M&A Vocab

Question 1

when an acquiring company attempts to take over a target company against the wishes of the target company’s management. An acquiring company can achieve a _____ by going directly to the target company’s shareholders or fighting to replace its management.

Answer 1

hostile takeover

Question 2

defense tactic utilized by a target company to prevent or discourage attempts of a hostile takeover by an acquirer

Answer 2

poison pill

Question 3

hostile takeover defense whereby a friendly company purchases the target company instead of the unfriendly bidder

Answer 3

white knite

Question 4

a company that makes an unwelcome, hostile takeover bid

Answer 4

black knight

Question 5

Standard clauses in an agreement that do not change much from transaction to transaction and typically are not heavily negotiated. These are usually located in the Miscellaneous section, with common examples including Notices, Counterparts, Severability & Assignment, Arbitration, Governing Law and Waiver of Right to Trial by Jury.

Answer 5

Boilerplate

Question 6

a term used to define all the significant points that need to be dealt with prior to closing a transaction. They are itemized in the letter of intent (LOI) by either the buyer or the seller, although it is usually the buyer who typically inserts them

Answer 6

conditions precedent

Question 7

collateral agreements in a contract. They become relevant in contracts for the purchase and sale of a business or shares if the relevant contract is executed in two steps: Signing and closing. In the phase between the obligation to purchase (signing) and the actual transfer (closing), the ownership and management regarding the business/company remains with the seller. The buyer therefore has a legitimate interest in a correct management of the business/company.

Answer 7

Covenants

Question 8

an online warehouse of key documents about a company, to facilitate the extensive due diligence process typically undertaken by buyers

Answer 8

data room

Question 9

EBITDA

Answer 9

earnings before interest, taxes, depreciation, and amortization, is a measure of a company’s overall financial performance and is used as an alternative to net income in some circumstances

Question 10

a fee paid to a party as compensation for a broken deal or contract failure. Two common situations where a _____ could apply is if a mergers and acquisitions (M&A) deal proposal is terminated for pre-specified reasons and if a contract is terminated before its expiration.

Answer 10

break fee

Question 11

a request that someone else vote on behalf of a shareholder at a shareholders meeting. The solicitation contains materials about the issuing entity that investors need to make informed decisions about shareholder votes. This issuance is required for publicly-held companies

Answer 11

proxy solicitation

Question 12

where a portion of the purchase price is put in a third-party account to serve as security for the buyer.

Answer 12

holdback escrow

Question 13

This particular clause gives the parties, usually only the purchaser, the right to walk away from the deal in the event of a ____________occurring between the signing and the closing (the so-called “interim-period”) of the transaction

Answer 13

“mac” clause/material adverse change

Question 14

the process of bringing two or more companies together with the aim of maximizing synergies to ensure that the deal lives up to its predicted value.

Answer 14

post-closing integration or post merger integration (PMI)

Question 15

valuation method used to estimate the value of an investment based on its expected future cash flows. ___analysis attempts to figure out the value of an investment today, based on projections of how much money it will generate in the future.

Answer 15

Discounted cash flow

Question 16

the total value of all a company’s shares of stock. It is calculated by multiplying the price of a stock by its total number of outstanding shares. For example, a company with 20 million shares selling at $50 a share would have a _____ of $1 billion

Answer 16

Market cap—or market capitalization

Question 17

the acquisition of another company using a significant amount of borrowed money (bonds or loans) to meet the cost of acquisition. The assets of the company being acquired are often used as collateral for the loans, along with the assets of the acquiring company.

Answer 17

leveraged buyout (LBO)

Question 18

arbitration v litigation

Answer 18

Essentially, litigation means taking a dispute to court. Both sides present their case before a judge or jury, who will then render a decision. Arbitration, on the other hand, is a private process in which both parties agree that an arbitrator (a neutral third party) will render a binding decision

Question 19

adjustment provisions focus on liabilities and assets of the target company that fluctuate as a result of business operations between the time the parties agree on a purchase price and the actual closing of the transaction, which could be months after the initial agreement on price.

Answer 19

post-closing adjustment

Question 20

contractual provision stating that the seller of a business is to obtain future compensation if the business achieves certain financial goals.

Answer 20

earnout

Question 21

the procedure of reviewing mergers and acquisitions under antitrust / competition law

Answer 21

merger control

Question 22

A _____ is an assertion of past or existing fact given by one party to induce another party to enter into an agreement. A _____ is a promise that the assertion of existing fact or future facts are or will be true, along with an implied promise of indemnity if the assertion is false

Answer 22

representation, warranty

Question 23

a contractual remedy and risk allocation mechanism that the parties to an M&A transaction negotiate to address certain post-closing issues and losses

Answer 23

Indemnification

Question 24

a legal contract governing the combination of two companies into a single business entity

Answer 24

merger/acquisition agreement

Question 25

an alternative investment class and consists of capital that is not listed on a public exchange. ____ is composed of funds and investors that directly invest in private companies, or that engage in buyouts of public companies, resulting in the delisting of public equity. Institutional and retail investors provide the capital for private equity, and the capital can be utilized to fund new technology, make acquisitions, expand working capital, and bolster and solidify a balance sheet.

Answer 25

Private equity

Question 26

_____buyers undertake mergers and acquisitions to further their own strategic objectives — acquiring products or expertise, expanding markets, or gaining customers.

Answer 26

strategic m&a

Question 27

usually a private equity (“PE”) firm that has established a fund with committed capital to be used for acquisitions. These funds have defined criteria for the types of deals they will pursue. PE firms raise capital from high net worth individuals and institutions such as pension funds and endowments. These firms typically have a track record of successful deals which enables them to raise such capital.

Answer 27

financial buyer / m&a

Question 28

a public solicitation to all shareholders requesting that they ___ their stock for sale at a specific price during a certain time. The ____offer typically is set at a higher price per share than the company’s current stock price, providing shareholders a greater incentive to sell their shares.

Answer 28

tender offer

Question 29

An offer in which the buyer offers, as part or all of the consideration, its shares in exchange for shares of the target.

Answer 29

Exchange offer

Question 30

refers to transactions where the target company is publicly listed or private

Answer 30

Public M&A vs Private M&A

Question 31

an investigation, audit, or review performed to confirm facts or details of a matter under consideration

Answer 31

due diligence

Question 32

a contractual provision preventing insiders of a company from selling their shares for a specified period of time

Answer 32

lock up

Question 33

a contract that contains provisions that govern how a bidder of a company can purchase, dispose of, or vote stock of the target company. It can effectively stall or stop the process of a hostile takeover if the parties cannot negotiate a friendly deal.

Answer 33

Standstill Agreement

Question 34

a condition in an agreement between a seller and a potential buyer that prevents the seller from getting an offer from another buyer

Answer 34

no-shop clause

Question 35

describes an acquisition in which two companies jointly negotiate a merger agreement and legally merge

Answer 35

negotiated or traditional merger

Question 36

an acquirer first makes a public offer to acquire the shares of the target directly to the target shareholders, each of whom then makes an independent decision whether to sell (or “tender”) their shares to the acquirer, in exchange for the cash and/or acquirer securities offered

Answer 36

two‑step acquisition

Question 37

one of the first documents negotiated by the parties is a ______, which is a written expression of the parties’ intent to enter into a transaction and a summary of the material terms of the deal

Answer 37

letter of intent (often called an “LOI”)

Question 38

n agreement between two or more parties outlined in a formal document. It is not legally binding but signals the willingness of the parties to move forward with a contract. The ___can be seen as the starting point for negotiations as it defines the scope and purpose of the talks.

Answer 38

memorandum of understanding

Question 39

a mostly non-binding document signed by the target and the prospective buyer that describes the major terms of the proposed acquisition. While most ____ are non-binding, they often contain binding provisions regarding non-soliciation, exculsivity and confidentiality

Answer 39

term sheet

Question 40

an initial, non-binding document that establishes the basic framework for a partnership or transaction. The agreement is the first step toward creating a formal deal, and due to its tentative nature can often be renegotiated or reneged.

Answer 40

A “head of” agreement

Question 41

In a share deal, the buyer acquires a separate legal entity, while under an asset deal the assets and liabilities acquired can be transferred directly into the purchasing legal entity.

Answer 41

na