What M&A Terminology Should I Know?
Learn key terms like LOI, due diligence, earnout, escrow, representations and warranties, enterprise value, and MAC clauses. If you don't understand something, ask—it's better to look like you're learning than to fake it and make mistakes.
Essential M&A Terms
Deal Process Terms
LOI (Letter of Intent) - Non-binding agreement on basic terms and price
Due Diligence - The buyer's deep investigation into your business
Exclusivity Period - Time when you can't talk to other buyers (usually 60-90 days)
Closing Conditions - What needs to happen before the deal can close
MAC (Material Adverse Change) - Events that can allow buyers to walk away or renegotiate
Deal Structure Terms
Earnout - Deferred payment based on future performance milestones
Escrow - Money held back (usually 10-20%) to cover potential issues
Working Capital Adjustment - Price adjustment based on cash/assets at closing
Asset Deal vs Stock Deal - Different structures with tax and liability implications
Representations and Warranties - Legal promises you make about your business
Valuation Terms
Enterprise Value - Total company value before debt/cash adjustments
Equity Value - What shareholders actually receive after debt/cash adjustments
Multiple - Valuation divided by revenue, EBITDA, or other metrics
EBITDA - Earnings before interest, taxes, depreciation, and amortization
Working Capital - Current assets minus current liabilities (day-to-day operating funds)
Legal and Risk Terms
Indemnification - Who's responsible for what problems after closing
Survival Period - How long your representations and warranties remain in effect
Disclosure Schedule - Document listing exceptions to your representations
Non-Compete - Restrictions on what you can do after leaving
Key Person Risk - Buyer's concern about losing critical employees
Buyer Types and Motivations
Strategic Buyer - Operating company that wants synergies with your business
Financial Buyer - Private equity firm focused on financial returns
Roll-up - Strategy of buying multiple similar companies to create scale
Tuck-in Acquisition - Small deal that gets integrated into existing operations
Don't Fake Understanding
If you encounter a term you don't understand:
- Ask for clarification immediately
- Have your lawyer explain implications
- Don't sign anything you don't fully understand
- It's better to look like you're learning than to make expensive mistakes