M&A Glossary: 50 Essential Terms for Buyers and Sellers
*Approx. 1,500 characters / Fictional explanation for beginners. Nuances of the same terms may vary depending on the expert. We have organized these based on the practical experience of TSUGI & PARTNERS.
Introduction: Breaking Through the Wall of Jargon
Business owners considering M&A for the first time are inevitably confused by technical terminology. "EBITDA? LOI? Goodwill?"—the hurdle rises just by seeing unfamiliar foreign terms. In this article, we have divided 50 terms into 5 categories and explained them as simply as possible. Reduce the hassle of looking things up and approach your discussions with experts smoothly.
A. Negotiation Phase (10 terms)
NDA (Non-Disclosure Agreement): The first document to prevent information leaks.
Teaser (Project Summary): A "sneak peek" document with the company name withheld.
IM (Information Memorandum): A detailed brochure containing three years of financial statements, etc.
LOI (Letter of Intent): The buyer's "I will buy" declaration. Moderate binding force.
Exclusive Negotiation Rights: A promise not to negotiate with other companies during the period.
Top-level Meeting: A face-to-face meeting between business owners. A place to explore true intentions.
Reverse Due Diligence (Seller DD): A reverse DD where the seller investigates the buyer.
Cap Table: A capitalization table. Important for startups.
RWI (Representations and Warranties Insurance): Insurance to cover damages if defects are discovered later.
Closing: The moment when the contract is signed and payment is completed.
B. Valuation & Finance (10 terms)
EBITDA: Operating profit + depreciation. An indicator of cash-generating ability.
DCF Method: A theoretical valuation method using discounted future cash flows.
Multiples Method: A simplified method using industry peer valuation multiples.
Net Debt: Interest-bearing debt minus cash and deposits. Used for acquisition price adjustments.
Working Capital Adjustment (NWC Adjustment): Any shortfall is deducted from the price.
Earn-out: A mechanism where additional consideration is paid upon achieving performance targets.
Goodwill: The difference between the acquisition price and net assets. Represents intangible value.
PPA (Purchase Price Allocation): Accounting process to break down goodwill.
Recapitalization: Restructuring of financial structure. Frequently used by PE funds.
CF Scenario: Post-integration cash flow forecast. The core of loan screening.
C. Due Diligence (10 terms)
Financial DD: Verifying discrepancies between books and reality.
Legal DD: Examining contracts, regulations, and litigation risks.
Business DD: Analyzing market environment and competitive advantages.
HR DD: Reviewing work regulations and retirement benefit obligations.
IT DD: Evaluating system obsolescence and cyber risks.
Environmental DD: Investigating soil contamination and compliance with wastewater regulations.
Red Flag: A preliminary report on critical risk items.
Data Room: An online space for sharing documents.
Q&A List: A record of questions and answers during DD.
Materiality: A criterion for determining the significance of an impact.
D. PMI/Integration (10 terms)
PMI (Post Merger Integration): The overall integration process after an acquisition.
Day 1 Plan: An action plan for the day after closing.
100-Day Plan: KPIs to be achieved within the first three months or so.
TS (Target State): The ideal state after integration.
Quick Win: Early results to demonstrate success and maintain morale.
Governance Code: An integrated version of internal control rules.
Culture Fit: The degree of compatibility between corporate cultures.
Communication Plan: A strategy for explaining the situation to employees and business partners.
Synergy Tracking: A tool for tracking integration effects numerically.
TSUGI Method: A proprietary PMI method that 'doubles the vision' through philosophy and DX.
E. Contracts and Taxation (10 terms)
SPA (Stock Purchase Agreement): The main contract for stock trading.
APA (Asset Purchase Agreement): The contract used in the case of a business transfer.
Representations and Warranties: A declaration by the seller that 'there are no hidden liabilities.'
Clawback Clause: A provision to return consideration if additional losses occur.
Deemed Capital Gains Taxation: Income tax borne by individual shareholders.
Business Transfer Tax System: Consumption tax and income tax incurred upon the transfer of goodwill.
Organizational Restructuring Tax System: Tax deferral rules applied during mergers and spin-offs.
Negative Goodwill: A special case where the acquisition price is lower than the net assets.
Closing Adjustment: Settlement of increases or decreases in assets on the closing date.
Earn-in / Earn-out: A method of gradually increasing the shareholding ratio through small investments.
Summary and Next Steps
Even if M&A terminology seems difficult, understanding the meanings will become a weapon in your negotiations. Bookmark this article and check it immediately whenever you encounter a word you don't understand.TSUGI & PARTNERS supports you in "M&A that connects visions" while breaking down technical terms. If you have any questions, please feel free to comment or send us a DM!