The premier source of transactional advice in the south east
Banner 1

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.

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

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

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.

DivestmentA sale or disposal of company or business segment.

AcquisitionOne company taking over a controlling interest of another company.

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.

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

IPOBeing an initial public offer. Shares in the company are placed on a stock exchange.

P/E ratioThe P/E ratio is one of the most commonly used ways of measuring a share's value compared to its peers and is calculated by dividing a company's share price by its earnings per share. Investors tend to compare the P/E ratios of companies in the same sector or the same index. A high P/E ratio generally indicates that a company is fast growing, but can also indicate that it is a higher risk investment. A low P/E ratio often indicates that a company is more mature.

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.

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.

Loan notesThese may be offered by the purchaser of the company shares to the seller agreeing to make payments to the holder of the loan notes at a specified date. It is a form of deferred payment.

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.

Mezzanine financingThis type of financing is used to bridge the gap between the secured debt a company can support, the available equity and the purchase price. As mezzanine financing is higher risk that senior debt the interest charged is higher. It also often carries warrants to subscribe to ordinary shares.