A

• Asset Backed Finance

  Loans made to a company that are secured against specific assets such as Plant and Machinery

B

• BIMBO (Buy In Management Buy Out)
• Business plan
A detailed description of the plans of an existing business and its expansion plans or a new business, with financial projections.

C

• Consideration
  The proceeds from the transaction that are paid to the vendors
• Completion
  The moment when legal documents are signed and a corporate finance transaction is concluded.

D

• Debt
  Debt is borrowed money from a bank or other institution, where interest has to be paid at a specified rate and the total borrowed must be repaid either on a specified date or (as in bank overdrafts) on demand.
• Deferred Consideration / Loan Notes

This is where part of the proceeds of the sale are paid over a period time post Completion.

• Due diligence
  The detailed analysis and appraisal of a business, which takes place after an investment, loan or sale, has been agreed in principle. The aim is to ensure that there is nothing which contradicts the financier’s or buyers understanding of the current state and potential of the business. The individual elements of due diligence may include commercial due diligence (markets, product and customers), a market report (marketing study), an accountants report (trading record, net asset and taxation position) and legal due diligence (implications of litigation, title to assets and intellectual property issues).

E

• Earn Out
  Consideration that is dependent on the future performance of the company.
• EBIT
  Earnings before interest and tax.
• EBITDA
  Earnings before interest, tax, depreciation and amortisation. EBITDA is more akin to a measure of cash flow generated by the company before the payment of corporation tax.
• EBIT multiple
  The market price of a business divided by the EBIT. The EBIT multiple is applied to a business’s EBIT to calculate the value of the business.
• Enterprise Value
  The Equity value of the business plus debt that is in the business
• Equity
  Equity investors share ownership of an enterprise. Consequently, they share both the rewards, if the business prospers, and the risk of losing their investment if things go wrong.
• Equity Value
  The value of the shares of a company
• Excess Assets
  Assets that are held in a business that are not utilized for running it on a day to day basis. An example would be where a company holds significant cash balances.
• Exit
  The opportunity for investors to sell their investment. Normally, the exit from investment in a private company occurs either through a trade sale of the company or through its flotation on the stock market. When raising finance, the opportunity to exit will be a key part of the investors’ assessment.

G

• Gearing / Leverage
  The ratio of debt to equity capital. If a balance sheet shows £10 million of total assets and a debt of £6 million, the gearing is 60%. The higher the gearing, the greater the exposure to changes in circumstances although in secure times high gearing can fuel growth.

H

• Heads of Terms / Heads of Agreement
  A non-binding document outlining the main commercial issues relevant to a tentative acquisition of shares agreement. It will normally also grant the purchaser a period of exclusivity.

I

• Information Memorandum
  A sales document that is provided to potenti

al buyers of a business (once a confidentiality agreement has been executed) that provides confidential information to the purchaser and the possible opportunity.

• Integrated Financial Forecast
  A detailed forecast that includes a Balance Sheet, Cash flow and Profit & Loss account. The forecasts are fully integrated therefore should one figure change the balance sheet, cash flow and Profit and Loss Account all automatically are updated.
• Interest Cover
  The ratio of EBIT to the interest charge in the accounts.
• Invoice Discounting
  This allows a business to draw money against its sales invoices before the customer has actually paid. To do this, the business borrows a percentage of the value of its sales ledger from a finance company, effectively using the unpaid sales invoices as collateral for the borrowing.

L

• LBO (leveraged buy-out)
  This is an MBO in which the equity capital is supported by a very large amount of debt i.e. highly geared.
• Loan Note
  See Deferred Consideration

M

• MBI (Management Buy In)
  A MBI is similar to an MBO but the MBI team are a complete management team who are not currently working for a business.
• MBO (management buy-out)
  An MBO involves the management team of a business, usually with the backing of external financing, taking over ownership of the business where they are employed. MBOs are a common way of changing ownership. Often, a large company hives off one of its subsidiaries by selling to its management team. Another source of MBOs is family businesses where the owner wishes to retire.
• Mezzanine Finance
  This finance is either a subordinated loan or preferred equity instrument that represents a claim on a company’s assets which is senior only to that of the common shares. Mezzanine capital is often a more expensive financing source for a company than secured debt or senior debt due to its higher risk profile.

P

• Private Equity
  Investments in private equity most often involve either an investment of capital and loans into an operating company or the acquisition of an operating company.

S

• Sales Memorandum
  See Information Memorandum
• Senior Debt
  A-non-asset backed loan made to a company by a bank.
• Share sale
  Sale of the shares in a company

T

• Trade and Asset sale
  Instead of selling the shares in the company, often companies choose to sell the trade and assets. The proceeds from the sale are received by the company and not the shareholders.

V

• Vendor
  The seller of a business.
• Vendor finance
  Can either be in the form of deferred loans from, or shares subscribed by, the vendor. The vendor may well take shares alongside the management in the new entity. This category of finance is generally used where the vendor’s expectation of the value of the business is higher than that of management and the institutions backing them.
• Venture Capital
  Venture Capital is provided as seed funding to early-stage, high-potential, growth companies and more often after the seed funding round as growth funding round. Typically Venture Capital money is relatively high risk and accordingly Venture Capitalists look for a large return on this money.

W

• Warranties and indemnities
  The legal undertakings often required by the purchaser of a business or asset from the previous owners to confirm there will be no nasty surprises post completion.
• Working capital
  Capital that is required to finance the trading activities of a company.