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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.

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.

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.

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.

DivestmentA sale or disposal of company or business segment.

Entrepreneurs' reliefEntrepreneurs' Relief allows individuals to claim relief on qualifying gains, up to a maximum lifetime limit, made on the disposal of: - All or part of a business - The assets of a business after it has ceased - Shares in a company

Equity financingFinancing business operations by selling share capital in the company as opposed to taking on debt. The shareholders may be entitled to dividends. This is higher risk than lending and consequently the returns are usually greater.

GoodwillThe difference between the value of the company's assets and the price that is paid for the business.

IBOAn institutional buy-out is when a private equity house acquires the majority stake within a management buy-out. It can also be when the private equity house purchases the business in total and then allocates a minority stake to the current or incoming management.

Information memorandum (IM)A document which is issued to prospective investors of a project or business. It is provided for the sole purpose of assisting the investor in deciding whether they wish to proceed in further investigation. It usually specifies the confidentially agreements by which the recipient needs to abide by as the document often contains sensitive information.

MBI 'Management buy-in'A new management team, usually backed by investors, take a majority stake in the company. This can take place when there are succession issues such as within a family business, or if the incumbent management team lack the expertise or funding to buy-out the company.

MBO 'Management buy-out'Some or all of the existing management team, often with the support of a new investor, buys control of the business form the existing shareholders. This is seen as less risky for private equity investment as the management team are already established and know the business.

Secondary buy-outThis is a common exit strategy for private equity suppliers. The management team along with a different private equity funder acquire the business allowing the current private equity supplier to exit from its investment.

Seed capitalAn institutional equivalent of a Business Angel. They provide early stage finance to a company with a business venture or idea which has not yet been established. They may be in the form of funds managing other people's money or may be companies investing in their own right.

TargetA company or business that an investor wishes to purchase.

Trade saleThe sale of a business to another company involved in the same area. The company could be a competitor, supplier or another business with complementary technology.

Vendor financeThis can be in the form of either deferred loans or shares. This type of finance is often used when the vendor's expectation of the value of the business is higher than that of the management and the supporting institutions.