Glossary ยท A to Z
Deal terms, in plain English.
59 terms you will meet in a sale, an acquisition or a fundraise, explained in a sentence or two. General descriptions of common practice in India; confirm legal and tax points with your CA or lawyer.
- Terms
- 59
- Letters
- 18
The index
From cap table to working capital adjustment.
Pick a letter, or read straight through. Where a term has a longer treatment in a guide, the entry links to it.
A
2 terms
- Acqui-hire
- Buying a company mainly to bring its team into the buyer's business. The product may be shut down or folded in.
- Asset purchase
- A deal where the buyer takes chosen assets, contracts and sometimes employees, while the shares of the company that owns them stay with the seller. More
B
1 term
- Buyer list
- The short list of buyers or investors a seller's adviser plans to approach, with the reason each one might be interested. More
C
8 terms
- Cap table
- A table of who owns what share of a company, including options and convertible instruments. Investors check it line by line.
- Carve out
- Selling one business unit or brand out of a larger company, which means separating its people, assets, contracts and systems.
- CCI approval
- Approval from the Competition Commission of India, needed for combinations above the notified size thresholds. Most mid sized deals fall below them.
- Change of control clause
- A clause in a contract, lease or loan that lets the other party end or renegotiate it if the ownership of the company changes.
- Closing
- The moment the deal completes: the price is paid and the shares or assets change hands. It can be the same day as signing or months later.
- Code name
- A made up name for a deal, used in emails and documents so that staff, customers and competitors do not learn about it early.
- Comparable companies
- A valuation method that looks at the multiples, such as price to earnings, at which similar listed companies trade. More
- Conditions precedent
- Things that must happen before closing, such as approvals, consents from lenders or landlords, or fixing a diligence finding.
D
8 terms
- Data room
- A secure place where the seller shares documents with buyers and their advisers, with access controlled by role and every view recorded. More
- Day One
- The first day after closing. The buyer needs bank mandates, payroll, customer letters and staff communication ready for it. More
- DCF (discounted cash flow)
- A valuation method that estimates future cash flows and discounts them to today's value. It is only as good as its assumptions. More
- Deal fatigue
- What happens when a deal drags on: people lose interest, the business suffers and small issues turn into reasons to walk away.
- Debt free, cash free
- A common pricing basis: the buyer pays for the business as if it had no debt and no surplus cash, and the price is adjusted for both at closing.
- Disclosure letter
- A letter from the seller listing exceptions to the warranties. Anything fairly disclosed usually cannot be the basis of a later claim. More
- Drag along
- A right for majority shareholders to make minority shareholders sell on the same terms when the majority sells.
- Due diligence
- The buyer's or investor's structured review of a business before signing: finance, tax, legal, operations, people and systems. More
E
5 terms
- Earn-out
- Part of the price paid later, depending on how the business performs after the deal, usually against revenue or profit targets. More
- EBITDA
- Earnings before interest, tax, depreciation and amortisation. A rough measure of operating profit used in many valuations.
- Enterprise value
- The value of the whole business before taking away debt and adding surplus cash. Equity value is what shareholders receive after those adjustments.
- Escrow
- Money held by a neutral party, usually a bank, until agreed conditions are met. Often used for part of the price as security for claims.
- Exclusivity
- A period in which the seller agrees not to negotiate with other buyers, so the chosen buyer can do diligence. More
F
1 term
- FEMA
- The Foreign Exchange Management Act, which, with RBI rules, governs investment into and out of India, including pricing and reporting.
H
2 terms
- Heads of terms
- A summary of agreed commercial points that guides the lawyers drafting the final agreements. Mostly non binding. More
- Holdback
- Part of the price kept back by the buyer for a period to cover possible claims, paid later if none arise.
I
3 terms
- Indemnity
- A promise by the seller to make good a specific loss, often for a known issue found in diligence, such as a pending tax demand. More
- Information memorandum
- A document describing the business for serious buyers or investors after they sign an NDA: history, market, operations, numbers and the opportunity. More
- Integration
- Bringing the bought business into the buyer's: customers, people, payroll, finance, systems and purchasing. More
L
2 terms
- Locked box
- A pricing method where the price is fixed on a past balance sheet date and the seller promises no value leaks out of the business after it.
- LOI (letter of intent)
- A short letter recording the main terms agreed in principle before diligence and the definitive agreements. More
M
4 terms
- MAC clause
- A material adverse change clause, letting the buyer walk away or renegotiate if something seriously harms the business before closing. More
- Management buyout
- The existing managers buy the business, usually with outside funding and often over time. More
- Mandate
- The written appointment of an adviser to run a sale, a purchase or a fundraise, with scope, terms and responsibilities.
- Minority stake
- A holding of less than half of the shares. Its value depends a lot on the rights that come with it.
N
2 terms
P
3 terms
- Pipeline
- The list of deals, targets or investors being worked on, each with a stage, an owner and a next step. More
- Post merger integration (PMI)
- The planned work after closing to combine two businesses, usually run over the first hundred days and into year two. More
- Precedent transactions
- A valuation method based on the prices paid in past deals for similar businesses.
Q
1 term
- Quality of earnings
- A review of how real, repeatable and cash backed a company's reported profit is. More
R
4 terms
- Representations and warranties
- Statements of fact the seller makes about the business in the agreement. If one is untrue, the buyer may claim. More
- Request list
- The buyer's list of documents and information needed for diligence, organised by area and tracked to completion. More
- Right of first refusal
- A right for existing shareholders to buy shares on the same terms before they can be sold to an outsider.
S
6 terms
- Sell side mandate
- An adviser's appointment to run the sale of a business or a stake for its owners.
- Signing
- When the definitive agreements are signed. Closing follows once the conditions are met.
- Slump sale
- Sale of a whole business undertaking for a lump sum without values assigned to individual assets. The Income Tax Act gives it a specific tax treatment.
- Strategic buyer
- A buyer in the same or a related business, who may pay for synergies a financial investor cannot capture.
T
4 terms
- Tag along
- A right for minority shareholders to sell their shares on the same terms if the majority sells.
- Term sheet
- A summary of the main terms of an investment, usually used in fundraising. Mostly non binding apart from confidentiality and exclusivity. More
- Transition services agreement
- An agreement for the seller to keep providing some services, such as IT or payroll, for a while after closing.
V
1 term
- Valuation
- An estimate of what a business or a stake is worth, using one or more methods and a set of assumptions. More
W
2 terms
- Warranty and indemnity insurance
- Insurance that covers losses from breaches of warranties, so the buyer claims from the insurer. Less common in Indian mid sized deals.
- Working capital adjustment
- A change to the price at closing if the business's working capital is above or below an agreed normal level. More
Next step
A term on a draft you do not recognise? Ask an adviser before you sign.
A thirty minute confidential call with an adviser. You leave with the steps, the documents you will need and where the risks usually sit.