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Jargon Buster
Adjusted Profits
The real underlying maintainable profits of the business (as opposed to the profits shown by the accounts!).
The amount of money owing to the bank including what is left of the initial loan to purchase the business.
Cash Out Multiple
The amount of cash realised on the sale of a business compared to the cash cost of the investment (a measure of return which ignores the amount of time the cash is invested).
Corporate Finance
This term simply refers to the function of raising money within or for a business to fund activities such as growth, acquiring a business or restructuring.
Due Diligence
This refers to the investigations carried out to check the facts about what has been said about a business or is stated in its accounts.
EBITDA
Earnings before interest, tax, depreciation and amortisation.
This is the ratio of debt to equity in a business; a highly geared company will have a lot of debt to the amount of equity.
Heads of Agreement
This is a list of the main points of any deal and would include the price, main warranties, critical issues and so on.
IRR (Internal Rate of Return)
The annual rate of return achieved on an investment, measured over the life of the investment (including the sale proceeds).
Management buy in
These are similar to management buy-outs but involve an external manager or management team buying into a business in order to strengthen or replace the existing team.
Management buy out
Management buy-outs are simply the purchase of a business from its existing owners by the managers currently running it. This is normally done together with one or more financial partners who are providing the funding.
Management Equity
The shares that will be owned by the management team.
Operating Profit (EBIT)
The profit of a business before tax and interest is taken into account.
Private Equity
This refers to finance provided by either institutions or individuals (business angels). In return they will want shares in the company and influence over its strategy.
Run Rate Profit
The annualised profit based upon a recent short period e.g. the last month or quarter.
Venture Capital
This is simply money provided by an individual or company usually in return for shares in a business and which is expected to be repaid at a higher rate than a bank.
Vendor Deferred Payments
The person selling the business (the vendor) may accept some of the purchase price at a deferred date(s) after the MBO.
Warranties
These are statements made from one party to another about the business that are agreed as part of the deal and are a form of protection so if something happens or is discovered in the future then an agreement is in place as to what should then happen.
If your term is not listed please email us and we will send you an explanation and add it to the list
If your term is not listed please email us and we will send you an explanation and add it to the list
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