Corporate Finance & M&A
60 Corporate Finance & M&A terms, defined in plain English — part of the 1345-term Finicade finance glossary. Each one has its own page, and links to the free game that teaches it.
- Accretion/Dilution
- An acquisition is accretive if it raises the buyer's earnings per share and dilutive if it lowers them.
- Activist Investor
- An activist investor takes a stake and publicly pressures management to change — sell a division, return cash, replace the board.
- Asset Deal vs Stock Deal
- In an asset deal the buyer picks specific assets and liabilities; in a stock deal it buys the company whole, including everything it has ever done.
- Bolt-On Acquisition
- A bolt-on is a small acquisition added to an existing platform business, bought for a capability, a geography or a customer base.
- Break Fee
- A break fee compensates one side if a deal collapses for defined reasons — typically 1–3% of deal value if the target accepts a better offer.
- Bridge Loan
- A bridge loan is short-term financing that covers the gap until permanent funding arrives — typically underwriting an acquisition before bonds are issued.
- Capital Structure
- Capital structure is the mix of debt and equity funding a business.
- Carve-Out
- A carve-out sells a minority stake in a subsidiary to outside investors, often through an IPO, while the parent keeps control.
- Chapter 11 Bankruptcy
- Chapter 11 is US reorganisation: the company keeps trading under existing management while an automatic stay freezes creditors and a plan is agreed.
- Comparable Company Analysis
- Comparable company analysis values a business against the multiples of similar listed companies.
- Corporate Governance
- Corporate governance is the system of rules by which a company is directed and held accountable: board composition, pay, audit, shareholder voting.
- Cost of Debt
- The cost of debt is the rate a company pays on its borrowings, and what matters for valuation is the after-tax version, since interest is deductible.
- Covenant
- A covenant is a promise in a loan agreement — to keep leverage below a level, coverage above one, or not to sell key assets.
- Covenant-Lite
- Covenant-lite loans drop maintenance covenants, leaving lenders with no quarterly tripwire and no early seat at the table.
- Data Room
- A data room is the controlled repository where a seller discloses contracts, accounts, litigation and staff data to bidders under an NDA.
- Dilution
- Dilution is your ownership percentage falling because the company issued more shares.
- Discounted Cash Flow (DCF)
- A DCF values a business as the present value of the cash it will generate, discounted at a rate reflecting its risk.
- Distressed Debt
- Distressed debt investing buys the obligations of troubled companies at deep discounts, betting the recovery exceeds the price.
- Divestiture
- A divestiture is selling a business unit outright, for cash, to a strategic buyer or a sponsor.
- Dividend Recap
- A dividend recap has a portfolio company borrow money to pay its owners a dividend, letting a sponsor take cash out without selling.
- Earnout
- An earnout pays part of a purchase price later, contingent on the acquired business hitting targets.
- Economic Value Added
- Economic value added is after-tax operating profit minus a charge for the capital employed.
- Equity Value
- Equity value is what the shareholders' stake is worth; enterprise value is what the whole business is worth to all capital providers.
- EV/EBITDA
- EV/EBITDA values the whole enterprise against its pre-interest, pre-tax, pre-depreciation earnings.
- Golden Parachute
- A golden parachute is a large payout to executives if they lose their jobs after a takeover.
- Hostile Takeover
- A hostile takeover is an acquisition pursued against the target board's wishes, through a tender offer or a proxy fight to replace the directors.
- Hurdle Rate
- A hurdle rate is the minimum return a project must clear to be approved, usually the cost of capital plus a margin for risk.
- Letter of Intent
- A letter of intent sets out the headline terms of a deal before the binding contract — price, structure, timetable, exclusivity.
- Leveraged Buyout (LBO)
- An LBO buys a company mostly with borrowed money, secured against the target's own assets and repaid from its cash flow.
- Management Buyout
- A management buyout is the existing management team buying the company they run, usually backed by a private equity sponsor.
- Material Adverse Change
- A material adverse change clause lets a buyer walk away if something seriously damages the target between signing and closing.
- Mergers and Acquisitions (M&A)
- M&A is the buying, selling and combining of companies.
- Mezzanine Financing
- Mezzanine sits between senior debt and equity — subordinated, often with payment-in-kind interest and warrants attached.
- Moat
- A moat is a structural advantage that lets a company earn returns above its cost of capital for years without competition eroding them.
- Modigliani-Miller Theorem
- Modigliani and Miller proved that without taxes, bankruptcy costs or information gaps, capital structure does not affect firm value.
- Payback Period
- The payback period is how long a project takes to return its initial investment.
- Pecking Order Theory
- Pecking order theory says firms prefer internal funds first, then debt, and issue equity only as a last resort.
- Poison Pill
- A poison pill lets all shareholders except a hostile bidder buy new shares cheaply once that bidder crosses an ownership threshold, massively diluting them.
- Post-Merger Integration
- Post-merger integration is the work of actually combining two organisations — systems, processes, cultures, people.
- Precedent Transactions
- Precedent transaction analysis values a company using multiples paid in past acquisitions of similar businesses.
- Profitability Index
- The profitability index divides the present value of future cash flows by the initial investment, expressing NPV per dollar committed.
- Purchase Price Allocation
- Purchase price allocation assigns what you paid across the acquired assets and liabilities at fair value, with the unexplained remainder recorded as goodwill.
- Recapitalization
- A recapitalisation changes the mix of debt and equity without changing the business — swapping one for the other, or issuing debt to buy back shares.
- Representations and Warranties
- Representations and warranties are the seller contractual statements about a business — that the accounts are accurate and the taxes are paid.
- Reverse Merger
- A reverse merger takes a private company public by merging it into an existing listed shell.
- Revolving Credit Facility
- A revolver is a committed credit line a company can draw, repay and redraw, paying a commitment fee on the undrawn portion.
- Roll-Up Strategy
- A roll-up acquires many small companies in a fragmented industry and combines them into one larger business.
- Senior vs Subordinated Debt
- Seniority determines who gets paid first in a default, and the ranking drives almost everything about pricing.
- Share Buyback
- A share buyback returns cash to shareholders by repurchasing stock, raising earnings per share by shrinking the share count.
- Shareholder Rights
- Shareholder rights are what owning a share entitles you to: voting on directors, dividends declared, approving major deals, inspecting some records.
- SPAC
- A SPAC raises money in an IPO with no business at all, then hunts for a private company to merge with, typically within two years.
- Spin-Off
- A spin-off distributes shares in a subsidiary directly to existing shareholders, creating an independent listed company with no cash changing hands.
- Sponsor
- A sponsor is the private equity firm behind a buyout — the equity provider that structures the deal, appoints the board and drives the exit.
- Sum-of-the-Parts Valuation
- Sum-of-the-parts values each business segment separately and adds them up, which is how conglomerates are analysed.
- Synergies
- Synergies are the value created by combining two companies — cost savings from removing duplication, or revenue gains from cross-selling.
- Tender Offer
- A tender offer is a public bid made directly to shareholders to buy their shares at a stated price, bypassing the board.
- Term Loan B
- A Term Loan B is the institutional tranche of leveraged loan financing — floating rate, minimal amortisation, sold to funds and CLOs rather than banks.
- Terminal Value
- Terminal value captures everything a business earns beyond the explicit forecast, and it routinely accounts for 60–80% of a DCF's total value.
- Valuation Multiple
- A valuation multiple expresses price as a ratio to some financial metric — earnings, EBITDA, revenue, book value.
- White Knight
- A white knight is a friendly acquirer invited in to outbid a hostile one on terms management prefers.