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Glossary of Terms

Set out below is a Glossary of standard transactional terminology for private equity and corporate finance transactions. Use the filter menu if you are looking for a specific term, or to navigate the Glossary alphabetically.

A float/going PublicA UK float/quote/flotation/quotation is when a company offers their shares to be publically bought and sold on an exchange such as the London Stock Exchange (LSE), the Alternative Investment Market (AIM) or Plus Markets.

AcquisitionOne company taking over a controlling interest of another company.

Asset saleThe sale of the company's assets rather than a purchase of shares.

BIMBOA combination of both a management buy-in and a management buy-out. A new management team combines with the existing team, often with the backing of new investors.

BondA debt instrument issued for a period of more than one year with the purpose of raising capital by borrowing. The interest rate and maturity date is often fixed so they are low risk. As a result of this the return is often low.

Bridging loanA form of short-term financing used until longer-term financing can be achieved.

Business angelsIndividuals who provide start up finance for entrepreneurs in return for equity. In addition to cash they can also provide industry knowledge and contacts.

CapexCapital expenditure

Capital gainThe profit remaining when an asset is sold for more than its original purchase price. Capital gains are subject to tax so the investor will not necessarily receive the total profit made. A capital loss is when the asset is sold for less than its original purchase price.

Company saleA sale of the company's shares therefore the ownership of the entire company changes.

DCFDiscounted cash flow

DebentureA legal document which formalises the lender's charge over the assets of the company.

Debt financingThe use of borrowed money to finance a business. Different forms of debt can be used to raise money for working capital or capital expenditure such as overdrafts, bank loans, lease financing, commercial mortgage, invoice finance, asset finance or bonds. The loan can be secured or unsecured, short or long-term. The lender receives interest at an agreed rate and if the loan is not repaid may be entitled to take control of or sell assets which are owned by the company.

Deferred considerationThe purchaser agrees to pay part of the purchase price at a future date rather than paying the full purchase price at completion. It usually has conditions attached to the instalments such as whether certain performance criteria are met by the newly acquired company. The consideration can be made in different ways such as cash or shares.

DemergerA demerger is the opposite of an acquisition. A company spins off some business it owns into a completely separate company, usually carried out by distributing shares in the business to be spun off to shareholders of the company carrying out the demerger.

Development capitalInvestors make investments of up to £5 million. They expect the companies to be relatively mature. The money is used to make big changes to the company such as entering new markets, buying other companies or launching new products.

DivestmentA sale or disposal of company or business segment.

Due diligenceUsually undertaken by investors, due diligence refers to the process of making sure that someone or something is what they say they are and can do what they claim prior to an acquisition being completed. The individual elements of due diligence may include commercial (markets, product and customers), a market report, an accountants report (trading record, net assets and taxation position) and legal (implications of litigation, title to assets and intellectual property issues).

EBITEarnings Before Interest and Tax

EBITDAEarnings before interest, tax, depreciation and amortisation. An indicator of a company's profitability that is watched by investors.