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GLOSSARY


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Acquisition


The act of one company taking over or acquiring a controlling interest of another company by means of an asset purchase or a stock purchase. Investors often look for companies that are likely acquisition candidates such as family businesses or divisions of larger companies. Acquisitions often give the acquiring company greater market reach or product breadth. The end result is to grow the business in a quicker and more profitable manner than normal organic growth would allow. [back to top]

Acquisition Capital


The capital required to acquire the new business. Acquisition Capital includes the costs of direct payments to the seller as well as all transaction costs such as legal fees and expenses, broker's fees, due diligence costs and all other costs involved in closing the transaction.[back to top]

Acquisition Finance


Acquisition Finance is the use of debt, equity and hybrid financing techniques to achieve an acquisition. The focus of acquisition finance is on identifying the optimal financing solution for a company. This occurs when the cost and flexibility of the financing structure is linked to the company's cash-flow based value and growth potential. Optimal acquisition finance structures are adapted to the client situation and may call for nonstandard corporate finance techniques and funding sources. [back to top]

Acquisition Financing


Funding to acquire or merge with another business. It is the means of providing capital to acquire control of a company by stock purchase or asset purchase. [back to top]

Business


The term business has a number of uses, depending on the scope. The singular usage referes to a particular company or corporation. [back to top]

Business Acquisition Financing


Funding to acquire or merge with another business. It is the means of providing capital to acquire control of a company by stock purchase or asset purchase. [back to top]

Business Expansion


Business Expansion is a stage where the business reaches the point for growth and seeks out for additional options to generate more profit. Different forms of business expansion include opening in another location, adding sales employees, increased marketing, adding franchisees, forming an alliance, offering new products or services, entering new markets, merging with or acquiring another business, expanding globally and expanding through the internet. [back to top]

Business Expansion Capital


It is the investment or the cost undertaken to expand the business. Business expansion capital includes funding for increased expenses, increased levels of inventory, increased plant and equipment capacity, increased working capital levels, increased marketing costs, business acquisition capital, and transaction costs. [back to top]

Business Expansion Financing


Business expansion financing is funding required to expand the business. It is the means of providing finance to expand the business using various financing methods such as asset based financing, cash flow based financing, mezzanine debt financing, growth equity financing or venture capital financing. [back to top]

Business Growth


Business Growth is a stage where the business reaches the point for expansion and seeks additional options to generate more profit. Business growth is a function of the business lifecycle, industry growth trends, and the owners desire for equity value creation. [back to top]

Business Growth Strategy


Strategy used to increase the size and scope of the business to a certain level that is more desirable. Business growth strategies include product and customer diversification, integration, and regional expansion. [back to top]

Business Model


A business model is the mechanism by which a business intends to generate revenue and profits. The business model is a synthesis of the companies underlying functional process components. In the end, the business model must be designed in a way where the revenue and profit economics of its strategy demonstrate the viability of the enterprise as a whole. [back to top]

Business Owner


Any person, firm, or corporation holding legal title to both intangible and tangile property of a corporation. Ownership is the power to exclusively control and use for one's own purposes, that which is owned. [back to top]

Business Recapitalization


A business recapitalization if the reorganization of a company’s capital structure. A Company may seek to save on taxes by replacing stock with interest bearing loans in order to gain interest deductibility. Alternatively, an owner may seek a partial cash out of his ownership interests or to increase debt levels to finance an acquisition. A business recapitalization is often an exit strategy for venture capitalists and leveraged buyout sponsors. It is the financing technique used by companies and management team to effect a buy-out or share repurchase. [back to top]

Business Services


A service is a process that creates benefits by facilitating a change in customers, a change in their physical possessions, or a change in their intangible assets. [back to top]

Buyout


A buyout is a corporate finance transaction by which an entire company or a controlling part of the stock of a company is sold. A private equity firm is the usual initiator of a buy out transaction whereby they buy a stake of a company to take it private or to change its strategic direction. A buyout can take the form of a leveraged buyout (“LBO”) or a management buyout (“MBO”). [back to top]

Capital


Capital means assets less liabilities, representing the ownership interest in a business. A stock of accumulated goods, especially at a specified time. Commonly refered to the amount of cash or excess availability that a business has to generate growth. [back to top]

Capital Growth


It is the increase in value of an asset or investment. i.e. the difference between the current values and the original purchase price. Capital growth/gain is profit that results from the appreciation of a capital asset over its purchase price. [back to top]

Cash Flow


Cash flow is an accounting term that refers to the amounts of cash being received and spent by a business during a defined period of time. In the private equity and mezzanine debt world, EBITDA which is earnings before interest, taxes, depreciation and amortization, is often used as a proxy for cash flow. It is the measure of the actual cash generated by a business rather than the accounting profit. Positive cash flow means more money is coming into the business than is leaving it. Negative cash flow is the converse. For asset intensive businesses, capital expenditures should be factored into EBITDA to determine cash flow. [back to top]

Cash Flow Financing


A form of corporate financing based upon the cash flow value of a business as opposed to its hard asset value. This form of financing is akin to determining the equity value of the company and then lending up to a certain percentage of the equity value. Often, cash flow financing is based upon a multiple of the businesses’ EBITDA. [back to top]

Company


Any business or for-profit economic activity may be referred to as a company. A company is a legal entity formed which has a separate legal identity from its members, and is ordinarily incorporated to undertake commercial business. [back to top]

Deal Closing


The stage of a transaction when final purchase agreements and credit agreements are executed and funds are wired to the respective parties. [back to top]

Debt


Debt is that which is owed, an obligation to repay principal. Debt is used in a corporate finance contact by a business to finance operations, growth or a transfer of ownership. Some companies and corporations use debt as a part of their overall corporate finance strategy. Debt is a secured obligation that requires the borrower to repay the principal amount and interest at specified periods. It has a term and usually there are covenants that must be complied with. [back to top]

Debt Structure


The term debt structure refers to the duration and timing of principal and interest payments. The structure typically refers to characteristics such as the maturity dates, the principal repayment terms, and the provisions for prepaying the loan. [back to top]

EBITDA


EBITDA is an acronym for Earnings Before Interest, Taxes, Depreciation, and Amortization. EBITDA is the traditional cash flow yard stick for the private equity and mezzanine debt world. [back to top]

EBITDA Multiple Basis


This is the way that mezzanine lenders think about credit risk and pricing. The higher the multiple, the greater the risk and hence the higher the pricing. The lower the multiple, the lower the risk and pricing. [back to top]

Equity


It is the owners' interest in all assets after all liabilities are paid. Equity is also known as ownership equity, and risk capital. It is usually the difference between the market value of the property and any outstanding encumbrances. Legally, it can be either common stock, preferred stock or any hybrid thereof. [back to top]

Equity Give-Up


The amount of ownership given up by a business owner to attract equity or growth capital. Equity give-up is another way to describe the amount of share dilution borne by the business owner in order to attract the financing. [back to top]

Equity Value


Equity value is a market-based measure of the equity value of a firm. It accounts for all the ownership interest in a firm including the value of unexercised stock options and securities convertible to equity. Equity value differs from market capitalization in that it incorporates all equity interests in a firm whereas market capitalization only reflects those common shares currently outstanding. It also reflects any outstanding debt whereas the market capitalization is a grossed up value including all debt outstanding. In the private equity and mezzanine debt world, equity value is usually measured as a multiple of the company’s EBITDA. [back to top]

Expansion Capital


The money needed to expand the business. It is the expense or capital undertaken to expand the business to generate increased profit. Expansion capital includes funding for increased expenses, increased levels of inventory, increased plant and equipment capacity, increased working capital levels, increased marketing costs, business acquisition capital, and transaction costs. [back to top]

Expansion Finance


Expansion Finance describes the use debt, equity and hybrid financing techniques to achieve business expansion in a cost-effective manner. The focus is on identifying the financing solutions that match the company's cash-flow based value and are adapted to the client situation and this may call for nonstandard corporate finance techniques and funding sources. Expansion finance is geared to supporting the growth of the company. [back to top]

Expansion Financing


Expansion Finance describes the use debt, equity and hybrid financing techniques to achieve business expansion in a cost-effective manner. The focus is on identifying the financing solutions that match the company's cash-flow based value and are adapted to the client situation and this may call for nonstandard corporate finance techniques and funding sources. Expansion finance is geared to supporting the growth of the company. [back to top]

Finance


Finance is the study of money and assets coupled with the management and use of those assets to build wealth. The activity of finance is the application of a set of techniques that individuals and organizations (entities) use to manage their financial affairs. [back to top]

Financial Consultant


An individual or firm specializing in locating financing. The consultant has the ability to structure a business plan so that it attracts the required money. Most consultants offer a stable of related services that reflects their basic approach to raising risk capital. They usually charge a retainer. The fee for their services generally comes from a percentage of the amount of financing obtained. [back to top]

Financing Business Growth


Describes the process of funding the growth of the business. It is the means of providing finance to enhance the business using various ways. The growth can be either organic or acquisition driven. Financing business growth can be achieved with a variety of forms of capital. The focus of financing business growth should be on identifying the optimal financing solution for a company. This occurs when the cost and flexibility of the financing structure is linked to the company's cash-flow based value and growth potential. Optimal acquisition finance structures are adapted to the client situation and may call for nonstandard corporate finance techniques and funding sources. [back to top]

Fund Growth


Describes the process of financing the growth of the business. Funding the growth of the business. It is the means of providing finance to enhance the business using various ways. The growth can be either organic or acquisition driven. Financing business growth can be achieved with a variety of forms of capital. The focus of financing business growth should be on identifying the optimal financing solution for a company. This occurs when the cost and flexibility of the financing structure is linked to the company's cash-flow based value and growth potential. Optimal acquisition finance structures are adapted to the client situation and may call for nonstandard corporate finance techniques and funding sources. [back to top]

Growth Capital


Growth capital is a flexible type of financing used to finance the expansion and growth of a business. This form of capital can be used for any corporate purpose that supports the growth of the business including product development, market development and acquisition. Growth capital can be a beneficial way to extend a company’s runway between rounds of financing. The extra time can be used to complete additional milestones that will raise the company’s valuation, or as insurance to ensure that all intended milestones are successfully accomplished. [back to top]

Growth Equity


Growth equity describes the use of private equity capital to accelerate the growth of a business. Growth equity is used by a business owner to raise the valuation of his company. [back to top]

Growth Financing


Growth Finance is a company’s use of debt, equity and hybrid financing techniques to achieve business expansion in a cost-effective manner. The focus of growth financing should be on identifying the optimal financing solution for a company. This occurs when the cost and flexibility of the financing structure is linked to the company's cash-flow based value and growth potential. Optimal acquisition finance structures are adapted to the client situation and may call for nonstandard corporate finance techniques and funding sources. [back to top]

Growth Mezzanine


Describes the use of mezzanine debt to accelerate the organic growth or support the acquisition growth of a company. Often it is used in conjunction with senior bank debt. The successful implementation of a growth mezzanine structure often eliminates the need to raise equity. Growth mezzanine is a form of growth capital that can accelerate the achievement of strategic milestones for a company and build its long term value. [back to top]

Investor


An investor is any party that makes an Investment. However, the term has taken on a specific meaning in finance to describe the particular types of people and companies that regularly purchase equity or debt securities for financial gain in exchange for funding an expanding company. [back to top]

Junior Capital


Junior capital defines any non-senior type of debt capital. These would include mezzanine debt or equity. Junior status indicates it is at the risk capital level and that it is generally not secured by assets. This means that the provider is at a risk capital layer in the capital structure. If the company does not achieve its budget or substantially underperforms, the investor’s capital has a high degree of risk of loss. [back to top]

Leveraged Finance


Describes the use cash flow based financing methods to effect large scale corporate growth initiatives. Leveraged finance exploits the full debt capacity of a company to achieve either accelerated corporate growth or a transfer of ownership. [back to top]

Leveraged Recapitalization


A leveraged recapitalization involves borrowing to finance a transfer of ownership or the distribution of a large cash dividend among the current shareholders. It can facilitate a change of control where the current majority shareholder is cashed out and can be used as acquisition financing. Mezzanine debt providers and private equity investors are the common initiators of this type of transaction. [back to top]

Management


The term "management" characterizes the process of and/or the personnel leading and directing all or part of an organization (often a business) through the deployment and manipulation of resources. [back to top]

Market Musings


Relates to a finance professional’s view of his served market. [back to top]

Merger


Two or more companies combined to achieve greater efficiencies of scale and productivity. This is accomplished through the elimination of duplicated plant, equipment, and staff, and the reallocation of capital assets to increase sales and profits in the enlarged company. Usually mergers occur in a consensual setting where executives from the target company help those from the purchaser in a due diligence process to ensure that the deal is beneficial to both parties. [back to top]

Mezzanine


A fund investment strategy involving subordinated debt (the level of financing senior to equity and below senior debt). Mezzanine denotes the pecking order in a standard transaction. Mezzanine debt resides in the middle, junior to bank debt yet senior to equity – hence the use of the term mezzanine. [back to top]

Mezzanine Capital


Mezzanine capital is a form of financing that is part debt and part equity. It incorporates equity-based options, such as warrants, with a lower-priority debt to provide flexible long term capital for use in buy-outs or growth financings. Frequently unsecured, it usually bears interest at a higher rate than secured loans and often gives the lender a stake in the equity of the company. Mezzanine debt is often used to finance acquisitions, buyouts and accelerated growth. Its repayment profile is often backended over a 5 to 7 year period. [back to top]

Mezzanine Debt


Mezzanine debt is a form of financing that is part debt and part equity. It incorporates equity-based options, such as warrants, with a lower-priority debt to provide flexible long term capital for use in buy-outs or growth financings. Frequently unsecured, it usually bears interest at a higher rate than secured loans and often gives the lender a stake in the equity of the company. Mezzanine debt is often used to finance acquisitions, buyouts and accelerated growth. Its repayment profile is often backended over a 5 to 7 year period. [back to top]

Mezzanine Finance


Describes the use of mezzanine techniques in the leveraged finance world. Mezzanine finance straddles the equity and debt world. It is a flexible form of funding, typically used in a leveraged buy-out or growth financing to achieve a desired risk/return profile for both business owners and investors. [back to top]

Mezzanine Lender


One who lends Mezzanine debt. Mezzanine lenders tend to be indendent funds ranging in size from $100 million to over $ 5 billion. They seek to lend to companies with stable EBITDA levels who can safely service higher levels of debt. They seek companies interested in growth capital to support acqusitions or faster internal growth. [back to top]

Mezzanine Provider


One who provides Mezzanine debt. Mezzanine providers tend to be indendent funds ranging in size from $100 million to over $ 5 billion. They seek to lend to companies with stable EBITDA levels who can safely service higher levels of debt. They seek companies interested in growth capital to support acqusitions or faster internal growth. [back to top]

One Stop Financing


A one-stop shop is a single capital source that can provide most of the required capital to close a transaction. It is a single funding source, but with two or three autonomous divisions providing separate tranches of the senior, mezzanine and equity pieces, with each one acting independently with their own set of returns and controls. [back to top]

Preferred Stock


A security that shows ownership in a corporation and gives the holder a claim, prior to the claim of common stockholders, on earnings and also generally on assets in the event of liquidation. Preferred stock has characteristics of both common stock and debt. [back to top]

Private Equity


Private Equity is a field of finance where large funds purchase majority stakes in companies and/or entire business units to restructure its capital, management and organization. Usually the targets are held private for three to five years with an exit occurring via a private sale, a recapitalization or an IPO. [back to top]

Private Equity Capital


It is the form of capital that buys majority stakes in companies and/or entire business units to restructure its capital, management and organization. Usually the targets are held private for three to five years with an exit occurring via a private sale, a recapitalization or an IPO. [back to top]

Private Equity Firm


Private Equity firms are firms which provide private equity funds to different ventures. They generally receive a return on their investment through one of three ways: an IPO, a sale or merger of the company they control, or a recapitalization. [back to top]

Private Equity Fund


A fund that buys majority stakes in companies and/or entire business units to restructure its capital, management and organization. They are generally independent funds that range in size from $50 million to over $10 billion. [back to top]

Private Equity Investor


Private Equity Investors are individuals or firms which provide private equity funds to different ventures. They generally receive a return on their investment through one of three ways: an IPO, a sale or merger of the company they control, or a recapitalization. [back to top]

Profit


Profit, is defined in two different ways. Economic profit is a positive return made on an investment by an individual or by business operations after all costs, including a normal return to capital and returns to risk, are accounted for. [back to top]

Project Management


Project management is the discipline of organizing and managing resources in such a way that these resources deliver all the work required to complete a project within defined scope, time, and cost constraints. A project is a temporary and one-time endeavor undertaken to create a unique product or service that brings about beneficial change or added value. This property of being a temporary and a one time undertaking contrasts with processes, or operations, which are permanent or semi-permanent ongoing functional work to create the same product or service over and over again. [back to top]

Raise Capital


Describes the underlying process used to attract capital. Private equity, mezzanine debt and growth capital is the end result of the raising capital process. [back to top]

Recapitalization


The reorganization of a company’s capital structure. Recapitalization is often an exit strategy for venture capitalists and leveraged buyout sponsors. It is the financing technique used by companies and management team to effect a buy-out or share repurchase. The “new” leveraged company can provide a high return on equity for shareholders if it does not choke on the high debt burden. [back to top]

Revenue


Revenue is the amount of money that a company receives from its activities in a given period, from sales of products and/or services to customers. It is not to be confused with the terms "profits" or "net income" which generally means total revenue less total expenses in a given period. Revenue is often referred to as the “top line” due to its position on the income statement at the very top. This is to be contrasted with the “bottom line” which denotes net income, revenues after all applicable costs. [back to top]

Senior Debt


Senior debt refers to debt secured by collateral on which the lender has put in place a first lien. Usually this covers all the assets of a corporation and is often used for revolving credit lines. [back to top]

Services


A service is the non-material equivalent of a good. It is a process that facilitates either a change in customers, a change in their physical possessions, or a change in their intangible assets. [back to top]

Shares


A share is a unit of account for various financial instruments including stocks, mutual funds, limited partnerships, and REIT's. A share is one of a finite number of equal portions in the capital of a company, entitling the owner to a proportion of distributed, non-reinvested profits known as dividends and to a portion of the value of the company in case of liquidation. [back to top]

Small Business Acquisition Financing


Funding to acquire or merge a small business with another business. It is the means of providing capital to acquire control of a company by stock purchase, stock exchange, cash, or any combination thereof. [back to top]

Stock


In financial markets, stock is the capital raised by a corporation through the issuance and distribution of shares. It represents ownership in a corporation. It may be represented by a certificate and can be common or preferred, voting or non-voting, redeemable, convertible, etc. [back to top]

Subordinated Debt


Subordinated debt is a synonym for mezzanine debt. It is junior debt that is unsecured or has a lesser priority than that of an additional debt claim on the same asset. This means that if the party that issued the debt defaults on it, people holding subordinated debt gets paid after the holders of the "senior debt". A subordinated debt therefore carries more risk than a normal debt. [back to top]

Venture Capital


Venture capital is a type of private equity capital typically provided by outside investors for financing new or growing businesses. Venture capital investments are generally high-risk investments but offer the potential for above-average returns and/or a percentage of ownership of the company. A venture capitalist (VC) is a person who makes such investments. The initial, start-up money is referred to as "seed money" and entails the greatest risk. If the project gets off the ground it may require additional financing at additional "rounds" before the company is finally brought to the market and the venture capitalist can enjoy handsome rewards. [back to top]

Venture Capital Firm


A firm that provides venture capital. [back to top]

Venture Capital Investment


Investment made by venture capital companies in startups and other risky but potentially very profitable ventures. [back to top]