M&A and corporate finance glossary

Plain-language definitions of the terms used in valuation, M&A and debt financing: EBITDA, EV, WACC, DSCR, LTV, covenants, SPA, earn-out and more.

Adjusted (normalised) EBITDA: EBITDA restated to remove one-off, non-recurring or non-market items (e.g. owner salaries above market, extraordinary litigation, related-party rents). Buyers and lenders price the business on this figure, so every adjustment must be documented. Guides
Bullet repayment: Principal repaid in full at maturity instead of in instalments. It improves cash flow during the loan's life but creates refinancing risk at the end. Guides
Covenant: A contractual commitment in a loan agreement, such as maximum leverage, minimum DSCR or limits on dividends. Breaching a financial covenant allows the lender to renegotiate or accelerate the loan. Guides
Discounted cash flow (DCF): Valuation method that projects free cash flows, usually for five years, adds a terminal value and discounts everything at the WACC. It values the specific business plan rather than the market average. Guides
DSCR (debt service coverage ratio): Cash flow available for debt service divided by scheduled interest and principal. Lenders typically require a minimum around 1.20x–1.30x as a covenant; below 1.0x the business cannot pay its debt from operations. Guides
Due diligence: The buyer's or lender's detailed review of the company (financial, tax, legal, labour, commercial, IT) to confirm the information received and identify risks that affect price or terms. Guides
Earn-out: Part of the price paid later, only if the business reaches agreed targets (usually EBITDA or revenue). It bridges valuation gaps between buyer and seller. Guides
EBITDA: Earnings before interest, taxes, depreciation and amortisation. A proxy for operating cash generation before financing and investment decisions, and the base for most mid-market valuations and debt sizing. Guides
Enterprise value (EV): The value of the operating business to all capital providers, independent of how it is financed. Multiples and DCF produce enterprise value; equity value is derived from it. Guides
Equity value: What the shareholders receive: enterprise value minus net financial debt and minority interests, plus non-operating assets. It is the figure that matters to a seller. Guides
Escrow: Part of the price held by a third party for a period after closing to cover potential warranty claims. Guides
EV/EBITDA multiple: Enterprise value divided by EBITDA. The most widely used valuation multiple for profitable companies; it varies by sector, size, growth and margin quality. Guides
EV/Sales multiple: Enterprise value divided by revenue. Used for companies with negative or unrepresentative EBITDA, such as high-growth or early-stage businesses. Guides
Indicative offer (NBO / LOI): A non-binding offer with a price range and key conditions, submitted after reviewing the information memorandum. It is used to shortlist bidders for due diligence. Guides
Information memorandum (IM): The detailed document describing the business, market, financials and business plan, shared with interested parties after the NDA. In financings the equivalent is the credit memo. Guides
LBO (leveraged buyout): An acquisition financed largely with debt that is repaid from the target's own cash flows. Common in private equity; the return depends on deleveraging, EBITDA growth and exit multiple.
Leverage (net debt / EBITDA): Net financial debt divided by EBITDA: how many years of EBITDA it would take to repay the debt. It is the main metric lenders use to size corporate loans and set covenants. Guides
LTV (loan to value): Loan amount divided by the appraised value of the collateral. Common in real estate and asset-backed finance; lower LTV means more equity cushion for the lender. Guides
Mezzanine debt: Subordinated financing between senior debt and equity, often with payment-in-kind interest or equity warrants. It extends total leverage at a higher cost.
NDA: Non-disclosure agreement signed before confidential information is shared. In M&A it usually also covers non-solicitation of employees and use of information only to evaluate the deal. Guides
Net financial debt: Interest-bearing debt (bank loans, bonds, leases, shareholder loans) minus cash. Purchase agreements define it precisely, because every euro of net debt reduces the price paid for the shares.
Senior debt: Debt that ranks first for repayment and usually holds security over the company's assets. It is the cheapest layer of financing and carries the strictest covenants. Guides
SPA (share purchase agreement): The binding contract for the sale of the shares: price and adjustments, representations and warranties, indemnities, conditions precedent and closing mechanics. Guides
Teaser: A short, usually anonymous summary of the opportunity sent to potential buyers or investors to gauge interest before an NDA is signed. Guides
Term sheet: A short, mostly non-binding document that sets out the key terms of an investment or loan (amount, price, structure, conditions) before the final contracts are drafted.
Terminal value: The value of all cash flows beyond the explicit forecast, calculated with a perpetual growth rate (Gordon) or an exit multiple. It often represents more than half of a DCF, so its assumptions deserve the most scrutiny. Guides
Unitranche: A single loan that combines senior and subordinated debt at one blended price, typically provided by private credit funds. Faster to execute, usually more expensive than bank senior debt. Guides
Vendor loan: Financing provided by the seller: part of the price is deferred and repaid by the buyer over time, usually subordinated to bank debt.
Virtual data room (VDR): A secure online repository where the seller shares documents for due diligence, with access control, audit trail and a Q&A process. Guides
WACC: Weighted average cost of capital: the blend of the cost of equity (risk-free rate plus beta times the equity risk premium, plus country and size premia) and the after-tax cost of debt. It is the discount rate in a DCF. Guides