copyrights, trade names, domain names, trade secrets and trademarks or service marks.

Internal Rate of Return-The rate of return where the net present value of cash inflows and outflows equals zero, thereby indicating that the future cash flows on the investment equal the cost of the investment.

Invested Capital-Book Value of Invested Capital (BVIC) - The sum of debt and the book value of equity in an enterprise at a point in time. Market Value of Invested Capital (MVIC) - The sum of debt and the market value of equity in an enterprise at a point in time. The value of invested capital is equal to the value of the operating business enterprise.

Investment Banker - An individual or institution that helps businesses raise capital by issuing and selling securities, and providing advice to clients to facilitate Mergers & Acquisitions.

Lock Up Provisions-Buyers attempt to prevent target companies from selling to another prospective buyer through contractual restrictions sometimes known as "lock up" provisions. Lock ups can include use of voting agreements by significant equity owners, "no-shop" provisions discussed below and other methods.

Letter of Intent - A letter of intent (LOI) is a preliminary agreement between two or more parties which outlines the terms of a potential transaction.

M&A - An abbreviation for "Mergers & Acquisitions", which generally refers to the buying and selling of companies, or the combination of two companies in which only one of the companies survives. Acquisitions can be asset purchases, where the buyer purchases the seller's assets, without assuming any liabilities, or stock purchases, where the buyer purchases the business's stock and takes over the seller's business.

Market Approach-A general way of determining a value indication of a business, business ownership interest or security using one or more methods that compare the subject to similar businesses, business ownership interests or securities that have been sold.

Material Adverse Change - A contractual provision in a stock purchase or asset purchase agreement that specifies that the transaction shall not terminate in the absence of certain material adverse changes to the seller's business prior to the Closing.

Merger - The legal combination of two or more corporations where one corporation goes out of existence and one corporation remains as the surviving entity.

"Multiple Buyer" Process-The process of involving multiple buyers in the purchase of a business. The process typically increases the price paid for the target and/or improves the deal structure.

No Shop Provisions-Contractual restrictions on engaging in negotiations with other bidders are called "no shop" provisions. If the sellers have a fiduciary obligation to consider unsolicited offers and eventually accept another, they may be required to pay a break fee, discussed above.

Non-Disclosure Agreement - An agreement to protect confidential information being disclosed to a prospective investor or acquirer. Also called an "NDA" or "Confidentiality Agreement".

Private Equity-The term private equity refers to any type of equity investment in an asset, such as a privately held company that is cannot be traded on a public stock market. Private equity firms may raise money from passive institutional investors to use for investment in target companies. A private equity firm will become involved in the management of the company it is investing in, in order to grow the company and make it more valuable. Types of private equity investments include: leveraged buyout, venture capital, growth capital, angel investing and mezzanine capital.

Promissory Note - A promissory note is a form of debt that a maker/debtor issues to raise money or pay as consideration in an acquisition.

Purchase Price Adjustment - A contractual provision designed to reflect the change in value of an asset between a specific date (e.g., the effective date of an asset or stock purchase agreement) and Closing.

Purchase Price Allocation - The assignment of fair values to all major assets and liabilities of an acquired business following an acquisition.

Recapitalization-In a private transaction, recapitalization is used to enable the seller to retain partial ownership and participate in a second sale, hopefully at a significantly higher price.

The reconfiguration of a company's capital structure. Typically recapitalization occurs to reduce immediate interest payments, reduce debt, reduce taxes, or leverage the operation.

Recasting-Recasting, or financial statement adjusting, eliminates from the historical financial presentation, items that are unrelated to the ongoing business, such as superfluous, excessive, or discretionary expenses and nonrecurring revenues and expenses. Recasting provides an economic view of the company as though it were run by management dedicated to maximizing profitability, and allows meaningful comparisons with other investment opportunities.

Representations & Warranties - Statements of fact and assurances by one party to the other party that certain facts or conditions are true or will be true at Closing.

Restricted Stock - Shares of stock which may not be sold in a public offering without a federal securities registration or after the expiration of a specific holding.

Reverse Triangular Merger - The merger of the Acquirer's subsidiary with and into the target company. As a result, the target would become a wholly-owned subsidiary of the Acquirer.

S Corporation - An eligible corporation whose shareholders have elected to have the income of the corporation be passed-through to the shareholders in accordance with Subchapter S of the Internal Revenue Code.

Seller - The seller of a business. In an asset sale, the Seller is the company. In a stock sale, the Sellers are the shareholders.

Security Agreement - A document where a Borrower grants the Lender a security interest in personal property (i.e., collateral).

Shareholder Agreement - See Buy-Sell Agreement.

Spin Off - A type of divestiture where a division or subsidiary is sold by the parent company.

Stock Purchase - An agreement for the acquisition of a business by which the shareholders transfer their shares to the acquirer.

Strategic Buyer-A buyer that is willing to pay a premium above economic valued because they view the target as an means into a market. The target is typically viewed as a large step towards the buyers strategic plan.

Synergistic Buyer-A buyer willing to pay a premium above economic value based on projected additional growth and profit to be achieved through the benefits of consolidation.

Synergistic Value-A premium value offered by a synergistic buyer above economic value, the difference being attributed to potential additional growth and profit beyond that which the target can achieve on its own and benefits the buyer brings.

Target - The business to be acquired in a proposed acquisition.

Tax-Free Reorganization - Certain forms of business combinations governed by Internal Revenue Code Section 368 in which shareholders do not incur tax liabilities.

Term Sheet - A document setting forth the terms of a proposed acquisition, merger or securities offering. A term sheet may take the form of a "Letter of Intent".

Termination Fee - See "Break up Fee" above.

Tombstone-An advertisement, usually in financial publications such as The Wall Street Journal, announcing an acquisition, securities offering, or underwriting. Also, a commemorative plaque announcing the transaction.

Transition Services Agreements / Management Agreements-Transition services or management agreements are frequently used to enable a seller to provide services to the buyer for an interim period until the buyer is able to assume those duties. The agreements set forth the rights, obligations and terms under which those services will be performed. Transition services agreements are often used while buyers obtain necessary licenses and permits, or implement technological conversions necessary to operate the newly acquired company.

Triangular Merger - A type of merger where a target company merges with and into a subsidiary of the acquiring corporation.

Valuation Approach-A general way of determining value using one or more specific valuation methods. (See also Asset Based Approach, Leveraged Valuation Approach, Market Approach and Income Approach.)

Valuation Method-Within valuation approaches, a specific technique to determine value.

Valuation Multiple-A factor wherein a value or price serves as the numerator and financial, operating or physical data of the company being valued serve as the denominator.

Value-The consideration at which a business enterprise passes from a willing seller to a willing buyer. It is assumed that both buyer and seller are rational and have a reasonable knowledge of relevant facts.

Working Capital - Current assets minus current liabilities. Working capital is a measure of a company's liquid assets.