Glossary

The language of selling a business

55 terms you'll meet on the way to a sale, in plain English. For the full picture, read the owner guides.

Showing 55 of 55 terms.

A

Adjusted EBITDAValuation and pricing: Earnings before interest, tax, depreciation and amortisation, with one-off or owner-specific costs added back (for example an above-market owner salary). The figure most buyers apply a multiple to.
Asset saleDeal structures: The buyer purchases the business's assets (equipment, contracts, goodwill) rather than the company's shares. Liabilities usually stay with the seller's company.

B

Best and final offerProcess and diligence: The closing bid requested from shortlisted buyers at the end of a competitive process, before one of them is granted exclusivity.
BIMBODeal structures: Buy-in management buy-out. A hybrid deal in which existing managers buy the business alongside incoming external executives.
Blind teaserProcess and diligence: A short, anonymised summary of the business sent to potential buyers before they sign an NDA, so the business cannot be identified.
Business Asset Disposal ReliefTax, people and governance: A UK tax relief (formerly Entrepreneurs' Relief) that can reduce Capital Gains Tax on qualifying business disposals, up to a lifetime limit. Rates and rules change, so take tax advice.

C

Carve-outDeal structures: Separating a division, subsidiary or set of assets from the wider group so it can be sold on its own. Also called a hive-down.
Cash-free, debt-freeValuation and pricing: The usual basis for quoting a price. The buyer takes the business with no debt and no surplus cash, and the two are settled separately at completion.
CompletionProcess and diligence: The point at which the sale legally takes effect, ownership transfers and the initial consideration is paid.
Completion accountsValuation and pricing: Accounts prepared after completion to confirm the actual cash, debt and working capital, with the price adjusted up or down to match.
ConsiderationValuation and pricing: The total price paid for the business, which may be split between cash at completion, deferred payments and earn-outs.
Customer concentrationValuation and pricing: How much of the revenue depends on a few customers. Above roughly 15% from any one customer, buyers often see risk and adjust the price.

D

Data roomProcess and diligence: A secure online folder holding the documents buyers review during due diligence: accounts, contracts, staff, IP, property and tax records.
De minimis and basketLegal and liability: Thresholds that limit warranty claims. A claim below the de minimis cannot be brought at all, and small claims only count once they add up past the basket.
Deferred considerationValuation and pricing: Part of the price paid at agreed later dates, regardless of performance.
Disclosure bundleLegal and liability: The indexed set of documents attached to the disclosure letter, evidencing each exception the seller has disclosed against the warranties.
Disclosure letterLegal and liability: The seller's document listing exceptions to the warranties in the sale agreement. Proper disclosure limits the seller's later liability.
Due diligenceProcess and diligence: The buyer's detailed investigation of the business's finances, legal position, operations and people before committing to buy.

E

Earn-outValuation and pricing: Part of the price that depends on the business hitting agreed targets after the sale, usually over one to three years.
Employee Ownership Trust (EOT)Deal structures: A trust buys a controlling stake in the company for the benefit of the employees. Qualifying sales have carried significant Capital Gains Tax advantages, so take current tax advice.
Enterprise valueValuation and pricing: The value of the business before cash and debt are taken into account. The price the seller receives (equity value) adjusts for these.
Equity valueValuation and pricing: Enterprise value plus surplus cash, minus debt and debt-like items. What the shareholders actually receive.
EscrowLegal and liability: Part of the price held in a neutral account, often for 6 to 24 months, to cover any warranty or indemnity claims the buyer brings after completion.
ExclusivityProcess and diligence: A binding agreement giving one buyer a protected period, commonly 45 to 90 days, to complete diligence without competing bidders. Also called a lock-out.

G

Good leaver, bad leaverTax, people and governance: Terms setting out what happens to deferred consideration, earn-out or rollover shares if a founder or manager leaves before the agreed period ends.

H

Heads of termsLegal and liability: A largely non-binding document setting out the main deal points (price, structure, timetable, exclusivity) before lawyers draft the full agreement.
HMRC clearanceTax, people and governance: Advance confirmation from HMRC that a proposed structure, such as a share-for-share exchange, will be treated as expected and not challenged under anti-avoidance rules.

I

IndemnityLegal and liability: A pound-for-pound promise to reimburse the buyer for a specific known risk, such as an ongoing tax enquiry or employment claim, without the buyer having to prove loss.
Indicative offerProcess and diligence: A buyer's preliminary, non-binding valuation and proposed structure, submitted after reading the information memorandum and before exclusivity.
Information memorandumProcess and diligence: The confidential document prepared by advisers describing the business, its financials and its growth story, sent to buyers who have signed an NDA.

L

Liability capLegal and liability: The agreed ceiling on what the seller can be required to pay under the warranties and indemnities, often a percentage of the price.
Locked boxValuation and pricing: A pricing method where the price is fixed on a past balance sheet date, and the seller promises no value has leaked out since. An alternative to completion accounts.

M

Management buy-in (MBI)Deal structures: An external management team buys the business and runs it, usually backed by bank debt or private equity.
Management buy-out (MBO)Deal structures: A sale of the business to its existing management team, often funded by a mix of debt, private equity and deferred payments to the seller.
MultipleValuation and pricing: The number applied to earnings (usually adjusted EBITDA) to arrive at a value. It reflects sector, growth, risk and quality of earnings.

N

NDAProcess and diligence: Non-disclosure agreement. Signed by potential buyers before they see identifying or sensitive information. Also called a confidentiality undertaking.
Net debtValuation and pricing: Borrowings, finance leases and other debt-like items such as unpaid tax, less free cash. It is deducted from enterprise value to reach what the shareholders receive.
Normalised working capitalValuation and pricing: The typical level of working capital the business needs to trade. The buyer expects this to be left in the business at completion.

O

Owner dependenceValuation and pricing: How far the business relies on the owner personally for sales, relationships or decisions. High dependence lowers value and often leads to earn-outs.

P

Process letterProcess and diligence: The instructions advisers send to interested buyers, setting out what to submit, in what form and by when at each stage of the sale.

Q

Quality of earningsValuation and pricing: An assessment, often by accountants, of how sustainable and repeatable the profits are. Strong quality of earnings supports a higher multiple.

R

Recurring revenueValuation and pricing: Income that repeats predictably, such as subscriptions, retainers or long-term contracts. Buyers typically pay more for it.
Red flag due diligenceProcess and diligence: A short, focused review carried out early to surface anything that could stop the deal, before the cost of full diligence is committed.
Restrictive covenantsLegal and liability: Promises in the sale agreement stopping the seller from competing, approaching customers or recruiting staff for an agreed period, commonly two to three years.
Rollover equityDeal structures: Instead of taking all cash, the seller keeps a stake in the buying group, hoping for a second, larger payday when that group is sold.
Run-rate EBITDAValuation and pricing: Current profitability annualised, so recent contract wins, price rises or cost savings are reflected as if they had applied all year.

S

Share purchase agreement (SPA)Legal and liability: The main legal contract for a share sale, covering price, payment terms, warranties, indemnities and restrictions on the seller.
Share saleDeal structures: The buyer purchases the company's shares, taking on the company with all its assets and liabilities. Common for UK owner-managed businesses.
Substantial Shareholding ExemptionTax, people and governance: A corporation tax exemption that can apply when a company sells shares in a trading subsidiary it has held for long enough. Conditions are strict, so take advice.

T

Trade saleDeal structures: A sale to a competitor, supplier, customer or other company in a related market, usually the route that pays the strongest strategic price.
TUPETax, people and governance: The UK rules that automatically transfer employees, on their existing terms, when a business or service is sold as assets. They bring consultation duties for both sides.

V

Vendor due diligenceProcess and diligence: Due diligence commissioned by the seller before going to market, to find and fix issues early and speed up the buyer's review.

W

W&I insuranceLegal and liability: Warranty and indemnity insurance. It covers losses from breaches of the seller's warranties, reducing the seller's personal exposure after the sale.
WarrantiesLegal and liability: Statements of fact about the business made by the seller in the sale agreement. If one proves untrue, the buyer may claim compensation.
Working capital targetValuation and pricing: The agreed normal level of working capital to be left in the business. Anything above it is usually added to the price, anything below deducted.