44 terms · updated August 25, 2026

M&A glossary

Most owners sell a business once. The vocabulary arrives all at once with it — usually in a letter of intent, usually with a deadline attached. These are the terms that decide what you actually receive, written the way they behave in a real transaction rather than the way a textbook defines them.

Every entry covers what the term means, why it matters to the seller specifically, and the mistakes that show up repeatedly. Nothing here is legal, tax, or financial advice — the numbers and rules vary by jurisdiction, by lender, and by deal, and your own advisers are the ones who can apply them to your situation.

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EBITDA

Operating profit before financing, tax, and non-cash charges, used as the earnings base most buyers of lower-middle-market companies price against.

SDE

EBITDA plus one owner's compensation and discretionary benefits, used to price businesses a buyer intends to run personally.

EBITDA multiple

The factor applied to adjusted earnings to produce enterprise value, set mainly by size, industry, growth, and how dependent the business is on its owner.

Seller financing

Part of the purchase price paid over time by the buyer to the seller under a promissory note, rather than in cash at closing.

Earnout

Part of the purchase price paid only if the business hits agreed performance targets after closing.

Add-backs

Expenses added back to reported earnings because they are personal, one-time, or would not exist under a new owner.

Due diligence

The buyer's post-LOI investigation of the business, covering financial, legal, commercial, tax, and operational matters.

Letter of intent

A mostly non-binding document setting out the proposed price, structure, and process, whose binding provisions typically cover exclusivity and confidentiality.

Valuation and earnings

How a buyer turns your P&L into a number, and which number they are actually using.

Add-backsExpenses added back to reported earnings because they are personal, one-time, or would not exist under a new owner.Adjusted EBITDAEBITDA restated to remove one-off, non-market, and non-recurring items so the number reflects how the business will run under a new owner.Discounted cash flowA valuation method that projects future free cash flow and discounts it to present value at a rate reflecting the risk of those cash flows.EBITDAOperating profit before financing, tax, and non-cash charges, used as the earnings base most buyers of lower-middle-market companies price against.EBITDA multipleThe factor applied to adjusted earnings to produce enterprise value, set mainly by size, industry, growth, and how dependent the business is on its owner.Enterprise valueThe value of the business itself, independent of how it is financed — and not the amount the seller receives.Net working capitalCurrent assets less current liabilities, excluding cash and debt — the operating fuel a buyer expects to be delivered with the business.Revenue multipleEnterprise value expressed as a multiple of annual revenue, used mainly where margins are standardised or earnings are not meaningful.SDEEBITDA plus one owner's compensation and discretionary benefits, used to price businesses a buyer intends to run personally.Working capital pegThe agreed level of net working capital the business must have at closing, with any shortfall or excess settled in cash afterwards.

Deal structure

How the price gets paid: cash at close, and every mechanism that is not cash at close.

Asset saleA transaction in which the buyer purchases specified assets and assumes specified liabilities, rather than buying the legal entity itself.Cash-free debt-freeA pricing convention where the seller keeps the cash and clears the debt at closing, and the agreed enterprise value assumes neither is present.EarnoutPart of the purchase price paid only if the business hits agreed performance targets after closing.Escrow and holdbackA portion of the purchase price kept back at closing to cover claims that arise afterwards, released once the claim period passes.Letter of intentA mostly non-binding document setting out the proposed price, structure, and process, whose binding provisions typically cover exclusivity and confidentiality.Purchase price allocationThe agreed split of an asset-sale price across asset classes, which drives the tax outcome for both sides.Rollover equityA stake the seller keeps in the business after the sale, usually in the buyer's new holding company, in exchange for taking less cash at closing.SBA 7(a) loanA US Small Business Administration guaranteed loan programme widely used to finance acquisitions of small businesses by individual buyers.Seller financingPart of the purchase price paid over time by the buyer to the seller under a promissory note, rather than in cash at closing.Stock saleA transaction in which the buyer purchases the shares of the company itself, acquiring the entity together with all of its assets and liabilities.

Process and documents

The sequence from first conversation to close, and the paperwork at each step.

Business brokerAn intermediary who markets a business for sale to a pool of prospective buyers, usually for a success fee.Confidential information memorandumThe detailed document describing a business for sale, sent to qualified buyers after they sign an NDA.Data roomThe controlled repository where diligence documents are shared with a buyer, with permissions and an access log.Due diligenceThe buyer's post-LOI investigation of the business, covering financial, legal, commercial, tax, and operational matters.ExclusivityA binding commitment in the LOI that the seller will not negotiate with other buyers for a defined period.Non-disclosure agreementThe agreement a prospective buyer signs before receiving confidential information about a business for sale.Quality of earningsAn independent accounting analysis that tests whether reported earnings are real, recurring, and sustainable.RecastingRebuilding reported financial statements to show what the business earns for a new owner, by removing owner-specific and one-off items.

Risk and protections

The parts of an agreement that decide who pays when something turns out to be wrong.

Customer concentrationThe share of revenue coming from the largest customers — one of the most common reasons a buyer discounts a price or restructures a deal.IndemnificationThe contractual obligation to compensate the other party for losses arising from breaches of the agreement or from specified known risks.Non-competeThe seller's agreement not to compete with the sold business for a defined period within a defined area, usually accompanied by non-solicitation covenants.Owner dependenceThe extent to which a business's revenue, relationships, or operations depend on the departing owner personally.Representations and warrantiesStatements of fact about the business made by the seller in the purchase agreement, which the buyer relies on and can claim against if untrue.Representations and warranties insuranceAn insurance policy covering losses from breaches of the seller's representations, allowing a smaller escrow and a cleaner exit.Transition periodThe time after closing during which the seller stays involved to transfer relationships, knowledge, and operating control to the buyer.

Buyer types

Who buys small and lower-middle-market companies, and what each type optimises for.

Add-on acquisitionA smaller business acquired to be integrated into an existing platform company, usually as part of a buy-and-build strategy.Employee stock ownership planA structure in which a trust acquires the company on behalf of its employees, who become beneficial owners over time.Family officeA private investment vehicle for one or several wealthy families, which can acquire businesses with no fixed holding period.Independent sponsorAn acquirer who identifies a deal first and raises the equity for it deal by deal, rather than investing from a committed fund.Management buyoutA sale to the existing management team, usually financed with a mix of bank debt, seller financing, and outside equity.Platform acquisitionThe first, largest acquisition in a buy-and-build strategy, which becomes the base the sponsor grows through further acquisitions.Private equityA firm that acquires businesses using pooled investor capital and leverage, aiming to grow them and exit within a defined holding period.Search fundAn individual backed by investors who searches for a single business to acquire and then runs it as the operating owner.Strategic buyerAn operating company that acquires a business for the strategic value it adds to their own — customers, capacity, geography, or capability.

Reading these because a buyer approached you?

Serava introduces owners to buyers with a stated mandate — privately, with no broker and no public listing. Knowing what the terms mean before the letter of intent arrives is most of the leverage.

See how a private sale works What businesses like yours sell for