A glossary of the terms that come up when owners talk about selling a company, valuation and due diligence. We define them the way we explain them across the table, without jargon and without hedging. If something is missing, write to us.
The transaction process
M&A (mergers and acquisitions)
Transactions in which one company buys another or two companies combine. In the Polish mid-market, M&A in practice usually means selling all or most of the shares in a company to a trade investor or a fund.
Sell-side
The selling party in a transaction, and the advisory work done on its behalf. A sell-side adviser prepares the company, builds the buyer list, runs the process and negotiates terms in the owner’s interest.
Buy-side
The buying party and the advisory work done on its behalf: finding acquisition targets, valuing them, coordinating due diligence and negotiating the agreement.
Mandate agreement
The contract between the owner and the transaction adviser. It sets the scope, the timetable, exclusivity and the fee: usually a monthly retainer plus a success fee on transaction value.
Teaser
A one or two page document describing the company without naming it. It is the first contact with potential buyers and only has to be good enough for them to decide whether to sign an NDA and see more. How a teaser is written and what goes in it is set out in our guide to the teaser and the memorandum.
Long list
The full list of potential buyers and investors matched to the company profile, usually from several dozen to more than a hundred. Built before any contact and approved by the owner.
Short list
The narrowed list of buyers who showed real interest after first contact and submitted indicative offers. The companies admitted to due diligence are chosen from it.
NDA (confidentiality agreement)
An agreement binding a potential buyer to keep information about the company, and the existence of the process itself, confidential. Signed before the buyer learns the company name or sees the memorandum.
Information memorandum (IM)
A document of several dozen pages describing the company: business model, market, customers, financials, team and outlook. The buyer’s main source of knowledge before an indicative offer. The structure of the memorandum, chapter by chapter, is in the guide.
Virtual data room (VDR)
A secured repository of company documents: financial, legal, commercial and employment, opened to buyers for due diligence. Every access and every download is logged.
Data room Q&A
The structured exchange of questions and answers during due diligence. Buyer questions land in one place and answers are agreed on the seller’s side before publication, so the buyer never gets two versions of the same fact.
LOI (letter of intent)
A non-binding document in which the buyer sets out the proposed price, deal structure and timetable. Usually only the confidentiality, exclusivity and cost provisions are binding.
Term sheet
The key terms of a transaction set out as a list of points. It serves much the same purpose as an LOI and is more often used by financial investors.
Exclusivity
The seller’s commitment not to talk to other buyers for a set period, usually 60 to 90 days. For the buyer it is the condition for spending money on due diligence; for the seller it means losing competitive pressure.
Due diligence
The buyer’s detailed examination of the company: legal, financial, tax, operational, sometimes environmental and IT. This is the stage where attempts to cut the price most often happen. What a buyer looks for in due diligence is collected in our red flags checklist.
Vendor due diligence (VDD)
A review commissioned by the seller before the process starts. It finds and fixes problems before the buyer finds them, and shortens the transaction itself.
Red flag report
A short-form due diligence report covering only material risks, without a full description of the company. Buyers order one to decide quickly whether to go further. Our own list of areas to check is on the Red flags page.
SPA (share purchase agreement)
The main transaction document. It governs the price and how it is set, the seller’s representations and warranties, price adjustment mechanisms, security, and the conditions that closing depends on.
Signing
The moment the sale agreement is signed. It does not always transfer ownership: where the agreement contains conditions precedent, that happens at closing.
Closing
The moment the shares actually change hands and the price is paid. All conditions precedent must be satisfied by then.
Conditions precedent
Events that must occur before closing, for example merger clearance, bank consent, obtaining a licence or releasing security.
Interim period
The time between signing and closing. The seller runs the business in the ordinary course and cannot take decisions beyond day-to-day operations without the buyer’s consent.
Post-merger integration (PMI)
Combining the acquired company with the buyer’s organisation: systems, processes, teams, brand. This is usually where it is decided whether the transaction delivered the value it promised.
Valuation and finance
Transaction valuation
An estimate of what a company is worth for the purpose of selling it, not for the balance sheet or the tax office. It answers what a buyer will actually pay at a given level of risk and under a given deal structure. We compare five valuation methods in What is my company worth.
EBITDA
Operating profit plus depreciation and amortisation. In mid-market transactions it is the basic measure of a company’s ability to generate cash and the reference point for the multiple.
EBITDA normalisation
Adjusting EBITDA for one-off items and costs that will not exist under a new owner: private expenses of the owner, above-market salaries, rent paid to a related company. Every adjustment has to be documented or the buyer will not accept it. We prepare the normalisation and the supporting documents as part of the value growth programme.
EBIT
Operating profit before interest and tax. Used less often than EBITDA, mainly in asset-heavy businesses.
EV/EBITDA multiple
Enterprise value divided by normalised EBITDA. The most common comparative measure in mid-market deals; its level depends on the sector, company size, revenue repeatability and dependence on the owner.
Enterprise value (EV)
The value of the whole business, regardless of how it is financed. The starting point for setting the price of the shares.
Equity value
What actually reaches the seller: enterprise value less net debt, adjusted for the difference between actual and normal working capital.
Net debt
Interest-bearing liabilities less cash. In transactions, debt-like items count too: leases, unpaid dividends, overdue public liabilities, excessive amounts owed to the owner.
Working capital
Inventory plus receivables less trade payables. The buyer expects to take over a company with enough working capital to keep trading without putting in more cash.
Normal working capital
The agreed reference level of working capital, usually the average of the last twelve months. The difference between the level at closing and that reference adjusts the price up or down.
Discounted cash flow (DCF)
Valuation by discounting forecast cash flows. It needs a credible forecast, so in smaller companies it is often used alongside, rather than instead of, the comparative method.
Comparative method
Valuation by reference to multiples from comparable transactions or listed peers. In Polish mid-market practice this is the method most often used.
Asset-based method
Valuation based on the value of assets less liabilities. Used mainly in asset-heavy, low-margin businesses or on liquidation.
Control premium
The extra price paid for a stake that gives control. The buyer pays for the ability to decide on strategy, the board and distributions.
Illiquidity discount
A reduction in value because shares in a private company cannot be sold quickly at a known price, unlike listed shares.
Add-back
A single adjustment added to EBITDA during normalisation. A buyer accepts it only when it is documented and genuinely will not recur after the deal.
Run rate
Annualising the result of a shorter period. Used when a company has recently changed scale, but buyers treat such figures with caution.
Recurring revenue
Revenue from subscriptions, service contracts or long-term agreements. It raises the multiple because it lowers the buyer’s risk.
Churn
The share of customers or revenue lost in a period. High churn lowers valuation even when revenue is growing.
Customer concentration
The share of revenue from the largest customers. One client accounting for a large part of sales is among the most common sources of a valuation discount in the mid-market. This is one of the twelve areas in the red flags checklist.
Buyers and investors
Trade (strategic) investor
A company from the same or an adjacent sector, buying for synergies: customers, technology, capacity or entry into a new market. Usually pays more than a financial investor but intervenes more in the business afterwards.
Financial investor
A buyer acquiring for a return on capital rather than synergies, most often a fund. Leaves more operational autonomy but expects profit growth and an exit within a set horizon.
Private equity (PE)
A fund investing in mature, profitable companies, usually taking a controlling stake. The holding period is typically four to seven years, ending with a sale to the next investor.
Venture capital (VC)
A fund financing early-stage companies for minority stakes in exchange for high growth potential. It rarely applies to classic family businesses.
Family office
A vehicle managing a wealthy family’s capital. It invests its own money with no exit deadline, which appeals to owners who care about continuity.
Search fund
A model in which an entrepreneur raises capital from investors to find and buy one company, then runs it. Still niche in Poland but growing.
MBO (management buy-out)
The purchase of a company by its existing management team, usually with outside financing. A common succession route when there is no successor in the family.
MBI (management buy-in)
The purchase of a company by a manager or team from outside, who then take management positions in it.
LBO (leveraged buy-out)
A transaction financed largely with debt, repaid later from the target’s cash flows. It requires stable and predictable results.
Buy-and-build
A strategy of assembling a larger group through a series of acquisitions in one sector. For the owner of a smaller company it means a buyer with a ready process who usually moves fast.
Price structure and security
Earn-out
Part of the price made dependent on the company’s results after the transaction. It reduces the buyer’s risk but shifts it to the seller, especially once the seller no longer controls operating decisions.
Vendor loan
Deferring part of the price as a loan from the seller to the buyer. Used when the buyer is short of financing or wants to keep the seller involved.
Escrow
An account holding back part of the price to secure possible buyer claims under the representations and warranties. The funds are released after an agreed period.
Locked box
A price mechanism based on a balance sheet from an earlier date, with no post-closing adjustment. From that date risk and benefit pass to the buyer and the seller cannot take value out of the company.
Completion accounts
The alternative to a locked box: the price is adjusted after closing on the basis of accounts drawn up at the transaction date. More precise, but slower and a frequent source of disputes.
Representations and warranties
The seller’s assurances about the state of the company: title to the shares, financial statements, contracts, disputes, tax and employment liabilities. Breaching them creates liability in damages.
W&I insurance
A policy transferring the risk of a breach of representations and warranties to an insurer. It lets the seller walk away without years of liability while the buyer keeps its protection.
Non-compete
The seller’s commitment not to run a competing business for a set period in a set area. A standard clause; its scope is negotiated.
MAC clause
A provision letting the buyer walk away if a material adverse change occurs in the company or its environment between signing and closing.
Drag along
The majority shareholder’s right to force minority holders to sell on the same terms. It lets a buyer acquire 100% of the company.
Tag along
A minority shareholder’s right to join a sale on the terms obtained by the majority. Protection against being left in the company with a new, unknown owner.
Price chipping
A buyer cutting the price after due diligence, usually citing the risks it found. A standard negotiating tactic; defending against it takes preparation of the company and its documentation beforehand. How to defend against it is covered in Price chipping.
Success fee
The adviser’s commission calculated on transaction value and payable after closing. It ties the adviser’s pay to the owner’s outcome. Our fee principles are set out on the How we work page.
Retainer
A fixed, usually monthly fee for the adviser’s work during the process. Often credited against the success fee. Our fee principles are set out on the How we work page.
Break fee
A fee payable to one party if the other walks away at an advanced stage. It compensates costs already incurred.
International expansion
Market validation
The stage before entering a foreign market: analysis of demand, competition and regulation, and a check of whether the company’s offer has a real place there. It ends with a recommended entry model, or a recommendation not to enter. What to settle before entering a new market is in the readiness checklist.
Market entry model
How a company is present in a new market: direct sales, an agent, a distributor, a subsidiary or the acquisition of a local business. The choice drives cost, speed and the level of control. The entry models are compared in the readiness checklist.
Agent versus distributor
An agent brokers sales for a commission and never owns the goods. A distributor buys on its own account and resells, taking the risk but also the margin and the end-customer relationship.
Acquisition as market entry
Buying a local company instead of building a presence from scratch. It gives immediate access to customers, a team and credibility, but requires running a full transaction process.
What you will not find here
This is a practitioner’s glossary, not an encyclopaedia. We leave out terms that rarely appear in mid-market deals and keep the ones that actually get used at the negotiating table. If a term you are looking for is missing, write to us and we will add it.