Glossary

The vocabulary of selling a company

75 terms an owner meets between the first buyer call and closing, in plain words. Where the market uses several names for one thing, they are listed together, and each term links to the article that explains it properly.

A

Add-back: Also called adjustment, EBITDA adjustment; An adjustment that removes a cost from reported earnings because a new owner would not bear it the same way: owner pay above a market replacement salary, a one-time settlement, personal expenses run through the company, rent paid above market to your own entity. Adjustments can also cut earnings, such as when you pay yourself below market. An add-back is worth only what you can document, and a rejected dollar loses you the multiple.; Add-Backs Owners Should Track Before Selling a Business · Financial Due Diligence (FDD) Explained: Add-Backs, Adjusted EBITDA, and Why It Sets Your Price
Adjusted EBITDA: Also called normalized EBITDA, normalized earnings; EBITDA after normalization: one-time, non-operating and owner-specific items are removed so the figure shows what the business would earn in a normal year under a new owner. Most lower-middle-market deals are priced as a multiple of it, which makes it the number that sets your price and the one buyers test hardest. Every dollar a buyer disallows is cut at the multiple, so document each adjustment.; Financial Due Diligence (FDD) Explained: Add-Backs, Adjusted EBITDA, and Why It Sets Your Price · EBITDA vs SDE vs Cash Flow: The Right Earnings Metric
Asset sale: Also called asset purchase; A sale where the buyer picks specific assets and takes only the liabilities it agrees to assume; your company keeps the rest. Buyers like it because their tax basis resets to the price paid, a step-up that creates new depreciation and amortization deductions, and because unknown liabilities stay behind. For you it can mean more tax, especially for a C corporation, whose gain is taxed twice, and more paperwork, since contracts and permits are assigned individually.; Asset Sale vs. Stock Sale: Taxes, Liabilities, and Deal Structure · M&A Deal Structures: Asset Purchase vs. Stock Purchase vs. Merger
Audit, review and compilation: Also called audited statements, reviewed statements, compiled statements; The three levels of outside CPA work on financial statements. A compilation formats your numbers with no assurance, a review adds inquiry and analysis for limited assurance, and an audit tests balances and ends in an opinion. A quality of earnings report is none of the three. Many smaller deals close without an audit, but institutional buyers and their lenders sometimes require one, and a first audit takes longer than a repeat.; Getting Financials Sale-Ready: Cash-to-Accrual, Monthly Close, and When an Audit Pays Off · How Much Does a Quality of Earnings (QoE) Report Cost?

B

Basket: Also called indemnification basket; The minimum loss a buyer must absorb before you owe anything on an indemnification claim. With a deductible basket you pay only what is above the line. With a tipping basket, once losses cross the line you pay from the first dollar. On $400,000 of claims and a $150,000 basket, that is $250,000 against $400,000, which is why sellers push for deductibles.; Indemnification in M&A Purchase Agreements: Survival, Baskets, Caps, and RWI · Anatomy of a Purchase Agreement: SPA and APA Sections
Business broker: An intermediary who sells smaller, owner-operated companies, usually by listing them confidentially for individual buyers. Brokers typically earn a commission at closing, often with a minimum, and some states require a real estate license. They fit businesses worth up to a few million dollars. Once institutional buyers could plausibly bid, a run process with competing offers usually earns its higher cost.; Business Broker vs. Investment Banker vs. M&A Advisor: Which Fits Your Company? · How to Choose a Sell-Side M&A Advisor: Types, What to Evaluate, and Red Flags
Buy-side advisor: Also called buyer's advisor; The advisor who represents a buyer: finding and screening targets, valuing them and negotiating on the buyer's behalf. It is the counterpart to your sell-side advisor, and its interests run opposite to yours on price and terms. The buyer's accountants and lawyers are separate; they run buy-side due diligence on your numbers and contracts once a letter of intent is signed.

C

Cap: Also called indemnity cap, liability cap; The ceiling on what you can owe a buyer in total for breaches of the general representations and warranties. It is usually a percentage of the price and often close to the escrow amount. Fundamental representations and tax matters carry a separate, much higher cap, sometimes the full price, and fraud is normally carved out entirely. Ask what the cap is and what sits outside it.; Indemnification in M&A Purchase Agreements: Survival, Baskets, Caps, and RWI · Anatomy of a Purchase Agreement: SPA and APA Sections
Capital gain: Also called long-term capital gain, capital gains treatment; The profit on selling an asset held more than a year, which the tax code generally taxes at lower rates than ordinary income. In a business sale not every dollar qualifies: amounts allocated to inventory, to depreciation you previously deducted and to a non-compete are generally ordinary income. Entity type, deal structure and the price allocation decide your mix, and state tax applies on top. Have your CPA model it before you sign.; Asset Sale vs. Stock Sale: Taxes, Liabilities, and Deal Structure · Pre-Sale Tax Planning: Why Business Owners Should Start Years Before the Sale
Cash-free, debt-free (CFDF): A pricing basis where the buyer pays for the operating business alone: you keep the cash, pay off the debt at closing, and the price adjusts for both. The headline number in most offers is enterprise value on this basis. What you receive is equity value, which is lower once debt, debt-like items and working capital are settled, so the definitions matter as much as the multiple.; Cash-Free Debt-Free Explained: Enterprise Value, Equity Value, and the Debt-Like Items That Shrink Seller Proceeds · The Net Working Capital Peg: Why Deals Are Cash-Free Debt-Free, How the Target Is Set, and How the True-Up Works
Change of control: Also called change-of-control clause, change-of-control provision; A contract clause triggered when ownership of a company changes, through a share sale, a merger or a sale of substantially all assets. It can give a customer, landlord, lender or licensor the right to consent, renegotiate or terminate. A plain anti-assignment clause usually does not reach a stock sale, but this one does, so buyers read every major contract for it and counterparties sometimes use it as leverage.; Contracts That Scare Buyers: Assignment and Consent · Asset Sale vs. Stock Sale: Taxes, Liabilities, and Deal Structure
Closing: Also called closing day; The moment a sale completes: ownership transfers and the money moves, according to a funds flow statement that lists every payment to you, lenders, advisors and the escrow agent. Signing the purchase agreement can happen the same day or weeks earlier. The wire you receive is usually well below the headline price, because debt payoff, fees, escrow and the working capital estimate come out first.; Closing Day and the Funds Flow in a Business Sale Explained · The Business Sale Process Timeline: A Week-by-Week Guide
Comparable transactions: Also called comps, precedent transactions, deal comps; Past sales of businesses like yours, used to anchor what a buyer should pay. The multiple on those deals, applied to your adjusted EBITDA, is the usual basis for a valuation range. Private deals are rarely disclosed in full, so the data is incomplete, and what counts as comparable (same sector, similar size, similar earnings quality) is arguable. Each side will pick the comps that favor it.; How Much Is My Business Worth? Valuation Multiples by Industry (2026) · Why Valuation Multiples Rise with Company Size in M&A
Competitive sale process: Also called auction; A sale in which an advisor approaches several qualified buyers on one timetable so they bid against each other, instead of negotiating with a single buyer. It typically runs teaser, NDA, CIP, indications of interest, management meetings and final bids, ending in a letter of intent. Your leverage peaks just before you grant exclusivity, so the competition has to exist before then. It takes more work and shares more information than a one-buyer deal.; Competitive Sale Process vs Negotiated Sale in M&A · The Business Sale Process Timeline: A Week-by-Week Guide
Confidential information presentation (CIP): Also called CIM, confidential information memorandum, the book; The main marketing document in a sale: a detailed, named profile of the company, commonly 30 to 80 pages, covering history, customers, management, several years of financials and growth opportunities. Buyers get it only after signing an NDA and use it to decide whether to submit an indication of interest. It is marketing, not a contract, and a buyer's diligence will test every claim in it.; The Teaser and the CIP: The First Documents Buyers See · Confidentiality and NDAs When Selling Your Business
Confidentiality agreement (NDA): Also called non-disclosure agreement; The contract a prospective buyer signs before seeing your name or numbers. It limits use of your information to evaluating the deal, restricts sharing beyond named advisors and lenders, usually bars hiring your employees, and requires returning or destroying materials if talks end. It deters misuse but cannot undo a leak, so sellers also control what each buyer sees and when.; Confidentiality and NDAs When Selling Your Business · Confidentiality Leaks During a Sale: How to Prevent Them
Customer concentration: Also called revenue concentration, customer dependence; The share of revenue that comes from your largest customers. A big account is a point of failure a buyer cannot fully verify, so expect a lower price, part of it shifted into an earnout or customer-specific holdback, or a pass. There is no legal line, but published guidance puts the start of real scrutiny at roughly 20 to 30 percent of revenue from one customer. Fixing it takes 12 to 24 months.; Customer Concentration: How One Big Customer Affects Your Sale Price and Deal Terms · Contracts That Scare Buyers: Assignment and Consent

D

Data room: Also called virtual data room, VDR; The organized online library a buyer's diligence team works from: corporate records, financials, tax filings, contracts, HR files, intellectual property, insurance and litigation. Access is permissioned and logged, and good ones watermark each page with the viewer's name. Building it before you go to market lets you answer requests on your schedule, and the most sensitive items, such as customer names, are usually held back until after a letter of intent.; Building the Data Room Before You Sell: The Standard Folder Taxonomy, Long-Lead Documents, and Version Hygiene · Buyer Due Diligence: What Acquirers Examine and How Sellers Prepare
Deal structure: Also called transaction structure; How a sale is built, in two parts: the legal form (asset purchase, stock purchase or merger) and how the price gets paid (cash at closing, escrow or holdback, seller note, earnout, rollover equity). Two offers with the same headline number can leave you very different amounts after tax and risk. Settle structure alongside price, ideally in the letter of intent while other bidders still exist.; M&A Deal Structures: Asset Purchase vs. Stock Purchase vs. Merger · Asset Sale vs. Stock Sale: Taxes, Liabilities, and Deal Structure
Debt-like items: Also called debt equivalents; Liabilities that carry no interest but that a buyer treats as debt, because they are a future cash cost for value you already received: unpaid pre-closing taxes, customer deposits, accrued bonuses, deferred revenue, severance, unpaid deal expenses. Each dollar classified this way comes off your proceeds dollar for dollar. Classification is negotiated, not an accounting rule, so settle the contested items in the LOI, before exclusivity starts.; Cash-Free Debt-Free Explained: Enterprise Value, Equity Value, and the Debt-Like Items That Shrink Seller Proceeds · Deferred Revenue in M&A: The SaaS Subscription Haircut
Disclosure schedules: The companion to the purchase agreement where you list exceptions to your representations and warranties, so a statement reads true except as listed. A matter properly disclosed is generally not a breach, which protects you from an indemnity claim on it, while something left off can become one. Preparing them takes weeks and leans on facts only your team knows, so start before the first draft arrives.; Disclosure Schedules in an M&A Purchase Agreement, Explained · Anatomy of a Purchase Agreement: SPA and APA Sections
Due diligence: Also called diligence, confirmatory diligence; The buyer's verification of what it was told: financials, taxes, contracts, customers, employees, legal, IT and sometimes environmental matters. It runs hardest after the letter of intent, during exclusivity, and findings there are a leading reason signed deals get repriced or die. You shorten it, and keep leverage, by running your own diligence first and having a complete data room ready.; Buyer Due Diligence: What Acquirers Examine and How Sellers Prepare · Financial Due Diligence (FDD) Explained: Add-Backs, Adjusted EBITDA, and Why It Sets Your Price

E

Earnout: Also called earn-out, contingent consideration; Part of the price you receive only if the business hits agreed targets after closing, usually revenue, gross profit or EBITDA, over one to three years. It bridges the gap between what you expect the business to do and what the buyer will pay for today. Treat it as upside, not price: the buyer runs the business and the books afterward, and earnouts have historically paid only a fraction of their maximum.; Earnouts Explained: Bridging Valuation Gaps in a Business Sale · Bridging the Valuation Gap Between Buyer and Seller in M&A
EBITDA: Also called earnings before interest, taxes, depreciation and amortization; Earnings before interest, taxes, depreciation and amortization: operating profit before financing and accounting choices. Buyers of larger private companies price on it, usually after adjustments. It does not add back a market-rate owner salary, which is the main difference from SDE, and it is not cash flow, because it ignores equipment replacement and the cash that growth ties up in receivables and inventory.; EBITDA vs SDE vs Cash Flow: The Right Earnings Metric · Financial Due Diligence (FDD) Explained: Add-Backs, Adjusted EBITDA, and Why It Sets Your Price
Employee stock ownership plan (ESOP): A tax-qualified retirement plan that invests mainly in the stock of the company that sponsors it. In a sale, the company typically borrows and lends the money to an ESOP trust, which buys the owner's shares, and shares move into employee accounts as the loan is repaid. An independent appraisal sets the price, with no bidding contest or synergy premium, so you trade some price for continuity.; Selling to Employees: ESOP vs MBO vs Third-Party Sale
Enterprise value: Also called EV, TEV, total enterprise value; The value of the operating business regardless of how it is financed, and the way most offers are quoted: a multiple of earnings, on a cash-free, debt-free basis. It is not what you take home. To get there, add cash, subtract debt and debt-like items, and adjust for working capital, which gives equity value.; Cash-Free Debt-Free Explained: Enterprise Value, Equity Value, and the Debt-Like Items That Shrink Seller Proceeds · How Much Is My Business Worth? Valuation Multiples by Industry (2026)
Equity value: What the owners actually receive for their shares once the balance sheet is settled: enterprise value, plus cash, minus debt and debt-like items, plus or minus the working capital adjustment. That calculation is called the equity bridge. It is written into the purchase agreement, and it can land well below the headline price when a company carries loans, finance leases or customer prepayments.; Cash-Free Debt-Free Explained: Enterprise Value, Equity Value, and the Debt-Like Items That Shrink Seller Proceeds · From Sale Price to Net Proceeds: The After-Tax Bridge
Escrow: Also called indemnity escrow; Part of the purchase price wired at closing to a neutral escrow agent and held under a three-party agreement to back your post-closing obligations, then released on a schedule minus any pending claims. A holdback does the same job, but the buyer keeps the money. The published median is about 10 percent of the price on deals without insurance, held for 12 to 18 months.; Escrows and Holdbacks in M&A: Size, Duration, Release Mechanics, and How RWI Is Changing the Math · Escrow vs. Reps and Warranties Insurance: Which Fits Your Deal
Exclusivity (no-shop): Also called no-shop clause, exclusivity period; A binding promise, usually in the letter of intent, that you will not solicit or negotiate with other buyers for a set period while the chosen buyer does its diligence. In middle-market deals it commonly runs 30 to 90 days. It is your biggest concession, because competing bids fade once it starts, so push for milestones, a short first term and the right to end it if the buyer retrades.; Letters of Intent in M&A: What Is Binding, What to Nail Down, and How Long Until Close · Negotiating the Letter of Intent: Leverage Before Exclusivity

F

Family office: A private entity that manages one wealthy family's money; a multi-family office serves several. A growing number buy operating companies directly with the family's own capital, not a fund's. With no fund clock forcing an exit, they can hold for a decade or more and flex on structure, though that is not the same as paying more. Some offer a lower price in exchange for a slower handoff.; Family Offices as Buyers: Patient Capital Explained
Financial buyer: Also called financial sponsor, financial acquirer; A buyer that acquires a company mainly as an investment, such as a private equity firm, an independent sponsor or a family office. It prices off your standalone cash flow and the return it can earn, often with borrowed money, and plans an eventual sale or a long hold. It has no operations to combine you with, so unlike a strategic buyer it pays for your earnings, not for synergies.; How Buyers Model Your Business: LBO Math at a Glance · Who Buys Lower-Middle-Market Companies? A Guide to Buyer Types
Financial due diligence (FDD): Also called financial diligence; An independent analysis of whether a company's reported profit reflects what it can repeatably earn, usually delivered as a quality of earnings (QoE) report. The market uses the two names for the same deliverable. It also covers revenue and margin trends, net working capital and debt-like items. Done for the seller before going to market, it lets you set the earnings number with evidence instead of defending it against a buyer's accountants.; Financial Due Diligence (FDD) Explained: Add-Backs, Adjusted EBITDA, and Why It Sets Your Price · How Much Does a Quality of Earnings (QoE) Report Cost?
Franchise Disclosure Document (FDD): The disclosure packet the FTC's Franchise Rule requires a franchisor to give a prospective franchisee at least 14 calendar days before signing or paying. It has 23 numbered items, including Item 17 on renewal and transfer and the optional Item 19 on financial performance. It is unrelated to financial due diligence, which M&A people also shorten to FDD, but if you own a franchised unit its transfer terms decide who can buy it.; What Is an FDD? Franchise Disclosure Document Explained · Selling a Multi-Unit Franchise Portfolio: What to Expect
Fundamental representations: Also called fundamental reps; The short list of statements in a purchase agreement so basic that a breach undermines the whole deal: that you own what you are selling, have authority to sell it, that the capitalization table is accurate, and that no undisclosed broker is owed a fee. Tax representations often get the same treatment. They survive far longer than general representations and usually sit outside the basket, with a cap that can reach the full price.; Indemnification in M&A Purchase Agreements: Survival, Baskets, Caps, and RWI · Anatomy of a Purchase Agreement: SPA and APA Sections

G

Goodwill: The value of a business beyond its identifiable assets: reputation, repeat customers, a trained team, and the fact that it already works. Your books probably show none, because goodwill is recorded only when one company buys another, yet it is often most of the price. In an asset sale it is the last bucket in the tax allocation, which is why buyer and seller care how much of the price lands there.; Goodwill and Intangible Assets in a Business Sale, Explained · Purchase Price Allocation: Form 8594, the Seven Asset Classes, and the Buyer-Seller Tax Conflict

H

Holdback: Part of the purchase price the buyer simply keeps at closing and promises to pay later if no claims arise, instead of placing it with an independent escrow agent. Until it is paid you are an unsecured creditor of the buyer, which is why sellers generally prefer a true escrow. Holdbacks show up more often on smaller deals and are best kept modest and tied to matters that resolve quickly.; Escrows and Holdbacks in M&A: Size, Duration, Release Mechanics, and How RWI Is Changing the Math

I

Indemnification: Also called indemnity; Your promise in the purchase agreement to reimburse the buyer for losses if your representations prove false or you break a covenant after closing. Its limits are negotiated: how long claims can be made (survival), the minimum loss before you owe anything (basket) and the most you can owe (cap), with fraud and fundamental matters usually outside them. An escrow or an insurance policy is where the money comes from.; Indemnification in M&A Purchase Agreements: Survival, Baskets, Caps, and RWI · Escrows and Holdbacks in M&A: Size, Duration, Release Mechanics, and How RWI Is Changing the Math
Independent sponsor: Also called fundless sponsor; A buyer that finds and negotiates a deal first, then raises equity from investors for that one deal, instead of investing from a committed fund. Because its capital partners decide after seeing your business, the purchase agreement may carry a financing contingency and closing can take longer. Judge a sponsor by its track record, which investors have committed to your deal, and how much of its own money it is putting in.; Independent Sponsors as Buyers: Certainty of Funding · Who Buys Lower-Middle-Market Companies? A Guide to Buyer Types
Indication of interest (IOI): A buyer's early, non-binding letter, often one to three pages, stating a valuation range and general intentions after reading your CIP. You use IOIs to cut a broad buyer list to the few invited to management meetings. There is no exclusivity and no commitment, so a high range is a signal, not an offer; the later letter of intent, with a specific price and exclusivity, is the document that counts.; Letters of Intent in M&A: What Is Binding, What to Nail Down, and How Long Until Close · Management Meetings With Buyers in a Sell-Side Sale
Installment sale: Also called installment method; A sale in which you receive at least one payment after the tax year of the sale, as with a seller note or an earnout. Unless you elect out, you report the gain as payments arrive instead of all at closing, and the interest is taxed separately as ordinary income. It defers tax rather than reducing it, and recaptured depreciation is taxed in the year of sale. Your CPA should model it.; Installment Sales Under Section 453: How Gain Deferral Works When Payments Span Years · Seller Financing and Seller Notes: Size, Terms, Standby Rules, and Remedies

L

Letter of intent (LOI): Also called term sheet; The document that fixes price and structure before the buyer starts confirmatory diligence. Most of it is non-binding, but exclusivity and confidentiality usually bind, so you stop talking to other buyers while the buyer can still revise its offer. It follows the IOI and is more specific. Your leverage peaks just before you sign, so pin down the price mix, working capital, escrow and other terms in it.; Letters of Intent in M&A: What Is Binding, What to Nail Down, and How Long Until Close · Negotiating the Letter of Intent: Leverage Before Exclusivity
Lower middle market: Also called LMM; The segment of private companies too big for a typical Main Street broker sale and too small for the deals large banks pursue. There is no official cutoff and advisers draw the line in different places, but it is usually described as roughly $1 million to $50 million of EBITDA. Private equity, strategic buyers, family offices, search funds and independent sponsors all compete here, and multiples rise with size.; Who Buys Lower-Middle-Market Companies? A Guide to Buyer Types · Why Valuation Multiples Rise with Company Size in M&A

M

Management buyout (MBO): Also called management buy-out; A sale of the company to the executives who already run it. Managers rarely have the cash for a full purchase, so the money usually comes from several sources: their own equity, bank debt, sometimes outside capital, and a seller note you carry. You get continuity and discretion, but a single buyer group creates little competition and the payout is spread over time.; Selling to Employees: ESOP vs MBO vs Third-Party Sale
Management presentation: Also called management meeting; The live session, and the slide deck behind it, where you and your leadership team present the business to a shortlist of bidders and take questions, usually after indications of interest and before the LOI. Buyers are judging the team, the story and how the operation really runs. Keep financials high level, rehearse the hard questions on concentration and key people, and do not negotiate price or structure in the room.; Management Meetings With Buyers in a Sell-Side Sale
Material adverse change (MAC): Also called material adverse effect, MAE; A clause that lets the buyer refuse to close if the business suffers a serious deterioration between signing and closing, so it matters only when those happen on different dates. What counts is defined in the agreement and negotiated hard. The exact wording, including what is carved out, decides whether an event such as losing your largest customer qualifies. Keep performance steady during the gap.; Anatomy of a Purchase Agreement: SPA and APA Sections · Closing Day and the Funds Flow in a Business Sale Explained
Multiple: Also called valuation multiple, EV/EBITDA, EV/revenue; The price of a business expressed as a number times a financial measure. EV/EBITDA, enterprise value divided by adjusted EBITDA, is the standard for larger companies, while smaller owner-operated ones are quoted on SDE. EV/revenue is used mainly for software companies that reinvest rather than show profit. Multiples rise with size, growth, recurring revenue and diversified customers, and an SDE multiple is not comparable to an EBITDA multiple.; How Much Is My Business Worth? Valuation Multiples by Industry (2026) · Why Valuation Multiples Rise with Company Size in M&A

N

Net proceeds: The cash that actually reaches you, after debt payoff, advisor and legal fees, the working capital adjustment and money held in escrow, and then tax. It is usually well below the headline price, and part of the price may arrive later or only if conditions are met, as with earnouts and seller notes. Compare offers on net proceeds and timing, not on the number at the top of the LOI.; From Sale Price to Net Proceeds: The After-Tax Bridge · Closing Day and the Funds Flow in a Business Sale Explained
Net working capital (NWC): Also called working capital; Current assets minus current liabilities: the receivables, inventory and prepaids a business needs to operate, less its payables and accruals. In a deal, cash and debt are carved out and the rest is a negotiated definition, not a number your accountant simply hands over. A buyer expects a normal level to be left in the business at closing, and the price adjusts if you deliver more or less.; The Net Working Capital Peg: Why Deals Are Cash-Free Debt-Free, How the Target Is Set, and How the True-Up Works · Cash-Free Debt-Free Explained: Enterprise Value, Equity Value, and the Debt-Like Items That Shrink Seller Proceeds
Non-compete agreement: Also called covenant not to compete, non-competition covenant; A promise in the purchase agreement that you will not run or work for a competing business, within a set territory and period, after you sell. Buyers insist on it to protect the goodwill they paid for. Courts enforce sale-of-business non-competes far more readily than employee ones, provided they are reasonable in time, territory and scope, and state law governs. A non-solicit, which bars only pursuing the customers and employees you sold, is narrower.; Non-Compete Agreements in a Business Sale: A Guide
Normalization: Also called normalizing adjustments, recasting; The process of adjusting reported earnings to show how the business would perform under normal, ongoing ownership: removing one-time items, non-operating income, personal expenses and owner pay that differs from market. The individual adjustments are add-backs, and the result is adjusted EBITDA or adjusted SDE. Normalization is only as good as the documents behind it, so keep invoices, payroll records and pay benchmarks as you go.; EBITDA vs SDE vs Cash Flow: The Right Earnings Metric · Add-Backs Owners Should Track Before Selling a Business

P

Platform and add-on acquisitions: Also called bolt-on acquisition, buy-and-build, roll-up; A private equity firm's first company in a sector is the platform, chosen for its management, systems and scale. Smaller companies it buys later and folds in are add-ons, or bolt-ons. If you own a smaller company, an add-on is the likeliest form of private equity interest, often at a lower multiple than a platform commands. Stringing many together is called a roll-up or buy-and-build strategy.; Private Equity Buyers Explained for Company Sellers · Who Buys Lower-Middle-Market Companies? A Guide to Buyer Types
Private equity: Also called PE, PE firm, buyout firm; Investment firms that raise pooled money from institutions and wealthy investors, add borrowed money, buy controlling stakes in companies, improve them and sell, commonly within three to seven years. For a seller that means a buyer with committed capital and a plan to exit, who often wants you or your managers to stay and roll equity. Expect new reporting, a board, and acquisition debt that the company, not the fund, carries.; Private Equity Buyers Explained for Company Sellers · What Private Equity Firms Ask in a First Meeting With Owners
Purchase agreement: Also called definitive agreement, stock purchase agreement (SPA), asset purchase agreement (APA); The binding contract that turns a letter of intent into a sale. A stock purchase agreement covers a share sale and an asset purchase agreement an asset sale, but both follow the same skeleton: price and adjustments, representations and warranties, covenants, closing conditions, indemnification and termination. It is usually the longest document you will sign, and the buyer's counsel typically writes the first draft.; Anatomy of a Purchase Agreement: SPA and APA Sections · Disclosure Schedules in an M&A Purchase Agreement, Explained
Purchase price adjustment: Also called true-up, post-closing adjustment, working capital adjustment; The settle-up that moves the price dollar for dollar when the actual closing balance sheet differs from the agreed target, most often for working capital. An estimate sets the wire at closing, the buyer then delivers its own calculation within a few months, and an independent accountant decides any disputes. Not the same as purchase price allocation, which divides the price among assets for tax.; The Net Working Capital Peg: Why Deals Are Cash-Free Debt-Free, How the Target Is Set, and How the True-Up Works · Closing Day and the Funds Flow in a Business Sale Explained
Purchase price allocation: Also called allocation of purchase price, Form 8594 allocation; In an asset sale, how the price is divided among the assets for tax: cash, receivables, inventory, equipment, other intangibles and, last, goodwill, across seven asset classes. Buyer and seller each report it to the IRS on Form 8594, and a written agreement between them is generally binding. The split changes how much of your gain is capital gain versus ordinary income and how fast the buyer can deduct, which is why it is usually agreed in the purchase agreement rather than after closing.; Purchase Price Allocation: Form 8594, the Seven Asset Classes, and the Buyer-Seller Tax Conflict · Goodwill and Intangible Assets in a Business Sale, Explained

Q

Qualified small business stock (QSBS): Also called Section 1202, Section 1202 exclusion; Stock that can qualify under Section 1202 of the tax code for a federal exclusion of some or all of the gain when sold. It must be stock in a domestic C corporation, acquired at original issuance, in a qualifying active business, and held long enough. S corporation shares and partnership-taxed LLC interests do not qualify, and the rules depend on when the stock was issued, which is why owners who may qualify work through it with a tax advisor years ahead.; Qualified Small Business Stock (Section 1202): Who Qualifies and Who Does Not · Pre-Sale Tax Planning: Why Business Owners Should Start Years Before the Sale
Quality of earnings (QoE): Also called QoE report, QoE analysis; The core analysis inside financial due diligence: an accountant rebuilds your income statement from source records, ties earnings to the bank, removes one-time, non-operating and owner-specific items, and arrives at adjusted EBITDA. It is a consulting engagement, not an audit, review or compilation. Sellers commission one before going to market to set the earnings number with evidence, instead of defending it against a buyer's accountants.; Financial Due Diligence (FDD) Explained: Add-Backs, Adjusted EBITDA, and Why It Sets Your Price · How Much Does a Quality of Earnings (QoE) Report Cost?

R

Recapitalization: Also called recap; A partial sale in which you take some money off the table and keep an ownership stake. In a majority recap an investor buys control and you roll a minority stake. In a minority recap you sell a smaller piece and keep control. Either way you stay exposed to the company's future, with a second payout when the investor eventually sells, so it suits owners who want liquidity without a full exit.; Partial Sale vs Full Exit: Recaps and Minority Sales · Rollover Equity Explained: Taxes, Valuation, Minority Protections, and the Second Bite of the Apple
Representations and warranties: Also called reps and warranties, reps; The factual statements you make in the purchase agreement about the business: the financial statements are accurate, taxes are paid, contracts are valid, there is no undisclosed litigation, you own your assets. If one proves false, the buyer can claim indemnification. Sellers qualify them with disclosure schedules and with materiality and knowledge qualifiers, so the promises cover what they know and can stand behind.; Anatomy of a Purchase Agreement: SPA and APA Sections · Indemnification in M&A Purchase Agreements: Survival, Baskets, Caps, and RWI
Representations and warranties insurance (RWI): Also called R&W insurance, reps and warranties insurance; An insurance policy, usually bought by the buyer, that pays for losses from breaches of your representations instead of you paying them. Where it is used, your indemnity exposure and escrow shrink sharply, so you keep more cash at closing. It excludes known and disclosed issues, and fixed underwriting costs make it far less common on smaller deals, where a traditional escrow remains the norm.; Representations & Warranties Insurance (RWI) in M&A: Coverage, Cost, and How It Replaces the Escrow · Escrow vs. Reps and Warranties Insurance: Which Fits Your Deal
Retrade: Also called re-trade; A buyer's attempt to cut the price or worsen terms after the letter of intent is signed, usually citing a diligence finding such as lower-than-marketed earnings or an unsupported add-back. It works because leverage flips at signing: other bidders have left and you are deep into diligence. Documented numbers, a detailed LOI, milestones inside exclusivity and a right to end exclusivity if the buyer retrades are the defenses.; Why M&A Deals Fall Apart, and How Sellers Reduce Risk · Letters of Intent in M&A: What Is Binding, What to Nail Down, and How Long Until Close
Rollover equity: Also called equity rollover, rollover; Part of your proceeds reinvested as ownership in the buyer's holding company instead of taken in cash, leaving you a minority owner. Private equity buyers ask for it to keep you committed, and it can be structured to defer tax on the rolled portion. Its worth depends on the security you receive and the debt ahead of it, so ask for the waterfall in dollars. The later payout is the second bite of the apple.; Rollover Equity Explained: Taxes, Valuation, Minority Protections, and the Second Bite of the Apple · Private Equity Buyers Explained for Company Sellers
Run-rate and pro forma adjustments: Also called pro forma EBITDA, run-rate EBITDA; Adjustments that restate earnings as if a recent change had been in place for a full period: a price increase counted for twelve months, a full year of a business you bought mid-year, a signed contract or cost cut not yet in the numbers. Buyers trust them less than documented add-backs because they rest on what is expected, not what the books show, so back each one with contracts, invoices or actual results.; Add-Backs Owners Should Track Before Selling a Business · Financial Due Diligence (FDD) Explained: Add-Backs, Adjusted EBITDA, and Why It Sets Your Price

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Search fund: Also called entrepreneurship through acquisition, ETA; An investor-backed individual, the searcher, who raises money to find, buy and personally run one private company, usually becoming its chief executive after closing. Financing often combines investor equity, senior debt, which can be an SBA loan on smaller deals, and a seller note. For a retiring owner it can be a good home for the business, but check the funding commitments and expect a handover period.; Search Funds and ETA Buyers: What Sellers Should Know · Who Buys Lower-Middle-Market Companies? A Guide to Buyer Types
Sell-side advisor: Also called M&A advisor, M&A intermediary; The professional who represents you, the seller: valuing the company, preparing the teaser and CIP, approaching buyers, running the process and negotiating through closing. Depending on size, that is a business broker, an M&A advisor or an investment bank. Pay is usually a success fee at closing, sometimes with a retainer. Judge them on closed deals near your size, who actually works your deal, and every fee in writing.; How to Choose a Sell-Side M&A Advisor: Types, What to Evaluate, and Red Flags · Business Broker vs. Investment Banker vs. M&A Advisor: Which Fits Your Company?
Seller note: Also called seller financing, vendor take-back; A loan you make to the buyer for part of the price, documented as a promissory note and repaid with interest from the business's cash flow, usually over several years. It is not an earnout, which pays only if targets are met, or rollover equity, which is ownership. You carry the buyer's credit risk, and banks typically require the note to sit behind their loan, sometimes with payments blocked or on standby.; Seller Financing and Seller Notes: Size, Terms, Standby Rules, and Remedies · Installment Sales Under Section 453: How Gain Deferral Works When Payments Span Years
Seller's discretionary earnings (SDE): Also called seller's discretionary cash flow (SDCF); A profit measure for small, owner-operated businesses that adds back the owner's entire compensation, plus interest, depreciation, amortization and one-time or personal expenses, to show what one working owner could take out. It carries a lower multiple than EBITDA, and the two are not interchangeable: applying an SDE multiple to EBITDA, or the reverse, misprices the business. As a company builds a management layer, EBITDA takes over.; EBITDA vs SDE vs Cash Flow: The Right Earnings Metric · How Much Is My Business Worth? Valuation Multiples by Industry (2026)
Stock sale: Also called equity sale, share sale, stock purchase; A sale in which the buyer purchases your shares, or LLC membership interests, and so acquires the whole company, with its contracts, permits, employees and every liability, known or not. Sellers usually prefer it because the gain is taxed once, generally as capital gain, and the company's obligations leave with it. Buyers answer with deeper diligence, indemnification, escrows and insurance, and sometimes a tax election that gives them asset-style treatment.; Asset Sale vs. Stock Sale: Taxes, Liabilities, and Deal Structure · M&A Deal Structures: Asset Purchase vs. Stock Purchase vs. Merger
Strategic buyer: Also called strategic acquirer, corporate buyer; An operating company, often a competitor, supplier or customer, that buys yours to combine with its own business. Because it can remove duplicate costs and sell more to a bigger customer base, it may justify paying more than a financial buyer, though it rarely hands over all of the synergy value. Expect closer diligence and longer approvals, and a confidentiality problem: the buyer able to pay most may be the rival you least want to educate.; Strategic Buyers and Synergies: Why They Can Pay More · Selling Your Business to a Competitor: Risks and Safeguards
Success fee: Also called contingent fee; The part of an advisor's pay owed only if the sale closes, usually a percentage of the price that falls as deal size rises. It can come with a monthly retainer, usually credited against it, a minimum fee, and a tail that keeps the fee payable if you later sell to a buyer the advisor introduced. Ask for the total cost at several sale prices, not just the headline percentage.; M&A Advisor Fee Structures Compared: A Guide for Sellers · What Does It Cost to Sell a Business? Broker Fees, M&A Advisor Fees, and the Alternatives
Survival period: Also called survival; How long after closing the buyer can bring an indemnification claim for a breach of a representation. Once it ends, the claim is gone even if the breach was real. General representations most often survive 12 to 24 months, fundamental and tax representations years longer, and escrow release usually tracks the general period. On insured deals seller representations often do not survive closing at all.; Indemnification in M&A Purchase Agreements: Survival, Baskets, Caps, and RWI · Escrows and Holdbacks in M&A: Size, Duration, Release Mechanics, and How RWI Is Changing the Math

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Teaser: Also called blind teaser, blind profile; The short, anonymous profile of your company, usually one to two pages, sent to a screened list of buyers before anyone signs an NDA. It gives industry, region, and revenue and EBITDA as ranges, plus a few highlights and how to ask for more, but never your name. Its job is to find buyers who fit and filter the rest, while keeping employees, customers and competitors from learning the company is for sale.; The Teaser and the CIP: The First Documents Buyers See · Confidentiality and NDAs When Selling Your Business
Trailing twelve months (TTM): Also called LTM, last twelve months; The most recent twelve months of results added together, however they fall on the calendar, so a buyer sees current performance instead of a stale fiscal year. Buyers look at adjusted EBITDA on this basis, and it is the usual window for averaging net working capital to set the peg. Keep your monthly books closed on schedule through the process, because a weak quarter during exclusivity drags the TTM and invites a retrade.; The Net Working Capital Peg: Why Deals Are Cash-Free Debt-Free, How the Target Is Set, and How the True-Up Works · Financial Due Diligence (FDD) Explained: Add-Backs, Adjusted EBITDA, and Why It Sets Your Price
Transition services agreement (TSA): A contract in which one side, usually the seller, keeps providing specified support such as IT, payroll or accounting for a defined period after closing, so the business keeps running while it separates from shared systems. Most common in carve-outs, where a division is sold off a larger company, typically for six to 24 months. Services are priced at cost or cost-plus, and an agreement without clear scope and exit criteria drags on.; Transition Services Agreements (TSAs) in M&A Explained

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Working capital peg: Also called NWC target, working capital target, peg; The negotiated target for net working capital that you must leave in the business at closing, usually set from a trailing twelve-month average, adjusted for one-time distortions. If closing working capital is above the peg the price rises dollar for dollar, and below it the price falls. Owners tend to meet the peg after the LOI, when leverage is gone, so model yours early and pin the method down in the agreement.; The Net Working Capital Peg: Why Deals Are Cash-Free Debt-Free, How the Target Is Set, and How the True-Up Works · Cash-Free Debt-Free Explained: Enterprise Value, Equity Value, and the Debt-Like Items That Shrink Seller Proceeds