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demystified
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Alpha?
LOI?
Grace?
The AMandA
dictionary
MBI?
CoCo?
Foreword
Among professionals who are active in the world of M&A (Mergers & Acquisitions,
a term that is used for a transaction in which a company is acquired or is merged
with another company), the use of jargon is well established, so well in fact that at
times no one else can understand what they are saying.
This book aims to create clarity in the tangle of technical terms. It is aimed at
everyone who is interested in mergers and acquisitions or who would like to
master M&A jargon. It puts simplicity first, so do not expect any scientific or
legal explanations of the terms, but rather a didactic interpretation, based on our
own experience and that of our colleagues from the KPMG network who work
in M&A. After reading this book, you will perhaps possess a more thorough
knowledge of mergers and acquisitions, but we do not recommend using these
practical explanations in negotiations and contracts, or otherwise allowing them to
have any effect on the transaction. This is to avoid misunderstandings.
The book is structured by grouping content-related terms into chapters and, where
possible, has also been presented in a logical sequence. Where we use new
technical terms in an explanation, we explain them in a subsequent section. You
therefore do not need to browse through the entire book to gain an understanding.
If you wish to look up a term quickly, please refer to the alphabetical index at the
back of the book.
In this second, fully revised edition of this book, we have added a number of new
terms, most of which are related to capital markets (the stock exchange) and
updated a number of terms.
This book was made possible through the efforts of many people. In particular:
Yann Dekeyser, Stijn Potargent,Wouter Caers, Jorn De Neve, Koen Fierens, Luc
Heynderickx, Peter Lauwers, Wouter Lauwers and Rosy Rymen.
Finally, I would like to thank the marketing department of the KPMG network in
Belgium and publisher Wolters Kluwer for their suggestions on writing style and
language usage and their support with the layout.
Additional comments and suggestions are always welcome, and can be sent to
info@kpmg.be.
KPMG Advisory
Table of contents
Forward
1
1. Agreements 5
1.1 Agreements in General
1.2 Guarantee provisions in the agreemen
6
8
2. Deal structuring
13
3. Price 19
4. Transaction process viewed from the perspective of the buyer 27
5. Transaction process viewed from the perspective of the seller 33
6. Advisors 37
7. Valuation
41
8. Buy-out
47
8.1 Perspective of the fund
8.2 Debt financing
48
52
9. Growth capital
10. Operational elements of the deal
11. Capital markets
Index
57
61
65
71
Agreements
see
> (Non) Binding: the binding character of clauses or the entire agreement is a
matter that requires particular attention when preparing documentation to be
exchanged by the parties. Non-binding statements are often chosen at an early
stage and changed into more binding statements/documents as the sale process
progresses.
> MAC / Material Adverse Change: the lack of any fundamental change of
circumstances (MAC) affecting the company is a very common condition for
converting an LOI into a binding SPA. In practice, the proper definition of the
MAC is often part of the discussions. Often, reference is made to maintaining
profitability, not losing important customers, maintaining licenses, and similar
matters.
> SPA / Share Purchase Agreement: an SPA is the final agreement between
the buyer and the seller on the sale of the company, subject to a number of CPs
(condition precedents).
> Heads of Agreement: an agreement in principle ( see also LOI and
MOU). In practice, these terms are often used interchangeably. This term also
refers to a binding list of basic elements that will be covered in more detail in a
Share Purchase Agreement (SPA).
> CP / Condition Precedent: a CP is a condition for concluding the agreement.
Legally speaking, this can have the character of both a condition subsequent and
a condition precedent. A typical example of a CP is obtaining approval for the
acquisition from the competition authorities.
> Anti-Trust Filing: the notification of the acquisition to the competition
authorities.
> Closing agreement: the document setting out
the final settlement of the agreement after the
CPs have been met. This document results in the
transfer of ownership and the payment taking
place.
Approval from
competition
authorities is a
common CP
> Escrow: an amount deposited in a frozen bank account to guarantee that any
losses will be compensated.
> Bank guarantee: a guarantee issued by a bank
to ensure that any losses will be compensated.
If the seller does not pay the claim, it will be paid
by the bank, instead of the seller, once certain
conditions have been met, after which the bank
demands repayment of the claim. Banks charge
a fee for issuing this guarantee.
An escrow may be
replaced by a bank
guarantee
> Disclosures: notifications. This is a list of elements that the seller discloses
to the buyer with the aim of avoiding subsequent disagreement as to whether
certain information has or has not been divulged during the negotiations. It is
important in this context to properly record whether these disclosures have an
effect on the warranties or indemnities. If, for example, the seller discloses that
soil has been polluted, this might prevent the buyer from making a claim for the
pollution.
> Threshold: frequently, parties agree only to submit claims if the total amount
of the claims exceeds a specific minimum amount. Two systems can then be
linked to this, specifically the basket and the threshold sum. Of course, hybrid
systems may also be agreed on.
> Basket: basket. Once the threshold has been reached, the loss will be
compensated in full.
> Franchise: once the threshold has been reached, the amount of the loss in
excess of the threshold will be compensated. This means that the threshold is
similar to the franchise In an insurance policy.
> De minimis: a minimum amount for individual claims is often specified as
a claim or a combination of claims. It only counts towards the threshold if it is
equal to or greater than a specific amount.
10
Tax
Deal structuring
ce
Legal
Fin
an
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taxation.
> Tax treatment: usually, gains on shares are not taxable and the sale of shares
(a share deal) may be preferred by the seller. On the other hand, the buyer may
prefer an asset deal for tax purposes because the goodwill paid ( see chapter
on Valuation - Goodwill) may be tax-deductible, which, in principle, is not the case
with a share deal.
> Legal continuity: this term refers to the question whether the companys
existing contracts with customers, suppliers, staff, and authorities (including
licenses), etc., are to be retained after the acquisition. In a share deal, the shares
of the company are sold, which only rarely has an effect on the agreements
14
that the company has entered into ( see also Change of Control Clauses).
In an asset deal, there is basically no legal continuity and all of the companys
agreements with customers, suppliers, etc., must be entered into again, or
at least be formally continued by the acquiring entity. With regard to legal
continuity, we will look at two matters: the branch, and TUPE.
> Branch of business: line of business. Under certain conditions of company
law (acquisition of a line of business), an asset deal can be made with legal
continuity.
> TUPE / Transfer of Undertakings (Protection of Employment): according to
European and Belgian social law, in many cases there is a mandatory transfer
of employment contracts, even if there is no legal continuity for the company
itself. Reference to this situation is made in a European context in TUPE, and in
Belgium in CAO 32bis (section 32b of a collective bargaining agreement).
> Change of Control Clauses: clauses in agreements concluded by the
company (e.g. for a loan from a bank), that stipulate that the contract will no
longer be valid or will be dissolved if there is a change in control of the company.
Identification of the Change of Control Clauses is an important part of the
analysis of the legal continuity of the acquisition.
15
16
Price
3
10 million
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In view of the fact that a company is not only a complex body of activities,
but also of assets and debts, various types of arrangements are agreed on
to fix the price. This chapter contains a number of common terms that are
used in discussions about pricing.
Schematically, we can
present this as follows:
Debt free/cash free price
Minus debt
Plus cash
Minus/plus difference
between existing working
capital and normalized
working capital
20
deter the seller from liquidating the inventory of the company to generate cash,
thus leaving behind a company that cannot meet customer demand. Finally, the
buyer will want to deter the seller from building up delays in the payment of
suppliers in order to accumulate cash on the closing date.
A simple example
We will take as our example a taxi company with five taxis. On the
basis of a debt-free situation and half-full fuel tanks, you determine
how much you want to pay for the taxis and the customer base. At
the time of acquisition (the date of the closing accounts) you take an
inventory. You notice that there are some car loans that need to be
repaid, the fuel tanks are empty and there are still envelopes in the
taxis containing cash for buying fuel. The final price will ultimately
amount to the price payable for the business activity, minus the loan
and the fuel shortage in the tanks, plus the cash found in the taxis.
.
> Debt & cash free: the price assuming a situation without financial debts and
without cash free.
> Working capital: the sum of the customers, suppliers, inventories and other
current assets and liabilities necessary for the day-to-day operation of the
company.
> Normalized working capital: an analysis of how the working capital would
look in normal circumstances. This involves adjusting for all exceptional and
non-recurring items, such as the collapse of a major customer, a major supplier
position due to the purchase of a machine, or a large inventory position due to a
machine breakdown.
21
> Target working capital: the state of the working capital to be used as a basis
for settlement at the time of the closing. The target working capital is recorded
in a contract during the negotiations and is often based on a historical analysis
of the working capital requirements of the business. The settlement is based on
the closing accounts, with the price being increased or reduced if the company
has more or less working capital than the target capital on the date of the
closing accounts.
> Closing accounts: when the agreement is recorded in an SPA, a future date
on which a balance sheet is to be drawn up (the closing accounts) is agreed.
These closing accounts will then form the basis for determining the net debt and
the working capital that will be used for determining the final price according to
the agreed price formula.
> Net debt: there is no official definition of net debt, which means it is important
to define it properly in the LOI and SPA. The net debt generally comprises
financial liabilities (in a broad sense) minus cash. Financial liabilities include the
following: loans and associated liabilities (including interest that is current but
not yet payable), bills of exchange, repayable subsidies, pensions and other longterm commitments to staff, commissions giving rise to cash outflows within
the foreseeable future, off-balance sheet commitments that can be considered
equivalent to debt, and certain leasing debts.
> Belgian GAAP / Belgian Generally Accepted Accounting Principles: the
generally accepted accounting principles in Belgium. This term refers to Belgian
accounting law and accounting principles applicable in Belgium. If the SPA
includes a pricing mechanism based on the closing accounts, it is important to
specify under which GAAP these closing accounts must be drawn up. This could
be under Belgian GAAP, or under Dutch GAAP, US GAAP, Swedish GAAP, etc., or
alternatively under IFRS.
> IFRS / International Financial Reporting Standards: this is an international
GAAP used for reporting purposes by listed companies in Belgium and the EU.
> Earn-out: if there is a major price discussion between the buyer and seller
due to differing views on the future results of the company, an earn-out may
22
An earn-out can
make integration
difficult.
> Spread payment / vendor note / vendor loan: if the seller allows spread
payments, it implicitly grants a loan (vendor note or vendor loan) to the buyer.
> Locked box: a locked box mechanism is a price mechanism in which the price
of the shares is determined on the basis of a historical accounting situation,
rather than a future situation (closing accounts). The price is determined as a
Example
In the example of the taxi company (see page 20) the fuel payments
made using the cash in the envelopes will reduce the cash but will
also increase the contents of the fuel tanks, and thus have a neutral
effect on the value of the company.
debt and cash free price, minus historical debt, plus cash, and adjusted for the
working capital surplus or shortfall at that same historical time. In addition, it is
contractually agreed that there cannot be any cash flowing out of the company
(the locked box) in the form of the payment of dividends or management fees.
All other cash movements remain within the company and are thus assumed to
have no effect on value. This method can only be applied if the buyer can obtain
a very good picture of the balance sheet of the company during the acquisition
process.
23
Classic mechanism
Feb
Apr
May
Jun
Jul
Mar
Apr
May
Jun
Jul
In a locked box system, the period between the last available balance sheet and the
closing date is not covered by closing accounts but a contractual agreement that no
capital can flow out of the company.
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Transaction
process viewed
from the
perspective of
the buyer
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Viewed from the perspective of the buyer, the sales process involves,
among other things, the buyer wanting to form a good picture of the
company it is buying, in the area of both risks and opportunities. This
investigation, which is often called auditing the books, or due diligence,
includes many elements that each form a separate element of the due
diligence process. We summarize the most common elements below.
> Financial due diligence: the review of the historical and future figures of
the company. The focus in this context is often on the quality of earnings (how
robust are the historical results?), the quality of net debt (which items could all
be taken into consideration in determining the net financial debt?
see also
debt and cash free, the forecast (analysis of the budgets and future projections)
and the normalized working capital.
> Tax due diligence: the investigation of the historical and future tax situation
and exposure of the company or companies in the areas of both direct and
indirect taxes.
> Legal due diligence: the review of the legal situation of the company in the
areas of company law, review of contracts, labor laws, intellectual property (IP),
permits, etc.
> Commercial due diligence: the review of the markets in which the company
operates and the commercial position in which the company finds itself.
> Pensions due diligence: the review of the existing and future obligations
related to pensions. The future commitments can vary based on the type of
pension plan set up by the company.
> Defined contribution plan: a pension plan
in which the final amount is not fixed, but will
be the sum of the contributions and the return
achieved. In this context, the company does
not give the employee a guarantee of what the
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final amount will be. However, for the members, the law protects the return on
accrued reserves by imposing a minimum return.
> Defined benefit pension plan: a pension plan in which the final amount to be
obtained is contractually fixed. In an acquisition with this type of pension plan
there is often discussion about the size of the existing pension debt. Specialized
pension actuaries are therefore consulted to analyze these types of plans and to
work out how the pension provision and the accrued specific investments relate
to the pension debt.
> Insurance due diligence: the investigation into the existing insurance
coverage and variance analysis with the required coverage, as well as the
investigation into the continuity of insurance coverage during the transaction
process.
> Operations and synergy due diligence: the investigation into the efficiency
of the operations and how specific synergies can be achieved.
> Environmental due diligence: the investigation into the environmental
situation in relation to soil pollution, water pollution, air pollution and noise
pollution.
> Health and safety: the
investigation into working
conditions with a focus on health
and safety.
> Release/reliance (for
financiers): due diligence reports
prepared by advisors are used by
the acquiror and also by parties
29
involved in financing the acquisition. It is usual, for example, for financing banks
to have access to the reports following the exchange of a letter in which the
responsibilities are defined. Broadly speaking, there are two types of access:
simple release, in which the advisors do not have any specific accountability
to the banks, and reliance, in which the advisors have a similar duty of care
(accountability) to the banks as they do to the buyer.
> Hold harmless letter / approved reader letter: letter of indemnity. A letter in
which an adviser provides a party with access to a report or a file, in which this
party agrees to indemnify the advisor from any liability that could arise from the
access provided to files or reports.
> Clean team: a clean team exists when an advisor is asked by both the selling
and the buying parties to review a very specific topic that contains sensitive
information, such as the customer portfolio. The clean team receives all the
information, but only provides a summarized analysis to its clients (the buyer and
the seller together). The parties could agree that, for example, the sale will not
proceed if one of the top five customers disappears. If the seller would rather
not disclose the identity of the customer, a clean team scenario could offer a
way out, since the clean team can analyze the customers and report on them on
an anonymous basis.
> Data room: the room or space (may also be an electronic space,
see also
E-data room) in which specific data concerning the company are collected. By
providing the buyer (and its advisors) with access to this space, the buyer will
have the opportunity to read these documents and to form a picture of the
company. Visits to a data room are governed by data room rules.
> Data room rules: a set of rules that the visitor must first accept, laying down
whether the visitor is to be given access to the data room, at what time, for how
long, and what may happen to the information contained in it (e.g. whether or
not copies can be made).
> E-data room: electronic data room. Web-based applications make it
possible to organize data rooms in a way that allows them to be consulted
online (in a protected form) once all the documents have been scanned.
30
E-data rooms have the advantage of being easy to use and of being accessible
24 hours a day by an international team of specialists without any need for
travel.
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Transaction process
viewed from the
perspective of
the seller
If we look at the sales process from the perspective of the seller, we find a
sequence of process steps involving a long list of candidates from which a
short list is selected. These are sent a teaser and (after signing an NDA) also
an information memorandum and a process letter. On the basis of the offer
letters received, the decision is made as to who is to be given access to the
data room and, potentially, to the VDD (Vendor Due Diligence) report. The
terms below are therefore shown in chronological order insofar as possible.
> Long list: the initial long list of potential buyers for the company.
> Short list: the short list of companies that will be contacted in an initial phase
to gauge their interest. The short list is often created after making a selection
from the long list.
> Teaser / blind profile: the anonymous profile of the company that is sent to
potential buyers. The aim is to determine whether such a purchase could interest
them without the identity of the company being disclosed.
> Info Memo / Information Memorandum: information memorandum. After
signing an NDA, the potential buyer may be sent an information memorandum
and a process letter. The information memorandum is a document that describes
the company and, in addition to a good summary, includes the following
information: history of the company, description of products and services,
market position, management, financial information, etc.
> Process letter: the process letter contains information on how the seller
wants to organize the sales process, by which date a bid is expected and what
requirements it must meet and how the next phase will look after that bid.
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35
Advisors
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> Fees: the fee of the deal advisor generally consists of two parts, specifically
the retainer and the success fee. The fees of other advisors are usually time and
expense based.
> Success fee: the portion of the fee that depends on the closing of the
transaction.
> Retainer fee: the fixed or monthly payment that is awarded regardless of
whether the transaction is completed.
> Time and expense based fee: fee based on hours worked and reimbursement
of expenses incurred.
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Valuation
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> Goodwill: the difference between the price paid for the shares and the book
value of the equity of the company.
> EBITDA / Earnings Before Interest, Tax, Depreciation and Amortization: the
profit before interest, taxes, depreciation and amortization. This is a gauge of the
operating cash flow of a company.
> REBITDA / Recurring Earnings Before Interest, Tax, Depreciation and
Amortization: the recurring profit before interest, taxes, depreciation and
amortization. This is a gauge of the recurring operating cash flow of a company,
and is the EBITDA adjusted for non-recurring items. Typical adjustments relate to
the effect of a restructuring or a large one-off order or contract.
> EBITDAR / Earnings Before Interest, Tax, Depreciation, Amortization and
Rent: the profit before interest, taxes, depreciation, amortization, and rent. This
is a gauge of the operating cash flow of a company before the payment of rent.
Assets can be financed in different ways (renting, operating leases, finance
leases, sale with loan, etc.) Since rent affects EBITDA whereas a sale with a loan
42
does not, EBITDAR is a concept that is used so that the results can be analyzed
and compared independently of how the assets are financed.
> Free Cash Flow: deducting the tax on the operating profit, investments and
growth in working capital from the EBITDA provides an indication of the free
cash flow.
> PBT / Profit Before Tax: the profit before taxes, sometimes also described as
EBT/earnings before tax.
> PAT / Profit After Tax: the profit after taxes.
> EBIT / Earnings Before Interest and Tax: the profit before interest and taxes.
This is also called operating profit or operating profit before tax.
> NOPAT / Normalized Operating Profit After Tax: the normalized operating
profit after taxes. This is the operating profit after taxes, which is normalized by
eliminating all extraordinary and non-recurring items.
> DCF(F) / Discounted Cash Flow (to the Firm): a commonly used valuation
method based on an actualization of future free cash flows. The future free cash
flows are estimated on the basis of a forecast and then actualized to the current
date by using an actualization rate or discount factor known as the WACC.
> WACC / Weighted Average Cost of Capital: the weighted average cost of
capital. The WACC is calculated by taking the weighted average of the cost
of the capital and the cost of the debt (cost of equity and cost of debt). The
weighting factor is the ratio of financing from the companys own funds (capital)
to financing from borrowed funds (loans - debt).
> Cost of debt: the cost of financing debt after deduction of the tax benefit
owing to the tax deductibility of interest amounts.
> CoE / Cost of Equity: the cost of capital, determined by equating it to the
required return that average investors want to achieve on their investments, on
the basis of the companys risk profile. A classic way to determine the CoE is by
applying the CAPM.
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45
Buy-out
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> Business Angels: investors who invest in a company at a very early stage. This
type of investor is often an individual or a small group of individuals.
> Venture Capital: this term is used for all investment funds. However, to
make a clear distinction between investment funds active in start-ups or
technologically uncertain companies and investment funds active in mature cash
flow generating companies, the term venture capital is being used to indicate the
first type of investment funds to an increasing extent. Buy-out funds and private
equity relate to the second type of investment funds.
48
> Private Equity (PE) fund: an investment fund active in mature cash flow
generating companies that also attracts debt financing for the acquisitions and
actively involves management in the acquisition.
> Buy-out fund:
> Hedge funds: funds that, unlike PE funds, also invest in assets other than
shares.
> Vulture funds: funds that are specialized in acquiring distressed companies.
> Special situation funds: in view of the negative connotations associated
with the reference to vultures in the term vulture fund, these funds refer to
themselves more neutrally as special situations funds.
see also vulture fund or special situations fund. This
> Turn-around funds:
name places the emphasis on the value created by restructuring the acquired
companies and making them profitable again (i.e. turning them around)
> MBO / Management Buy-out: a transaction in which the existing
management and an investment fund become co-owners of a company.
> MBI / Management Buy-in: a transaction in which a new management group
and an investment fund become co-owners of a company.
> LBO / Leveraged Buy-out: a buy-out partly financed with debt.
> Sweet Equity: to encourage management and bring its interests into line with
those of the investment fund, management is given the opportunity to invest
in the target company under special conditions. In this context, the relative
contribution per share is often lower for management than the amount paid by
the investment fund. The ratio of the effective price paid by management to the
price paid by the investment fund for their respective investments is sometimes
also called the envy ratio.
49
> Ratchets: ratchets are systems that are used to determine and change the
ratios of the shareholdings between different groups of shareholders. A ratchet
can make it possible, for example, for management to increase its share in the
equity of a company if the company performs well. On the other hand, ratchets
can be used to ensure that the investment fund achieves a maximum return if
the company does not perform well.
> LP / Limited Partnership: Anglo-Saxon funds are often set up as tax
transparent limited partnerships with limited liability for the investors (the
limited partners). These limited partnerships are often offshore partnerships for
maximum legal flexibility.
> GP / General Partner: in order to maintain the limitations in liability as a
limited partnership, a fund must also have a general partner who has unlimited
liability. The general partner is associated with the management company of the
investment fund.
> Investment horizon: the period for which the fund intends to invest. There are
two types of funds in terms of horizon: open-end and closed-end.
> Closed-end fund: a fund with a limited investment horizon. Often, a few years
will be allocated for investing: several years for the growth of the company, and
several years for its sale. Closed-end funds seek to complete this entire cycle in
6-12 years.
> Open-end fund: a fund without a specific investment horizon.
> Co-investment: an investor who also invests in a specific buy-out alongside
the investment fund, in principle under the same conditions as the investment
fund.
> Carried interest: the management of a PE fund is usually paid a management
fee and a percentage of the added value that the fund realizes for its investors.
The percentage is usually paid after the investors have realized a specific return
(
see also Hurdle). The funds share in the return is called the carried interest.
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52
> Bulletloan: a form of debt in which the interest payment and the debt
redemption take place in full at the end of the loan.
> Grace period: the period during which no interest payments and/or debt
repayments need to take place.
> Debt syndication: if several banks underwrite the debt financing, they can
form a syndicate and as a result act jointly.
> Headroom: this term is sometimes used to refer to the difference between
the current performance of the company and the covenants.
> Covenants: the parameters used by banks to assess whether repayment is
threatened.
> Breach: if a covenant is not met and therefore a breach of covenant occurs, the
loan agreements may stipulate that the debt is immediately due and payable or
repayable.
> Euribor / Euro Interbank Offered Rate: This is a reference interest rate often
used as the basis for a variable interest rate.
> Basis points: hundredths of one percent of interest. The interest on a loan is
often expressed as EURIBOR plus a number of basis points.
> Hedging of interest risk: derivative financial instruments, such as interest rate
swaps, are used to convert a variable interest rate into a fixed interest rate.
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Growth capital
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An example
Where the pre-money value is 100 and the capital increase is 50, the
post-money value is 100+50 = 150.
This post-money value is usually used as a reference for the calculation of the share ratio. In that case, the subscriber to the capital
increase specifically has the right to 50/150 or 33% of the shares.
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Operational
elements of
the deal
10
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> Fat lady: during negotiations there are frequent warnings about premature
optimism about the success of the transaction. It isnt over until the fat lady
sings refers to the fact that the transaction is not complete until the final
agreement is signed.
> Tombstone: following the completion of the transaction, advisors or financiers
often have a Perspex trophy or, literally, a tombstone made to commemorate
the transaction. This tombstone is presented as a memento to the deal teams
and other advisors.
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Capital markets
11
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An IPO usually
induces a change in
corporate culture and
a new responsibility to
stakeholders.
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> Hostile take-over: a hostile bid. A bid for a listed company whose current
board of management is against the takeover.
> Underwriter: usually an investment bank that manages and underwrites the
public issue of shares or bonds. As part of this, the bank promises to buy any
shares that are not placed on the stock exchange.
> Euronext Brussel: the exchange of Brussels. On 22 September 2002, the
exchange merged with the exchanges of Paris, Lisbon and Amsterdam to create
Euronext NV, the first pan-European exchange for shares and derivatives. Its
name was changed to Euronext Brussels at that time. On 4 April 2007, Euronext
N.V. merged with NYSE Group Inc. to create NYSE Euronext Inc.
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> High-yield bonds: bonds issued by companies with a relatively low credit
rating or a high degree of risk. As the name indicates, these bonds have a
relatively high yield (return) because of the high risk. Also known as junk bonds.
> In the money: an option is in the money if the price of the underlying
security on the stock exchange is higher than the strike price in the case of a
call option (right to buy), or if the price of the underlying security on the stock
exchange is lower than the strike price in the case of a put option (right to sell).
> MTN / Medium Term Note: This is comparable to a bond, but usually offers
a higher return than normal bonds and/or has a shorter maturity. Trading takes
place on the OTC (Over The Counter) market.
> Naked: a naked, or uncovered, call option gives the purchaser the right to buy
shares that are not yet in the possession of the writer.
> Penny stocks: a name for shares with a very low absolute price on the stock
exchange.
> Rating: an assessment of the creditworthiness of a company by a rating
agency such as Moodys, S&P or Fitch.
> Option: the right to buy or sell a security at a specific price.
> Warrant: a warrant gives the holder the right, but not the obligation, to
subscribe to a capital increase at a predetermined price on or before a specific
date. This is a commonly used alternative to options in employee ownership
schemes, because the company does not need to possess any of its own shares
since new shares will be created when the warrant is exercised.
69
Index
#
100 day plan: 62
A
Acquisition: 5
Acquisition nance: 52
Alpha: 44
Announcement: 62
Anti-dilution: 59
Anti-trust filing: 7
A-shares, B-shares: 59
Asset deal: 14
Auditor: 38
Autofinancing capacity: 59
B
Bank guarantee: 9
Basis points: 53
Basket: 9
Belgian GAAP/Belgian General
Accepted Accounting Principles: 22
Beta (levered/unlevered): 44
Blocking minority: 59
Board seat: 59
Book runner: 67
Branch: 15
Breach: 53
Broker: 66
Bullet loan: 53
Business angels: 48
Buy-out fund: 48
C
CAPM/Capital Asset Pricing Model: 44
Carried interest: 50
Change of Control Clauses: 15
Clean team: 30
Closed-end fund: 50
Closing accounts: 22
Closing agreement: 7
Closing date: 19
Closing dinner: 63
Club deals: 51
CoCo/Comparable Company: 45
CoE/Cost of Equity: 43
Co-investment: 50
Commercial due diligence: 28
Committed capital: 51
Cost of debt: 43
CoTrans/Comparable Transaction: 45
Covenants: 53
Crowdfunding: 54
CP/Condition Precedent: 7
D
Data room: 30
Data Room Rules: 30
DCF(F)/Discounted Cash Flow (to the
Firm): 43
Deal advisor: 38
Deal structuring: 15
Debt and cash free: 21
Debt push down: 15
Debt syndication: 53
Defined benet plan: 28
Defined contribution plan: 28
Dilution: 66
Disclosures: 9
Discount/Premium: 45
71
Distribution: 51
Drag along: 58
Drawdown: 51
Due diligence: 25
Due diligence provider: 38
E
Earn-out: 22
EBIT/Earnings Before Interest and Tax:
43
EBITDA/Earnings Before Interest, Tax,
Depreciation and Amortization: 42
EBITDAR/Earnings Before Interest,
Tax, Depreciation, Amortization and
Rent: 42
E-data room: 30
Environmental due diligence: 29
Envy ratio: 47
Escrow: 9
Euribor: 53
Euronext Brussels: 67
EV/Enterprise Value: 45
Exclusivity: 6
Exit: 51
F
Fat lady: 63
Fairness opinion: 68
Fees: 39
FFF: 54
Financial assistance: 16
Financial due diligence: 28
Franchise: 10
Free Cash Flow: 43
Free Float: 66
FSMA: 68
72
G
Goodwill: 42
GP/General Partner: 50
Grace period: 53
Green shoe: 66
Guarantees: 8
H
Headroom: 53
Heads of agreement: 7
Health and safety: 29
Hedge funds: 49
Hedging of interest risk: 53
High yield bonds: 69
Hold harmless letter/approved reader
letter: 30
Hostile takeover: 67
Hurdle: 51
I
IFRS/International Financial Reporting
Standards: 22
Indemnities: 8
Info Memo/Information
In the money: 69
Memorandum: 34
Insider traping: 68
Institutional investor: 68
Insurance due diligence: 29
Investment horizon: 50
IPO: 66
IPO/Initial Public Offering: 49
J
Junior debt and senior debt: 52
L
Lawyer/M&A lawyer: 38
LBO/Leveraged Buy-out: 49
Leakage: 16
Legal continuity: 14
Legal due diligence: 26
Leverage: 52
List of parties: 38
Locked box: 23
LOI/Letter Of Intent: 6
Long list: 34
Long/Short position: 66
LP/Limited Partnership: 50
Luck-up arrangement: 68
M
MAC/Material Adverse Change: 7
Market CAP: 67
MBI/Management Buy-in: 49
MBO/Management Buy-out: 49
Merger: 5
Mezzanine: 52
Minimis: 12
MOU/Memorandum Of
Understanding:6
MRP/Market Risk Premium: 44
MTN: 69
Multiple: 44
N
Naked: 69
NDA/Non Disclosure
Agreement: 6
Net debt: 21 (Non) Binding: 7
NOPAT/Normalized Operating Profit
After Tax: 43
Normalized Working Capital: 21
O
Offer letter: 6
Open-end fund: 50
Operations and synergy due diligence:
29
Option: 69
P
PAT/Profit After Tax: 43
PBT/Profit Before Tax: 43
Penny Stocks: 69
Pensions due diligence: 28
PIK/Payment in Kind: 52
PMI/Post Merger Integration: 62
Poison pill: 67
Post money value: 58
Pre money value: 58
Private Equity (PE) fund: 49
Private placement: 68
Process letter: 34
Prospectus: 68
R
Ratchets: 50
Rating: 69
REBITDA/Recurring Earnings Before
Interest, Tax, Depreciation and
Amortization: 42
Release/reliance (for financiers): 29
Representations: 8
Retainer fee: 39
RF/Risk Free Rate: 44
S
Secondary buy-out: 51
Serial deal maker: 62
Share deal: 14
73
Shareholder agreement: 58
Short list: 34
SPA/Share Purchase Agreement: 7
Special situation funds: 49
Specialist advisors: 38
Spread payment: 23
Stapled/debt package: 52
Strategy: 62
Success fee: 39
Sweet Equity: 49
Synergy: 62
T
Tag along: 58
Target Working Capital: 22
Tax due diligence: 28
Tax treatment: 14
Teaser/blind prole: 34
Threshold: 9
Time and expense based fee: 39
Tombstone: 63
TUPE: Transfer of Undertakings
74
(Protection of Employment): 15
Turn around funds: 49
U
Underwriter: 67
V
VDD/Vendor (initiated) Due Diligence:
35
Vendor loan: 21
Vendor note: 21
Venture Capital: 48
Vulture funds: 49
W
WACC/Weighted Average Cost of
Capital: 43
Warrant: 69
Warranties: 8
Working Capital: 21
Wouter Caers
Partner
M&A Tax
wcaers@kpmg.com
+32 3 821 19 73
Luc Heynderickx
Partner
M&A Tax
lheynderickx@kpmg.com
+32 2 708 38 16
Wouter Lauwers
Partner
Klaw advocaten/avocats
wlauwers@klaw.be
+32 2 708 38 68
Peter Lauwers
Partner
Corporate Finance
plauwers@kpmg.com
+32 3 821 18 15
Yann Dekeyser
Partner
Transaction Services
ydekeyser@kpmg.com
+32 3 821 18 64
kpmg.com/be/mandajargon
2014 Kratos Law, a Belgian civ. CVBA/SCRL civ. All rights reserved.
2014 KPMG Advisory, a Belgian civil CVBA/SCRL and a member firm
of the KPMG network of independent member firms affiliated with KPMG
International Cooperative (KPMG International), a Swiss entity. All rights
reserved.