In connection with the purchase and sale of companies, technical terms originating from the Anglo-Saxon world are often used. The following explanations are common technical terms. A legally fixed meaning does not exist in most cases. Therefore, no guarantee can be given for the correctness of the content of the explanations.
The object of purchase is all or selected assets and liabilities of an enterprise as well as its contractual relationships. They are transferred by way of singular succession. Opposite: Share deal.
Bidding procedure ("Auction Sale")
In this sales process, several suitable potential buyers are approached confidentially (as opposed to exclusive negotiations). The aim is to negotiate with at least two interested parties to the end. This reduces the dependence on one particular prospective buyer and creates competition between the bidders, which can lead to an improvement in the terms of the contract.
Binding offer to conclude a purchase contract.
Obligation of a contracting party to pay a predetermined amount of money if it unilaterally breaks off the contract negotiations or allows them to fail.
Company takeover by the management or other equity investors. Buy-outs are divided into the following forms:
Buyer's side in a company acquisition.
Closing of a transaction in rem when all closing conditions have been fulfilled.
Contractually agreed conditions that must be met for the transaction to be completed ("closing"). An important closing condition is the existence of an antitrust clearance ("Merger Clearance").
A combination of several equity investors to jointly acquire a company.
A commitment by a party to a transaction to reimburse the other party in whole or in part for costs incurred in connection with the transaction.
Spin-off of subsidiaries or business units.
In the data room, all essential documents about the target company, which are to be examined in the course of the due diligence, are made available for inspection by the prospective buyers. Nowadays, the virtual data room is common and has replaced the physical data room.
Issues that lead to the failure of an M&A transaction. As part of the preparation of a company sale, the seller can identify possible deal breakers and find solutions.
Detailed examination of the object of purchase. A distinction is made between
Variable purchase price component linked to the future development of the target company.
Earnings before interest, taxes, depreciation and amortisation.
Earnings before interest, taxes and amortisation.
Earnings before interest and taxes.
Profit before tax.
Value of a company before deduction of financial liabilities (financial debt) and before addition of cash.
Value of a company after deducting financial liabilities (financial debt) and adding cash.
Exit of an investor by selling his stake, e.g. in the context of an initial public offering (IPO), to a strategic investor (trade sale) or to a (further) financial investor (secondary buy-out).
The seller negotiates with only one prospective buyer. This means that the negotiating partner is clearly identified and personally known. This procedure is suitable if the buyer has a high (strategic) interest and the number of persons familiar with the intention to sell is to be kept small. The process can be customised for the specific prospective buyer.
Non-binding offer from a prospective buyer in a sales process.
Presentation of the essential information about the target company as a basis for decision-making for the prospective buyers to further participate in the bidding process.
Letter of Intent (LoI)
A generally non-binding declaration of intent by the buyer and seller to conclude a purchase contract. Important key points and further agreements are recorded, some of which are also binding, e.g. exclusivity or confidentiality.
Long List / Short List
Selection of possible buyers for a company. The long list is usually reduced to a short list after discussion with the seller and includes potential buyers who are to be contacted.
Presentation of the company and the management in the context of a company sale.
Mergers & Acquisitions (M&A)
Generic term for corporate transactions in which companies merge or company shares are sold or bought. The term Mergers & Acquisitions covers the following transactions:
Purchase price determination by multiplying certain key figures (e.g. EBIT) by a factor customary in the industry.
Term for a new company ("acquiring company") that is established for the purpose of acquiring a company.
Non-Disclosure Agreement (NDA)
Agreement in which a party undertakes to keep confidential information secret and not to make it accessible to third parties.
Post Merger Integration (PMI)
Integration of a purchased company. The aim is to harmonise the business operations and leverage synergies.
Question and answer process as part of due diligence. For this purpose, a "Q&A-tool" can be used in virtual data rooms to ask questions and provide answers.
Red Flag Due Diligence
Abbreviated due diligence, in which only the most important points for the transaction are examined.
Representations & Warranties
Refers to the warranties given by the seller in the company purchase agreement regarding the legal and economic circumstances of the sold company.
Sale and Purchase Agreement (SPA)
Contract for the purchase of shares (share deal) or assets (asset deal).
Seller's side in a company sale.
Acquisition of shares in a company. This changes the owner of the company, but the legal relationships of the target company remain unaffected. Opposite: asset deal.
Conclusion of a contract of sale under the law of obligations.
Spin-off and sale of business units of a company.
Company whose shares are to be acquired.
Short, anonymous description of the target company to arouse buying interest.
Sale of the company to an industrial or strategic investor.
Seller of a business.
Vendor Due Diligence (VDD)
An analysis of the company commissioned by the seller before the sales process begins in order to identify weaknesses and eliminate them before the sale, which regularly has the effect of increasing the purchase price.
Loan granted by the seller to the buyer of the business to finance the transaction. Most often this is a subordinated loan.