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Accredited Investor:
Investors who are financially sophisticated with a reduced need for protection, as defined by Regulation D of the Security and Exchange Commission (SEC), these investors can include individuals, banks, insurance companies, employee benefit plans and trusts. Accredited investors must earn $200,000 individually or $300,000 jointly during each of the last two years and expect that to continue; have an individual or net worth of $1 million; and be a general partner, executive officer, director or a related combination.

Acquisition Accounting:
How assets, liabilities, non-controlling interest and goodwill of the company being acquired must be reported by the purchasing company on its consolidated financial statement. International standards require that one company be the “acquirer” and one company be the “acquiree” for all business combinations, even if a new company is created.

Acquisition Adjustment:
Also known as goodwill (see below), the difference between the price paid for an acquisition and the net original cost of the acquired company’s assets. This premium paid above the acquired company’s book value is based on intangible assets such as good customer relations, brands, patents, and other intangibles.

Adjusted Book Value:
This reflects a company’s true fair market value after liabilities, including off-balance sheet liabilities, and adjusted assets. While not often an accurate assessment of a profitable company’s operating value, adjusted book value is most often used to value companies facing liquidation, bankruptcy or sale due to financial distress.

Angel Investors:
The opposite of venture capitalists, angel investors are usually family and friends who use their own finances as seed money or for ongoing support. Focused on the success of a business rather than earning a profit from their investment, angel investors usually base their investment on the person rather than the viability of the business.

Consolidated Financial Statement:
This aggregated look at the combined financial statements of a parent company and its subsidiaries help measure the status of an entire group of companies rather than just a single company.

Dry Powder:
The amount of money available for investment or operations from highly liquid marketable securities such as treasuries or other fixed income investments

Due Diligence:
The care taken before entering into an agreement to confirm all of the material facts related to a potential investment. This could be performed by the buyer reviewing financial records and anything else related to the sale and by the seller to gauge the buyer’s ability to make the purchase.

EBITDA:
The most important metric when buying and selling. Specifically, Earnings Before Interest Tax Depreciation and Amortization, EBITDA is meant to determine the true value of any given business.

Fairness Opinion:
Usually compiled by investment bank analysts for key decision makers, the fairness opinion is a report that evaluates the facts of an acquisition to determine the fairness of the acquisition price.

Goodwill (see also Acquisition Adjustment):
A subjective valuation based on intangible assets such as good relations with customers and employees, brands, patents and other intangibles. This is the amount above the book value of the acquired company. Companies acquired at less than their book value are deemed as having negative goodwill.

Institutional Investor:
Institutional investors are non-bank individuals or organizations—such as pension funds, endowment funds, insurance companies, commercial banks, mutual funds and hedge funds—that trade in dollar amounts that are large enough so that they qualify for preferential treatment and lower commissions.

Investment Bankers:
Individuals who work for financial institutions involved with raising capital and who may also provide advice related to mergers and acquisitions.

Investment Horizon:
The amount of time an investor plans to hold a specific investment.

Leveraged Buyout:
Using a significant amount of borrowed money in the form of loans or bonds to make an acquisition, usually with a ratio of 90 percent debt to 10 percent equity. The assets of the company being acquired are often used as collateral along with those of the purchasing company. This enables companies to make large acquisitions without committing a lot of capital.

Multiple:
Determined by measuring one metric by another to determine some aspect of a company’s financial status, a multiple can show how much investors will pay per dollar of earnings.

Private Equity:
Equity capital that is not quoted on a public exchange, private equity comes from retail and institutional investors and funds that invest directly into private companies for acquisitions and also for other purposes such as expanding working capital, purchasing new technologies, or strengthen a balance sheet. Private equity investments often demand long holding periods to allow for a turnaround of a distressed company or a liquidity event such as an IPO or sale to a public company. Private equity usually consists of accredited and institutional investors. Private equity investors often prefer making a majority investment in order to maintain control. Sometimes partnering for large acquisitions, private equity investors work toward improving the finances of the acquired company in order to resell at a higher value.

Retail Investor:
Also known as an individual or small investor, retail investors are individuals who buy and sell securities for their personal account and not for another company or organization.

Valuation:
The process of measuring a company ‘or assets’ current value using a variety of subjective and objective techniques such as analyzing a company’s management or capital structure, future earnings or asset market value.

Roll-Up Merger:
A roll-up merger (also known as a “roll up” or a “rollup”) occurs when investors (often private equity firms) buy companies in the same market and merge them together. Roll-ups combine multiple small companies into something larger to be able to enjoy economies of scale. Private equity firms use roll-ups to rationalize competition in crowded and/or fragmented markets and to combine companies with complementary capabilities into a full-service business.

Target Firm:
A company which is the subject of a merger or acquisition attempt.

Venture Capital:
Institutions, such as pension funds, or wealthy individuals become limited partners with venture capitalists by retaining their services to invest their money. For example, a pension fund might hire a venture capitalist to invest $10 million of their money with the hopes of realizing several times that in return from a high performing startup. These investors typically expect to see a return on their investment within ten years.

Sources: Financial market sources, Investopedia (Investopedia.com) and other investment specialists.