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For investors we trace the business wanted globally, according to selection profiles and search criteria. NBB is currently presenting online more than 100 M&A enquiries from international investors, and more than 300 businesses for sale are listed, too.
NBB serves clients with complimentary consultation in Mergers & Aquisitions and business brokerage, M&A advisory for sellers & buyers, company and business succession advisory, international networking in M&A, national networking in business brokerage for SMEs, cross border company transactions and succession solutions.
Origin
NBB National Business Brokers was founded in 2001 as the result of a partnership between SFFAB/EBB, Swedish leaders in the field of business transactions, and Onebiz Group, a leader in specialised corporate services. Since 2011 the Sartorial Group owns 100% of NBB.
Success in transactions requires extensive knowledge and practical experience. At NBB, we provide high-quality services as a result of our market knowledge, our ability to analyse and perform accordingly, and offer strategic advice and support throughout the entire process of a transaction, including business valuations and market studies.
SOUND KNOWLEDGE AND EXPERIENCE - A SUCCESSFUL COMBINATION
What We Do
NBB offers companies and entrepreneurs tailor-made services in the following areas:
AN INTEGRATED SERVICE COVERING ALL AREAS OF M&A TRANSACTIONS
How We Perform
We adapt our approach and methodology to our clients’ requirements, both on a national or international dimension, in order to offer the most suitable range of solutions regarding:
The proper coordination of our widely experienced consultants’ efforts, the usage of specialised tools and the dissemination of knowledge throughout the NBB network enable us to provide companies and individuals with high-quality consultancy services in business transactions, empowering local clients to benefit from global solutions and synergies.
At NBB, we consider the free exchange of information within our network absolutely imperative, as this allows the exchange of experiences, which is necessary for the continuous improvement of our services in a globalised corporate environment.
Our independent ownership status guarantees unbiased advice and exclusive concentration on our clients’ interests in the short, medium and long-term.
Our primary objective is to increase our clients’ value by giving them sound advice and structuring each project as per their requirements. We provide local solutions with the support of our global network and widely experienced team.
NBB consultants operate within the guidelines of the International Business Brokers Association (IBBA) and M&A Source code of ethics, which emphasize ethical principles such as integrity, independence, responsibility, competence, fairness, loyalty and confidentiality.
At NBB, we are bound by professional secrecy and are committed to maintaining the privacy of information provided by our clients.
We promote the creation of both national and international institutional partnerships in order to find the best possible solution in every operation and for every client.
AT THE HEART OF EACH OF OUR BUSINESS VALUES LIES A SOLID COMMITMENT
Buying and selling businesses requires expertise in both the process itself and in maximising transaction value. At NBB, we fulfil those requirements: our market knowledge, our wide range of resources and tools, and the synergies of an international network of consultants enable us to achieve successful transactions.
WE KNOW THE MARKET
WE KNOW THE VALUE
Corporate Finance
In order to leverage the value obtained by our clients, we arrange structured financing such as:
The NBB work plan follows a methodology that includes these steps:
At NBB, we provide advisory services in relation to company demergers, in which a company aims to spin off one of its businesses to form a new venture, either integrated into the group or taken over by outside investors.
Our tasks include the valuation of the resulting business unit and the structuring of the operation, providing the businessperson with advice throughout the entire process.
NBB promotes the NYSE Euronext’s Alternext market and advises small and mid-size companies regarding their listing on the stock exchange. The Alternext market is particularly suitable for SMEs who wish to proceed to a private or public placement on the capital market. This type of operation presents many advantages, such as:
FOR EVERY SITUATION A TAILOR-MADE SOLUTION
NBB consultants are specialists in the valuation of companies in accordance with international valuation standards:
- Asset Approach - Book Value Method
This business valuation is based on the book value of the company’s assets, i.e. the facilities, stocks, etc. adjusted to the current market value. The liabilities are deducted from these assets, the result of which is the owner’s equity.
- Income Approach - Discounted Cash Flow Method
This method requires the help of the company’s owner or management team in order to provide information as regards the strategies planned for the next few years. NBB consultants then use their expertise and specialised tools to determine the value of the business according to the DCF method.
- Market Approach - Multiples Method
The value of a company is derived by applying a pre-defined multiplier to a company’s cash flow. NBB uses international databases of concluded deals to obtain the average multiplier of the relevant industry and business activity.
GOOD VALUATIONS GUARANTY GOOD TRANSACTIONS
We assist our clients in the decision-making process by carrying out company or sector analyses in both static and dynamic environments, by taking various factors into account, such as financial flow, company performance, risk, financial structure and stability, profitability, financial analysis and value.
NBB consultants and analysts provide clients with detailed information concerning their target market on the basis of extensive market knowledge and search criteria tuned to optimisation.
NBB is also qualified to provide consultancy services in real estate:
- Raising capital for investment projects in various sectors, such as the hotel industry, health sector, geriatrics, etc.
WE ARE PROFESSIONALS
COMPETENT AND COMPETITIVE
WITH A GLOBAL PRESENCE
NBB's Business Exchange Online is a good portal for Mergers and Acquisition activities, and features basic information on businesses for sale and businesses wanted in many languages. To get more business details, use the "I" (info) button of the business you are interested in, and follow the instructions.
Click on a business that you would like to acquire in the sector "Businesses for Sale", or select a listing in "Businesses Wanted" in case you do not find what you are looking for. NBB will trace the most suitable business for you to buy, in any industry or sector, in most geographical areas, and/or by transaction volume or other relevant search criteria.
The international network of NBB National Business Brokers is specialized in international Mergers and Acquisitions (M&A). Any Business for Sale or any Company for Sale needs to be accompanied throughout a merger or acquisition process by an experienced M&A professional. NBB offers General M&A Advisory and provides services for selling businesses and for buying businesses (Business Brokerage), business valuations, business succession solutions, corporate finance, capital raising, private equity and joint ventures.
NBB specialises on Mergers and Acquisitions, Businesses for Sale, Buying Businesses, Company for Sale, Selling Businesses, Business for Sale, Buy a Business, Business Brokerage, General M&A Services in the above countries with NBB offices.
NBB HQ and NBB Partner offices support all major social networks Facebook, LinkedIn, Xing etc. in Mergers and Acquisitions activities, General Business Brokerage, and major issues in selling and buying businesses.
To enhance and sustain the quality of business valuations for the benefit of the profession and its clientele, the below identified societies and organizations have adopted the definitions for the terms included in this glossary.
The performance of business valuation services requires a high degree of skill and imposes upon the valuation professional a duty to communicate the valuation process and conclusion, in a manner that is clear and not misleading. This duty is advanced through the use of terms whose meanings are clearly established and consistently applied throughout the profession.
If, in the opinion of the business valuation professional, one or more of these terms needs to be used in a manner that materially departs from the enclosed definitions, it is recommended that the term be defined as used within that valuation engagement.
This glossary has been developed to provide guidance to business valuation practitioners by further memorializing the body of knowledge that constitutes the competent and careful determination of value and, more particularly, the communication of how that value was determined.
Departure from this glossary is not intended to provide a basis for civil liability and should not be presumed to create evidence that any duty has been breached.
Connected Associations:
Terms used in Mergers & Acquisitions, Business Brokerage and Business Evaluations
refers to the growth of a company or other asset, either by internal expansion or acquisition.
A method of accounting wherein income and expenses are recognised, within the statements, when the business first acquires the right to receive the income, or the obligation to pay the expense. Regular corporations are required to use the accrual basis by IRS. (Also see Cash Basis Accounting.)
Transferee, Offeree, Target Company: The company that is being merged or taken over by the other company.
the process by which the stock or assets of a corporation are transferred to a buyer, either through a purchase of stock or a purchase of assets, or the purchase of the controlling interest or ownership of another company. This can be affected by:
the Company which is making a bid for the merger or takeover of another company
acquirer may purchase only assets or some specific assets and not all the assets and liabilities of the company.
a method within the asset approach whereby all assets and liabilities (including off-balance sheet, intangible, and contingent) are adjusted to their fair market values (NOTE: In Canada on a going concern basis).
see Adjusted Book Value Method.
The earnings that result from the adjustment of historical financial statements, reflecting items that are unrelated to the ongoing business. (See also recasting.)
normal Working Capital (see definition below) excluding any debt in current liabilities, synonymous with debt free working capital.
an analysis of the accounts receivable, usually alphabetised, as of the date of the balance sheet you are using, wherein each account receivable is shown in columnar form as either current, over 30 days, over 60 days, over 90 days, or over 120 days delinquent. Normally comments should be made regarding the accounts recent payment pattern and other indications regarding the probability of collection.
The assignment of value to tangible and intangible assets of an acquired company for which a premium over historical cost has been paid.
is blending of two or more companies. The shareholders of each company would become the shareholders of the company which is undertaking the activity. It is similar to a merger.
see Depreciation.
see Valuation
see Valuation Approach.
see Valuation Date.
see Valuation Method.
see Valuation Procedure
a ultivariate model for estimating the cost of equity capital, which incorporates several systematic risk factors.
a method of determining the value of a business's assets and/or equity interest using one or more methods based directly on the market value of the assets or the business less liabilities.
a type of financing, commonly found in leveraged buyouts, based on a percentage of some value (book, liquidation, market, auctions) of an asset. Asset based lenders typically analyse a target company's viability as a going concern and its ability to service debt from cash flow.
a form of acquisition whereby the seller of a corporation agrees to sell all or certain assets and, in some cases, liabilities of a company to a purchaser. The corporate entity is not transferred.
a statement of the financial status of the business on a certain date.
a company's current fiscal year. Since complete financial statements are not available for the current year, sales and income are projected based on the year-to-date results and expectations of management.
a dollar amount set forth as the loss that must be experienced by the buyer before it can recover damages under the indemnity provisions.
a measure of systematic risk of a stock; the tendency of a stock’s price to correlate with changes in a specific index.
an amount or percentage deducted from the current market price of a publicly traded stock to reflect the decrease in the per share value of a block of stock that is of a size that could not be sold in a reasonable period of time given normal trading volume.
that portion of a “claimed” value or requested price that cannot be supported, or generally shown to exist, through the application of established valuation methodology.
with respect to assets, the capitalised cost of an asset less accumulated depreciation, depletion or amortisation as it appears on the books of account of the enterprise. With respect to a business enterprise, the difference between total assets (net of depreciation, depletion and amortisation) and total liabilities of an enterprise as they appear on the balance sheet. It is synonymous with net book value, net worth and shareholder's equity.
the sum of the book value of debt and equity as presented on a company's balance sheet.
the net income "line" of the income statement
if the deal does not close, these fees may be paid to either the seller or buyer by the other to help cover costs incurred during the acquisition process.
a state law intended to protect the creditors of a business that is being sold by requiring that the creditors be notified of the sale.
see Business Enterprise.
a recurring pattern of expansion and contraction in the economy. The average cycle is three to four years.
a commercial, industrial, service or investment organisation or entity (or a combination thereof) pursuing an economic activity.The business enterprise can be seen as the sum of all operating assets of the business including normal working capital, operating fixed assets, and all intangible assets related to the production of the income and cash flow stream being valued.
the value of a business, using any number of valuation approaches, as an integral, operating unit rather than as a collection of individual assets and liabilities.
the act or process of arriving at an opinion or determination of the economic value of a business or enterprise or an interest therein. A business valuation can be conducted for a variety of purposes, including, but not limited to, a merger or acquisition; gift, estate, or inheritance tax planning; ESOPs and other employee benefit plans; going public; buy-sell agreements; marital, partnership, and corporate dissolutions; and bankruptcy reorganisations.
the degree of uncertainty of realising expected future returns of the business resulting from factors other than financial leverage. See Financial Risk.
the act or process of determining the value of a business enterprise or ownership interest therein.
wide selection on profitable businesses for sale can be traced on NBB's web portal www.nbbrokers.com.
a model in which the cost of capital for any stock or portfolio of stocks equals a risk-free rate plus a risk premium that is proportionate to the systematic risk of the stock or portfolio.
a conversion of a single period of economic benefits into value. Term used to describe a company’s permanent capital, long-term debt and equity.
an element of modern portfolio theory. A mathematical model showing an "appropriate" price, based on relative risk combined with the return on risk-free assets.
the composition of a business entities invested capital.
the conversion of historic or projected income into value; the capital structure of a business enterprise. The recognition of expenditure as a capital asset to be depreciated over time rather than a period expense.
any multiple or divisor used to convert anticipated economic benefits of a single period into value.
a method within the income approach whereby economic benefits for a representative single period are converted to value through division by a Capitalisation rate.
any divisor (usually expressed as a percentage) used to convert anticipated economic benefits of a single period into value (convert income into value).
determining value for a company by dividing net income by the required Return on Investment (ROI).
measurement of the company’s debt component of the company’s capitalisation. Measures the extent of debt used in relation to the company’s permanent capital; determined by dividing long-term debt by long-term debt plus equity.
the composition of the invested capital of a business enterprise, the mix of debt and equity financing.
a method of accounting wherein income and expenses are recognised, within the statements, when the business receives the income, or pays the expense. (See also Accrual Basis Accounting.)
the excess of sources of cash over uses of cash. Cash flow is used in performing the discounted cash flow analysis. Cash that is generated over a period of time by an asset, group of assets, or business enterprise. It may be used in a general sense to encompass various levels of specifically defined cash flows. When the term is used, it should be supplemented by a qualifier (for example, "discretionary" or "operating) and a specific definition in the given valuation context.
a type of unsecured financing based on the timing and certainty of the borrower's cash flow.
a financial statement that displays the sources and uses of cash; the Cash Flow Statement groups together funds in all activities segregated into operating, investing and financing categories. Cash Flow Statement is an analysis of all the changes that affect the cash account during an accounting period.
a merger in which shareholders in the company to be absorbed are offered cash for their shares instead of shares in the new company. This is basically an acquisition.
companies producing distinct products seek amalgamation to share common distribution and research facilities and promoting market enlargement. The acquiring company benefits by economies of resource sharing and diversification.
the clause 40 of the Listing Agreement of stock exchange allows a person to buy up to 5% stake in a company without any prior permission. After 5%, they ought to inform the stock exchange.
a strategy using options that is designed to protect the seller who receives publicly traded stock in a transaction from price fluctuations in the stock.
the number of common shares of stock outstanding at the end of the year, including stock held by the company in its treasury.
financial statements in which each line is expressed as a percentage of the total. On the balance sheet, each line item is shown as a percentage of total assets, and on t he income statement, each item is expressed as a percentage of sales.
a security representing a share of ownership in a corporation.
this can be made by any person within 21 days of public announcement of the offer made by the acquirer. This can be made by the public announcement and should be for the equal number of shares or more for which the first offer was made.
in an M&A transaction buyers seek businesses that have a positive complaint resolution history.
a book containing a detailed description of a business and its growth (CBR) opportunities. The CBR includes information on products and services, markets, competitors, promotional activities, organization, facilities, and historical and projected financial information. The CBR is sent to potential buyers who have signed a confidentiality agreement.
a brief profile of a business used to solicit buyer interest. The CBP (CBP) does not reveal the name of the business profiled.
signed by potential buyers, it requires them to keep the information contained in the CBR and ensuing discussions confidential.
an amalgamation of the companies in two different industries, (Eg: DCM and Modi Industries.)
the fusion of two companies in which both the companies lose their identity and form a new company. Shareholders get the shares of the new company.
a form of deal structure whereby the seller provides business advice and direction for a specified period of time in return for a specific amount.
improbable but possible obligations. Probable obligations are real liabilities and require adjustment in accounting records. Contingent liabilities require footnote disclosure only. Some examples are pending lawsuits, involvement in a scam, purchase commitments carrying default penalties, and warranties and guaranties for which no historical basis is available for assessing the possible obligation.
term used in an income statement to denote recurring income as opposed to income generated by sales of assets or discontinued operations.
the power to direct the management and policies of a business enterprise.
an amount or a percentage by which the pro rata value of a controlling interest exceeds the pro rata value of a non-controlling interest in a business enterprise, to reflect the power of control.
the price paid for a common stock that is obtained by converting either convertible bonds or preferred convertible stock
a general way of determining a value indication of Cash.
investment assets that can be quickly converted into cash.
the expected rate of return that the market requires in order to attract funds to a particular investment.
a grouping of those expenses applicable to the materials and labour incorporated directly in the goods or services delivered.
provisions in purchase documents, like legal agreements on loans, bonds, or lines of credit, which define the obligations of the parties in respect to their conduct, the most significant of which is operating the business in the normal course, and usually written by the lender to protect its position as a creditor of the borrowers.
a condition often found in acquisition agreements by which the seller agrees to abstain from business that would compete with the entity being sold. The restriction is usually for a specific time period and may be for a specific region.
Sector 23 of SEBI Takeover Regulations indicates that the company calls its precious assets as crown jewels to depict the greed of the acquirer under the takeover bid. These precious assets attract the raider to bid for the company’s control. The company sells these assets at its own initiative leaving the rest of the company intact. (Instead of selling the assets, the company may also lease them or mortgage them so that the attraction of free assets to the predator is suppressed.)
a merger in which shareholders in the corporation to be absorbed are issued stock in the new company, and directors and employees continue in the new corporation.
issues that cannot be resolved to the satisfaction of both parties.
one who facilitates mergers and acquisitions including intermediaries, finders and investors.
the allocation of the consideration paid for a business. The components could include cash, notes, stock, consulting agreements, earn-out provisions, and covenants not to compete. Many non-cash deal structure components have tax benefits to the seller.
we discourage the use of this term. See Invested Capital
debt free net income plus depreciation less provisions for working capital and capital expenditures.
the income of a company presented as if the company had no debt.
the directors of a threatened company may acquire another company for shares as a defensive measure to forestall the unwelcome takeover bid. For this purpose, they put large block of shares of their own company in the hands of shareholders of friendly company to make their own company least attractive for takeover bid.
in this, the demerger takes place by an agreement with the shareholders and the creditors of the company. All the assets of the old company would be transferred to the new company and henceforth the new company would pay all the creditors.
this takes place when part of a company’s undertaking is transferred to a newly formed or an existing company. Some or that part of the shares of the first company are also transferred to the new company. The reminder of the first company’s undertaking continues to be vested in it and the shareholders of the main company gets reduced by that extent.
a reduction in a capital account of the value of an asset over time, or in an economic sense, as used in recasting of statements, a loss in value of a fixed asset as a result of wear and tear or obsolescence, which cannot be corrected by normal repairs. In accountants’ financial statements, an expense item that permits the original cost to be written off against income over the assets’ cost recovery period, as dictated from time to time by the International Revenue Service. (In the context of the recasting of financial statements the amount of accumulated depreciation could be much greater or much less than the amount shown on the accountants’ statement. Considered a non- cash charge (sometimes called a book charge) as this expense is allowed in excess of the interest expense, if the acquisition of the asset was financed. How assets are paid for (all cash, financed, etc.) and how they are cost recovered (depreciated) are mutually exclusive! Depending on the context used, it could be intended to mean- only depreciation, or more- broadly, to mean all non-cash charges (depreciation, amortisation, and depletion). The amount of depreciation taken as a non-cash charge in any given accounting period is almost always based upon number of years approved by the IRS for cost recovery. IRS does not estimate the useful life of assets; may be recovered through a non-cash charge (depreciation) against the earnings of the business. Some analysts erroneously assume that if a business uses “straight line” depreciation, it is equal to economic depreciation because the business has not accelerated the depreciation. NOT TRUE! IRS freely admits that the estimated useful life of most assets is significantly greater than the number of years they approve for cost recovery. Therefore, nearly all depreciation charges, based upon IRS’ number of years of useful life, is accelerated.
the reduction of earnings, or the value of a stock, that can occur in a merger when more shares are issued; or with conversion of convertible securities into common stock.
a rate of return used to convert a monetary sum, payment or receivable in the future into present value.
the present value of future earnings taken out to infinity and discounted at a rate that approximates the risk.
operations that have been or will be discontinued by the company. These items are reported separately on the income statement
an amount or percentage deducted from the pro rata share of value of 100% of an equity interest in a business to reflect the absence of some or all of the powers of control.
an amount or percentage deducted from the value of an ownership interest to reflect the relative absence of marketability.
an amount or percentage deducted from the per share value of a minority interest voting share to reflect the absence of voting rights.
a rate of return used to convert a future monetary sum into present value.
a method within the income approach whereby the present value of future expected net cash flows is calculated using a discount rate.
a method within the income approach, whereby the present value of future expected economic benefits is calculated using a discount rate.
adjusted earnings before taxes, interest income or expense, non-operating and nonrecurring expenses, depreciation and other non-cash charges and prior to deducting an owner’s/officer’s compensation.
who believe their interests will be adversely affected by an acquisition and who work either overtly or covertly to subvert the transaction. It may include executives fearing the loss of jobs, suppliers fearing the loss of an account, and irrational or prejudiced family members.
they are sale, for cash or for securities, of a segment of a company to a third party which is an outsider.
a conveyance of property (i.e., a business) without any consideration of value, for the purpose of deferring, hindering or defrauding creditors. Such a transfer will, when proven to the satisfaction of judge or jury, be declared void.
the assessment of the benefits and the liabilities of a proposed acquisition by inquiring into all relevant aspects of the past, present, and predictable future of the business to be purchased. Due diligence occurs subsequent to the Letter of Intent.
the gross operating revenues of the business less the expenses and other deductions applicable to the type of earnings you are defining:
the portion of the purchase price that is contingent on future performance. It is payable to the sellers only when certain pre-defined levels of sales or income are achieved in the years after acquisition.
Earnings Before Depreciation (and other non-cash charges) Interest & Taxes.
Earnings Before Depreciation (and other non-cash charges) & Taxes.
Earnings Before Interest and Taxes = Earnings of the business prior to Interest expense or income + corporate income Taxes paid. This definition recognises interest as a cost of capital, and not as an operating expense; or the recasting is being done on a debt-free basis.
Earnings Before Interest, Taxes, Depreciation, and Amortisation = Earnings of the business prior to Adjusted Net Income + Interest expense or income + corporate Taxes paid + all Depreciation and Amortisation Expenses.
Earnings Before Interest, Taxes, Depreciation, and Amortisation plus Owners’ Compensation = Earnings off the business prior to Interest expense or income + corporate Taxes paid + Depreciation, and Amortisation + all Owners’ compensation and benefits.
Earnings Before Taxes. Earnings of the business prior to income Taxes paid.
inflows such as revenues, net income, net cash flows, etc.
the period of time over which property may generate economic benefits, or over which tangible (real estate, equipment, etc.) and intangible (goodwill, R&D, etc.) property may be profitably used.
see Valuation Date.
a type of defined contribution plan under which employees may purchase or acquire securities issued by their employer. ESOPs are a valuable vehicle for corporate financing, including raising new capital or for financing a leveraged buyout.
as part of deal structure the buyer may agree to continue the seller's employment in the business. Both the duration of the employment and the consideration are determined at the closing. The consideration may exceed normal compensation levels.
see Business Enterprise.
the owner’s interest in property after deduction of all liabilities.
a type of divestiture and different to spin off. It resembles the IPO of some portion of equity stock of a wholly owned subsidiary by the parent company. Some of the subsidiary’s shares are offered for sale to general public for increasing cash inflow without losing control. This is also called split off IPO.
those cash flows available to pay out to equity holders (in the form of dividends) after funding operations of the business enterprise, making necessary capital investments, and increasing or decreasing debt financing.
see Book Value.
a rate of return added to a risk-free rate to reflect the additional risk of equity instruments over risk free instruments (a component of the cost of equity capital or equity discount rate).
document detailing and supporting the fair market value of a business entity.
the amount of cash in excess of what a business enterprise needs to operate through a business cycle. In an M&A transaction, excess cash is normally retained by the seller at the close
that amount of anticipated economic benefits that exceeds an appropriate rate of return on the value of a selected asset base (often "Net Tangible Assets") used to generate those anticipated economic benefits.
a specific way of determining a value indication of a business, business ownership interest, or security determined as the sum of a) the value of the assets derived by capitalising excess earnings and b) the value of the selected asset base, also frequently used to value intangible assets. See Excess Earnings
the price at which an option may be exercised. This is also known as the strike price.
a definitive action plan on the part of the owner(s) of the target company to strategically exit the business through the M&A process. The exit plan should take into consideration the owner's personal and financial objectives.
the price, expressed in terms of cash equivalents, at which property would change hands between a hypothetical willing and able buyer and a hypothetical willing and able seller, acting at arm’s length in an open and unrestricted market, when neither is under compulsion to buy or sell and when both have reasonable knowledge of the relevant facts, whereby the former is not under any compulsion to buy and the latter is not under any compulsion to sell; both parties having reasonable knowledge of the relevant facts (IRS Revenue Ruling 59-60).
an opinion as to whether or not the consideration in a transaction is fair from a financial point of view.
Financial Accounting Standards Board. This Board issues rulings that govern how accounting reports are prepared.
First In First Out: An accounting method of valuing inventory, based on the assumption that the “first” unit of an item of inventory purchased (the oldest) is the first unit sold out of inventory. In principle the inventory under this valuation method the ending inventory is the aggregate of the cost of the newest, most recently purchased units of each item. The end result of this inventory valuation method is that the ending inventory value is higher and, there before, the cost of goods sold is lower, which in turn makes the gross profit – and the net profit greater. (See also LIFO).
a buyer interested in a target based on the financial return of the investment rather than a strategic or synergistic reason.
the degree of uncertainty of realising expected future returns of the business resulting from financial leverage. See Business Risk.
an interest rate that does not fluctuate with general market conditions.
liquidation value, at which the asset or assets are sold as quickly as possible, such as at an auction.
calculated deception practiced in order to yield an unfair or unlawful gain of money or information. A business that has a reputation for participating in fraudulent activity could be perceived as a liability for potential buyers.
cash available for distribution after taxes but before the effects of financing. Calculated as debt-free net income plus depreciation less expenditures required for working capital and capital items adjusted to remove effects of financing.
Mergers and acquisitions through the negotiations, willingness and consent of the acquiree company are called friendly mergers.
an ongoing operating business enterprise.
Goodwill or Intangible Value - The amount by which the consideration paid exceeds the fair market value of the company's operating assets after step-up in basis. The gross value of a business enterprise that is expected to continue to operate into the future, or the gross value of a company as an operating business. The intangible elements of Going Concern Value result from factors such as having a trained work force, an operational plant, and the necessary licenses, systems, and procedures in place. This value may exceed or be less than the liquidation value.
this envisages a termination package for senior executives and is used as a protection tool against the takeover.
a term with much disagreement, even whether it should be spelled as one word or two. As used by your instructor it will mean: That intangible asset that arises as a result of name, reputation, customer patronage, location, products and similar factors that have not been separately identified and/or valued but which generate economic benefits. For some, goodwill is synonymous with Blue-Sky. This view results from a lack of understanding of the difference. (Also see Blue-Sky).
the value attributable to goodwill.
a large block of shares is held by an unfriendly company, which forces the target company to repurchase the stock at a substantial premium to prevent the takeover. (This could prove to be an expensive deal to the raider.)
a friendly party of the target company who seeks to take over the predator.
a method within the market approach whereby market multiples are derived from market prices of stocks of companies that are engaged in the same or similar lines of business, and that are actively traded on a free and open market.
that portion of net sales that remains after the subtraction of the Cost of Goods Sold.
an Act that requires parties to a proposed acquisition transaction to furnish certain information about them and the transaction to the Federal Trade Commission and the Antitrust Division of the Department of Justice before the merger is allowed to go forward.
the holding company would have more than 50% of the total voting power and has the control on the other company.
purchasing similar businesses, including competitors.
a merger of two competing firms, which are at same stage of industrial process.
an acquirer may not offer the proposal to acquire the target company’s undertaking, but may silently and unilaterally pursue efforts to gain controlling interest in it against the wishes of the management. They are also called raids or takeover raids.
the investment bank that underwrites and floats a security issue.
a discount rate usually set by the board of directors in a corporation that must be applied to a projected earnings stream that must be met or exceeded before an acquisition or investment will be approved.
in the context of FASB (Financial Accounting Standards Board) Statements 141 and 142, impairment is an overstatement of the goodwill values shown on a company's balance sheet, compared with their fair value. FASB 142 requires that a business test for impairment on an annual basis, as well as between annual tests if an event or circumstances change that more likely than not reduce the fair value of assets, below their carrying value.
see Earnings
Income (Income-Based) Approach - A general way of determining a value indication of a business, business ownership interest, or security, or intangible asset using one or more methods that convert anticipated economic benefits into a present single amount.
Income Statement - A financial statement used to summarise the financial activities of a business during the period of time specified within the statement. A.K.A, Income/Expense Statement, Profit & Loss, P & L. The Income Statement and Balance Sheet are normally issued together, as companion documents, each supplementing the other.
Indemnification - The section of the purchase document that sets forth the circumstances under which either party can claim damages or take other remedial action in the event the other party has breached a representation or warranty or failed to abide by the covenants.
Initial Public Offering - The first sale of stock by a private company to the public. IPOs are (IPO) often smaller, younger companies seeking capital to expand their business.
Insider Trading - SEBI Regulations 1992, says that it is a criminal offence for an individual who is an insider by virtue of being connected with the company and has access to price sensitive information which other share holders do not have.
Intangible (Hidden) Assets - The assets of a business that have value but are non-physical and not shown on the balance sheet, are all intangible assets like goodwill, patents, trademarks, copyrights, equities, mineral rights, franchises, securities and contracts (as distinguished from physical assets), that grant rights and privileges, and have value for the owner, as well as un-amortised debt discounts and deferred charges, heavily depreciated fixed assets, strong contractual relationships and an experienced workforce.
Interlocking shareholdings or Cross Shareholdings - Two or more group companies acquire shares of each other in large quantity or one company may distribute shares to the shareholders of its group company to avoid threats of takeover bids. (If the interlocking of shareholdings is accompanied by joint voting agreement then the joint system of defence is termed as "Pyramiding", which is the safest device or defense.)
Internal Rate of Return - The rate of return where the net present value of cash inflows and outflows equals zero, thereby indicating that present value of the future cash flows of the investment equals the cost of the investment.
Intrinsic Value - The value that an investor considers, on the basis of an evaluation or available facts, to be the “true” or “real” value that will become the market value when other investors reach the same conclusion. When the term applies to options, it is the difference between the exercise price or strike price of an option and the market value of the underlying security.
Invested Capital - The sum of equity and debt in a business enterprise. Debt is typically a) all interest bearing debt or b) long-term interest-bearing debt. When the term it used, it should be supplemented by a specific definition in the given valuation context. The Book Value of Invested Capital (BVIC) is the sum of debt and the book value of equity in an enterprise at a point in time. Market Value of Invested Capital (MVIC) is the sum of debt and the market value of equity in an enterprise at a point in time. The value of invested capital is equal to the value of the operating business enterprise.
Invested Capital Net Cash Flows - Those cash flows available to pay out to equity holders (in the form of dividends) and debt investors (in the form of principal and interest) after funding operations of the business enterprise and making necessary capital investments.
Investment Risk - The degree of uncertainty as to the realisation of expected returns.
Investment Value - The value to a particular investor based on individual investment requirements and expectations.
Joint Venture - This is an agreement between two or more companies where there will be an agreed contribution and participation of the respective companies.
Joint Holding or Joint voting agreement - Two or more major shareholders may enter into agreement to block voting or to block sale of shares or may sell the shares together. This agreement is entered into with the cooperation of Offeree Company’s management.
Junk Bond - A bond that involves greater than usual risk as an investment and pays a relatively high rate of interest, typically issued by a company lacking an established earnings history or having a questionable credit history. Junk bonds became a common means for raising business capital in the 1980s, when they were used to help finance the purchase of companies, especially by leverages buyouts.
Key Person Discount - An amount or percentage deducted from the value of an ownership interest to reflect the reduction in value resulting from the actual or potential loss of a key person in a business enterprise.
Lawsuit - A case in a court of law, an incriminating claim or complaint by one party against another. Prior and pending lawsuits are a contingent liability in an M&A transaction.
Letter of Intent - A written agreement that defines the respective preliminary understandings of the parties about to engage in contractual negotiations on a transaction. Items covered typically include price, terms, and conditions.
Letter Stock.- Unregistered shares in a small firm that are issued without underwriting.
Leveraged Buy Outs - This is the acquisition of a company by its management personnel. It is also known as management buyout. Management may raise capital from the market or institutions to acquire the company on the strength of its assets. A transaction in which a company's capital stock or its assets are purchased with borrowed money, resulting in the company's new capital structure being primarily debt.
Leveraged Valuation Approach - The leveraged valuation approach simulates the leveraged buyout of a business. It illustrates a typical buyout transaction with the corresponding deal structure and valuation driven by: 1) the leveragability of the target company's balance sheet and cash flows, 2) the coverage ratios required by senior lenders, and 3) the internal rate of return sought by the equity investor(s).
Levered Beta - The beta reflecting a capital structure that includes debt.
LIFO - Last In First Out. An accounting method of valuing inventory, based on the assumption that the “last”, most recent, unit of an item of inventory purchased is t he first unit sold out of inventory. In principle the inventory under this valuation method the ending inventory is the aggregate of the cost of the oldest units of each item, purchased within the accounting period. The end result of this inventory valuation method is that the ending inventory value is lower and, therefore, the cost of goods sold is higher, which in turn makes the gross profit- and the net profit lower. (Also see FIFO).
Limited Appraisal - The act or process of determining the value of a business, business ownership interest, security, or intangible asset with limitations in analyses, procedures, or scope.
Liquidity - The cash position of a business and its ability to meet maturing obligations. The ability to quickly convert property to cash or pay a liability.
Liquidation Value - The net amount that would be realised if the business is terminated and the assets are sold piecemeal. Liquidation can be either “orderly” or “forced”. The amount which is available if the assets of the business are sold off and converted to cash. The value of a company assuming the assets of the company are sold piecemeal (not as part of an ongoing business enterprise) with appropriate time given for exposure to the marketplace.
Majority Control - The degree of control provided by a majority position.
Majority Interest - An ownership interest greater than 50% of the voting interest in a business enterprise.
Management Buyout (MBO) - A leveraged buyout where the existing management team is brought in as shareholders.
Mandatory Bid - This bid is laid by the offeror when he has 30% or more and less than 50% of the voting rights of the offeree company and this should be in cash and the offer price should be the highest price, which offeror had paid in the past 12 months for that shares.
Market (Market-Based) Approach - A general way of determining a value indication of a business, business ownership interest, security, or intangible asset by using one or more methods that compare the subject to similar businesses, business ownership, securities, or intangible assets that have been sold.
Market Capitalisation of Equity - The market price of an entire company (the share price of a publicly traded stock), calculated by multiplying the number of shares outstanding by the price per share.
Market Capitalisation of Invested Capital - The market Capitalisation of equity plus the market value of the debt component of invested capital.
Market Multiple - The market value of a company’s stock or invested capital divided by a company measure (such as economic benefits, number of customers, etc.). A factor that can be applied to the subject company's financial, operating or physical data to generate an indication of value. The market multiple is derived from observed transactions in the marketplace where the value can be divided by the comparable companies' financial, operating or physical data to generate the market multiple.
Marketability - The ability to quickly convert property to cash at minimal cost.
Marketability Discount - see Discount for Lack Marketability.
Merchant Banker - They are the middle men in settling negotiations for merger or takeover between the offeree and offeror.
Merger - Merger is the fusion or Merger of two or more companies or the combination of one corporation with another or a combination of two or more companies into a single company where it survives and others loose the corporate identity. The survivor acquires the assets and liabilities of the rest.
Merger and Acquisition Method - A method within the market approach whereby pricing multiples are derived from transactions of significant interest in companies engaged in the same or similar lines of business.
Mid-Year Discounting - A convention used in the Discounted Future Earnings Method that reflects economic benefits being generated at midyear, approximating the effect of economic benefits being generated evenly throughout the year.
Minority Discount - A discount for lack of control applicable to a minority interest.
Minority Interest - An ownership interest less than 50% of the voting interest in a business enterprise.
Multiple - The inverse of the Capitalisation rate.
"Multiple Buyer" Process -The process of involving multiple buyers in the purchase of a business. The process typically increases the price paid for the target and/or improves the deal structure.
Net Assets - Total assets less total liabilities.
Net Book Value - With respect to a business enterprise, the difference between total assets (net of accumulated depreciation, depletion, and amortisation) and total liabilities as they appear on the balance sheet (synonymous with Share- holder’s Equity). With respect to a specific asset, the capitalised cost less accumulated amortisation or depreciation as it appears on the books of account of the business enterprise.
Net Cash Flow - Net Cash is Net income plus all non-cash charges (depreciation, amortisation and depletion), less amounts needed for capital expenditures, plus/minus net change in working capital, plus/minus changes in debt. Cash available for distribution after taxes and after the effects of financing. Calculated as net income plus depreciation less expenditures required for working capital, capital items and debt repayment. (This would be net cash flow for equity; invested capital net cash flow would exclude the net change in debt and adjust net income to include interest expense, net of tax.)
Net Cash Flows - When the term is used, it should be supplemented by a qualifier. See Equity Net Cash Flowsand Invested Capital Net Cash Flow.
Net Income - Revenue less expenses, including taxes.
Net Present Value - A value derived by discounting future cash flows at a rate appropriate for the risk associated with business being valued.
Net Operating Loss - For tax purposed, an excess of expenses over revenue results in a net operating loss. Under certain, limited, circumstances a NOL may provide a tax benefit to a buyer.
Net Present Value - The value, as of a specified date, of future cash inflows less all cash outflows (including the cost of investment) calculated using an appropriate discount rate.
Net Profit - Total revenues less all deductible items. Should identify as pre-tax or post-tax.
Net Tangible Asset Value - The value of the business enterprise’s tangible assets (excluding excess and non-operating assets) minus the value of its liabilities.
Net to Owner - The amount realized by the owners of a business from a sale. Usually equal to the Business Enterprise Value of the business less debt retained in the business, plus the net of assets and liabilities not included in the sale and retained by the owners.
Net Worth - Total assets minus total liabilities, as reflected by the balance sheet. Synonymous with net book value or owner’s equity.
Nine-Year Ramp- The financial presentation of the target company that a buyer requires an intermediary to provide as part of the M&A process. Specifically, the nine-year ramp includes the latest three historical years, a base year and five pro forma years.
No-Shop Agreement - A provision in the letter of intent or purchase document that inhibits the target from soliciting or encouraging other bids.
Non-Compete Agreement - A form of deal structure whereby a portion of the purchase price is based on an agreement prohibiting a seller from operating a competing business for a specified time following sale.
Non-Operating Assets - Assets shown on the company's balance sheet that are not used in the operation of the business. That is, "extra" assets that are not necessary to generate the revenue and cash flow stream being valued. These would be recast when valuing the business.
Normal Working Capital - The amount of working capital needed by the company to sustain operations throughout the year. Calculated as the average of current assets (which include a normal amount of necessary cash) minus current liabilities on a monthly basis over the most recent twelve months.
Normalised Earnings - Economic benefits adjusted for nonrecurring, non economic or other unusual items to eliminate anomalies and/or facilitate comparisons.
Normalised Financial Statements - Financial statements adjusted for non operating assets and liabilities and/or for nonrecurring, non economic or other unusual items to eliminate anomalies and/or facilitate comparisons.
Online Defamation - The defamation or slandering of a business's or person's reputation on the World Wide Web. Common perpetrators include competitors, disgruntled employees, and/or extortionists.
Orderly Liquidation Value - Liquidation value at which the asset or assets are sold over a reasonable period of time to maximise proceeds received.
Ownership - A generic term used within this book to mean 100% controlling ownership; whether or not incorporated, and without the distinction that the owner of an unincorporated business owns the business’ assets, while the owner of a corporation owns the stock of the corporation – that owns the assets. (This is an important distinction, but not for the purposes of this primer course.)
Pac-Man Strategy - The target company attempts to take over the hostile raider. This happens when the target company is larger than the predator.
Par Value - The face value of a bond. It is also the arbitrary value given to the stock by the issuing company. This figure is relatively meaningless since the current value of a stock is its price established in the market, regardless of its stated par value.
Partial Bid - When a bid is made for acquiring part of the shares of a class of capital where the offeror intends to obtain effective control. This is made for the equity shares.
Perquisites - Special additional benefits received because of position. In closely-held businesses these are often a result of the business’ ability to pay for them, more than a result of market rate compensation for the services provided to the business. (Abbreviation – perks), e.g. company paid vehicles, insurance, travel, memberships, salary in excess of market rate, bonuses, etc.
Plant/Assets Ratio - The percentage of total assets that is tied up in land, buildings and equipment.
Pooling of Interests - One method of accounting for a company merger, in which the balance sheets of the two companies are combined line by line without a tax impact. Only allowed under certain circumstances.
Post-Acquisition Planning - Strategic steps taken prior to the acquisition to plan for the successful integration of target and acquirer, including how to exploit synergies, merge management, and support corporate culture.
Present Value - The value today of a future payment, or stream of payments, discounted at a risk-adjusted rate of return.
Pretax Income - The income earned by a business prior to the provision for federal or state income taxes.
Private Equity - The term private equity refers to any type of equity investment in an asset, such as a privately held company that is cannot be traded on a public stock market. Private equity firms may raise money from passive institutional investors to use for investment in target companies. A private equity firm will become involved in the management of the company it is investing in, in order to grow the company and make it more valuable. Types of private equity investments include: leveraged buyout, venture capital, growth capital, angel investing and mezzanine capital.
Product/Service Extension - Adding a product or service that can be sold in the acquirer's current geographic areas and/or to current customers.
Pro Forma Statements - Financial statements with one or more assumptions or hypothetical situations built into the data. Pro forma statements are generally supported by a documented, reasonable future of the business enterprise.
Purchase Accounting - An accounting method where the purchasing company treats the acquired company as an investment and adds the assets, at fair market value, to its own.
Purchase Document - The legal document transferring ownership from seller to buyer. Drafted by buyer, it sets forth structure and terms; discloses legal, financial, and other pertinent information about buyer and seller; obligates both parties to complete the transaction; and governs what happens if problems arise.
Poison Put - A covenant allowing the bond holder to demand repayment in the event of a hostile takeover.
Pooling of Interests - One method of accounting for a company merger, in which the balance sheets of the two companies are combined line by line without a tax impact. Only allowed under certain circumstances.
Portfolio Discount - An amount or percentage deducted from the value of a business enterprise to reflect the fact that it owns dissimilar operations or assets that do not fit well together.
Post-Acquisition Planning - Strategic steps taken prior to the acquisition to plan for the successful integration of target and acquirer, including how to exploit synergies, merge management, and support corporate culture.
Premise of Value - An assumption regarding the most likely set of transactional circumstances that may be applicable to the subject valuation; e.g. going concern, liquidation.
Present Value - The value, as of a specified date, of future economic benefits and/or proceeds from sale, calculated using an appropriate discount rate.
Pretax Income - The income earned by a business prior to the provision for federal or state income taxes.
Price/Earnings Multiple - The price of a share of stock divided by its earnings per share.
Private Equity - The term private equity refers to any type of equity investment in an asset, such as a privately held company that is cannot be traded on a public stock market. Private equity firms may raise money from passive institutional investors to use for investment in target companies. A private equity firm will become involved in the management of the company it is investing in, in order to grow the company and make it more valuable. Types of private equity investments include: leveraged buyout, venture capital, growth capital, angel investing and mezzanine capital.
Pro Forma Statements - Financial statements with one or more assumptions or hypothetical situations built into the data. Pro forma statements are generally supported by a documented, reasonable future of the business enterprise.
Product/Service Extension - Adding a product or service that can be sold in the acquirer's current geographic areas and/or to current customers.
Proxy Battles - They take place when the agenda items at the meeting are likely to be opposed by dissident shareholders. Management of the company collects proxies to face these opponents in the meeting of Board of Directors.
Purchase Accounting - An accounting method where the purchasing company treats the acquired company as an investment and adds the assets, at fair market value, to its own.
Purchase Document - The legal document transferring ownership from seller to buyer. Drafted by buyer, it sets forth structure and terms; discloses legal, financial, and other pertinent information about buyer and seller; obligates both parties to complete the transaction; and governs what happens if problems arise.
Quick (Asset) Ratio - A liquidity measure: cash plus cash equivalents plus trade receivables divided by total current liabilities, also known as the acid test ratio, used to evaluate credit worthiness. Equals quick assets divided by current liabilities. It is a more stringent measure of short-term liquidity than the current ratio because it excludes inventories from current assets (which presume that current liabilities cannot be paid with inventory).
Rate of Return - An amount of income (loss) and/or change in value realised or anticipated on an investment, expressed as a percentage of that investment.
Recapitalization - In a private transaction, recapitalization is used to enable the seller to retain partial ownership and participate in a second sale, hopefully at a significantly higher price. It is also the reconfiguration of a company's capital structure. Typically recapitalization occurs to reduce immediate interest payments, reduce debt, reduce taxes, or leverage the operation.
Recast / Adjusted Book Value - The book value that results after one or more asset or liability amounts are added, deleted or changed from the respective book amounts. Recasting - Recasting, or financial statement adjusting, eliminates from the historical financial presentation, items that are unrelated to the ongoing business, such as superfluous, excessive, or discretionary expenses and nonrecurring revenues and expenses. Recasting provides an economic view of the company as though it were run by management dedicated to maximizing profitability, and allows meaningful comparisons with other investment opportunities.
Reconstruction - In this, a company transfers its undertaking and its assets to a new company in consideration of the issue of the new company’s shares to the first company’s members. And if the first company members debentures are not paid off, the new company should give the debentures to the respective holders and thus the first company would lose the identity.
Redundant Assets - See Non-Operating Assets.
Regulatory Barriers - Federal, state, or local statutes or regulations in a variety of areas, including antitrust, securities, employee benefits, bulk sales, foreign ownership, and the transfer of title to stock or assets.
Replacement Cost New - The current cost of a similar new property having the nearest equivalent utility to the property being valued.
Report Date - The date conclusions are transmitted to the client.
Representations (Reps) - Intended to disclose all material legal, and any material financial aspects of the business to the buyer. Buyer makes similar reps about its legal and financial ability to complete the transaction.
Reproduction Cost New - The current cost of an identical new property.
Reputation Management - The art of managing ones internet reputation through positive marketing principles and complaint resolution.
Required Rate of Return - The minimum rate of return acceptable by investors before they will commit money to an investment at a given level of risk.
Reserve For Replacement - A financial provision for recognising the reduction in value of assets over their estimated useful life. This is done by making regular additions to a fund sufficient to meet the estimated cost of additions to and replacements of the fixed assets when they come to the end of their useful life. The useful life could end due to wearing out, or becoming obsolete due to changes in the state of the art. (This reserve is seldom “actually” money set aside for when needed.) In concept the reserve for replacement is similar to the charge for depreciation, except when used it is often based on the estimated economic (actual) lessening in value rather than the cost recovery period approved for write-off against taxable income.
Residual Value - The value as of the end of the discrete projection period in a discounted future earnings model.
Retained Assets - Assets personally kept by the owner(s) of a company upon the sale of the business.
Return on Equity - The amount, expressed as a percentage, earned on a company`s common equity for a given period. A measure of how well a company used reinvested earnings to generate additional earnings, equal to a fiscal year's after-tax income divided by book value, expressed as a percentage.
Return on Investment - The rate of return at which the sum of the discounted future cash flows for the five pro forma years plus the discounted residual value equals the initial cash outlay. See Return on Invested Capital and Return on Equity.
Return on Invested Capital - The amount, expressed as a percentage, earned on a company´s total capital for a given period.
Reverse Triangular Merger - An acquisition by merger where the acquiring corporation forms a subsidiary to effect the merger through a stock exchange. As a result of the merger, the newly established subsidiary ceases to exist while the target survives.
Risk-Free Rate - The rate of return available in the market on an investment free of default risk.
Risk Premium - A rate of return added to a risk-free rate to reflect risk.
Rule of Thumb - A mathematical formula developed from the relationship between price and certain variables based on experience, observation, hearsay, or a combination of these; usually industry specific.
S.W.O.T. Analysis - Refers to an analysis of a company's strengths, weaknesses, opportunities and threats. A S.W.O.T. analysis is necessarily key to understanding a target company's competitive positioning and long-term growth potential.
Scam - Fraudulent business scheme especially used for making money. A businesses involvement in a scam or fraudulent activity can be disastrous to a company exploring a sale.
SDCF - Seller’s Discretionary Cash Flow = Earnings of a business prior to: Income taxes + non-operating income and expenses, non-recurring income and expenses + depreciation and amortisation + interest expense or income, + owner´s total compensation for those services that could be provided by a sole owner/manager.
Secured and Unsecured Note - A form of deal structure whereby the buyer owes money for the purchase and this debt is secured by real property, equipment or other assets. In contrast, an unsecured note is not backed by the pledge of collateral.
Shareholder Value - Business Enterprise Value less the debt retained in the business and assumed by the new owners.
Shark Repellent - The companies amend their Bye-Laws and regulations to be less attractive for the raider company. Such features are called Shark Repellents. The company may issue that 80-95% of the shareholders should approve for the takeover and 75% of the Board of Directors consent.
Short-form Merger - An accelerated statutory merger between a subsidiary and its parent company which controls a large majority of its shares.
Situation Analysis - A general assessment of a company's past, present and future. A situation analysis often times provides a benchmark to the business' future growth potential.
Special Interest Purchasers - Acquirers who believe they can enjoy post-acquisition economies of scale, synergies, or strategic advantages by combining the acquired business interest with their own.
Spin Off - It is a kind of a demerger where an existing parent company distributes on a pro-rata basis all the shares it owns in a controlled subsidiary to its own shareholders by which it gains effect to make two of the one company or corporation. There is no money transaction, subsidiary’s assets are not valued, and transaction is not treated as stock dividend and tax free exchange. Both the companies exist and carry on business. It does not alter ownership proportion in any company.
Split Off - This occurs when equity shares of a subsidiary company are distributed to some of the parent company’s shareholders in exchange for their holdings in parent company.
Split Up - It is s diversion of a company into two or more parts through transfer of stock and parent company ceases to exist.
Standard of Value - The identification of the type of value being used in a specific engagement; e.g. fair market value, fair value, investment value.
Statutory Merger - A merger following the relevant statutes including procedures for notifying and obtaining the approval of the shareholders of both companies.
Stock Sale - A form of acquisition whereby all or a portion of the stock in a corporation is sold to the purchaser.
Sustaining Capital Reinvestment - The periodic capital outlay required to maintain operations at existing levels, net of the tax shield available from such outlays.
Swallowing Poison Pills Strategy - The target company might issue convertible securities which are converted into equity to deter the efforts of offeror and such conversion dilutes the bidder’s shares and discourages acquisition. Or the target company might raise borrowings distorting normal debt: equity ratio.
Swap Ratio - This is an exchange rate of the shares of the companies that would undergo a merger. This is calculated by the valuation of various assets and liabilities of the merging companies.
Synergistic Buyer - A buyer willing to pay a premium above economic value based on projected additional growth and profit to be achieved through the benefits of consolidation.
Synergistic Value - A premium value offered by a synergistic buyer above economic value, the difference being attributed to potential additional growth and profit beyond that which the target can achieve on its own and benefits the buyer brings.
Systematic Risk - The risk that is common to all risky securities and cannot be eliminated through diversification. The measure of systematic risk in stocks is the beta coefficient.
Takeover - This is similar to acquisition. Takeover differs with merger in approach to business combinations ie, the process of takeover, transaction involved, determination of share exchange. For ex: process of takeover is unilateral and the offeror company decides about the maximum price. Time taken in completion of the takeover is less than that in the merger.
Takeover Bid - It is the intention of the acquirer reflected in the action of acquiring the shares of the Target Company.
Tangible Assets - Physical assets, such as cash, accounts receivable, inventory, property, plant and equipment, etc.
Target - Company being acquired.
Tax-Free Reorganisation - A stock swap. The seller accepts stock of the buyer's company in lieu of cash, which is a non-taxable event. Only when the seller divests of the stock are taxes paid.
Tender offer - A general publicized bid by an individual or group to buy shares of a publicly owned company at a price significantly above the current market price. The acquirer pursues takeover (without consent of the acquiree) by making a tender offer directly to shareholders of the target company to sell their shares. This offer is made for cash. Example: the company Tata Tea offers to shareholders of Continental Coffee Ltd in which more than 50% of the shareholders offered to Tata Tea.
Term Sheet - A preliminary, non-binding agreement setting forth the basic terms and conditions under which an investment will be made. Generally speaking, a term sheet usually precedes the Letter of Intent.
Terminal Value - The value of the company at the end of the five-year pro forma period. Terminal value is determined by dividing the fifth year pro forma cash flow (normalized for depreciation and capital expenditures) by the required Return on Investment. Terminal value is sometimes referred to as residual value. See also Residual Value.
Terms - Details of an agreement such as price, payment schedule, interest rate, and due date.
Tombstone - An advertisement, usually in financial publications such as The Wall Street Journal, announcing an acquisition, securities offering, or underwriting. Also, a commemorative plaque announcing the transaction.
Transaction Method - See Merger and Acquisition Method.
Unlevered Beta - The beta reflecting a capital structure without debt.
Unsystematic Risk - The risk specific to an individual security that can be avoided through diversification.
Valuation - The act or process of determining the value of a business, business ownership interest, security, or intangible asset.
Valuation Approach - A general way of determining a value indication of a business, business ownership interest, security, or intangible asset using one or more valuation methods. (See also Asset Based Approach, Leveraged Valuation Approach, Market Approach and Income Approach.)
Valuation Date - The specific point in time as of which the valuator’s opinion of value applies (also referred to as “Effective Date”).
Valuation Method - Within approaches, a specific way to determine value.
Valuation Multiple - A factor wherein a value or price serves as the numerator and financial, operating or physical data of the company being valued serve as the denominator.
Valuation Procedure - The act, manner, and technique of performing the steps of an appraisal method.
Valuation Ratio - A fraction in which a value or price serves as the numerator and financial, operating, or physical data serves as the denominator.
Value - The consideration at which a business enterprise passes from a willing seller to a willing buyer. It is assumed that both buyer and seller are rational and have a reasonable knowledge of relevant facts.
Value to the Owner - See Investment Value.
Variable Interest Rate - An interest rate that moves at a pre-defined level above or below an index rate. A commonly used index is the bank prime rate.
Vertical Integration - A strategy to achieve economies of scale in purchasing, sales, and distribution. Vertical backward integration is buying a supplier. Vertical forward integration is buying a customer.
Vertical Merger - This would give backward integration to the company to assimilate the sources of supply and forward integration towards the market. ie, the merging undertaking would be a buyer or a supplier using its product as intermediary material for final production.
Voluntary Winding Up - The original company which has split into several companies after division could be wound up voluntarily.
Voting Control - de jure control of a business enterprise.
Warranties - See Representations (Reps) and Warranties.
Weighted Average Cost of Capital (WACC) - The cost of capital (discount rate) determined by the weighted average, at market value, of the cost of all financing sources in the business enterprise’s capital structure.
White Knights - White knight enters the fray when the target company is raided by a hostile suitor. The clause 25 of SEBI Takeover regulations gives the provision to the White Knight to offer a higher price than the predator to avert the takeover bid. (With the higher bid offered by the white knight, the predator might not remain interested in acquisition and hence the target company is protected from the raid.)
Working Capital - The excess of the value of the current assets over the value of the current liabilities.
NBB M&A Advisors have an extensive know-how in a large variety of business fields.
Deals have been closed with businesses for sale from the following industries and sectors:
Spare part suppliers
Automobile component manufacturers
Banks
Building Society
Chartered accountants
Insurance brokers
Liquid gas suppliers
Pharmaceutical manufacturers
Synthetic material processing
Internet providers
Web design
Architectural offices
Building material suppliers
Engineering offices
Cosmetic manufacturers
Lifestyle accessories
Furniture manufacturers
Clothing distributors
Safety devices
Alarm system manufacturers
Food canning & production
Casing technology
Machine manufacturing
Tool makers
Tools for tool-making companies
Advertising agencies
Clinics
Hospitals
Medical technology
Waste disposal services
Water treatment services
Book publishers
Electrical components
Gift & home accessories shops
Cleaning contractors
Direct mail service companies
Forwarding agents
Office & data service bureau
Temporary employment agencies
Industrial fastener manufacturers
Antenna manufacturers for UMTS system
Mobile phone service providers
Clothing manufacturers
Upholstery & home textile manufacturers
Supermarkets
Sport article chain stores
Hotels
Florist chain
Flower auction
Industrial fasteners
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CAR FLEET DEAL NBB HUNGARY
NBB Hungary was engaged in selling X-Rent Car Rental and Vehicle Fleet Managing Limited Liability Company. In the framework of the assignment our team provided full scope transaction services, including financial, accounting, legal and sales related advisory.
As the first step our team was employed by the Seller to provide business valuation for the 100% stake of X-Rent. For evaluating the Company we applied various methods: Discounted Cash Flow method for evaluating the contracted period for fleet management and rent-a-car services by assuming the renewal of the contracts and profit capitalisation method for the remaining activities (revenues and costs). Valuation was effective as of December last year, however we applied actual figures for this year.
Sales mandate of NBB Hungary related to the co-ordination with the potential buyer introduced by the Seller and also to invite more buyers and to transact the deal with them. We have presented the investment opportunity to the key participants of the fleet management and rent-a-car market in Hungary.
As the result of the indicative offer phase ARVAL Hungary Fleet Management Limited Liability Company was chosen by the Seller and NBB to start the due diligence phase with. This phase lasted 20 days, where over 20 internal professionals and third party advisors worked on the investigation of the Company from financial, accounting, tax, legal, IT and operational point of view. As the financial, accounting and tax advisor of Arval acted Ernst & Young both from the Paris and Budapest office. Legal representative of the Buyer has been Allen & Overy. IT and operational analysis has been performed by Arval with professionals coming from the Budapest office, Paris and Poland. Entire due diligence process was performed in the dataroom equipped in the office of NBB Hungary under the successful
control of our professionals.
After receiving the binding offer from the Buyer, NBB started negotiating the final terms and conditions of the Quota Sale and Purchase Agreement (QSPA) with the participation of the Seller, the Buyer and its legal representatives. There have been several key issues where the deal could have been broken without the legal support of NBB. At the end most of these issues have been clarified in favour of our client. As Arval is the member of BNP Paribas Group in accordance with the Hungarian Law an application had to be made at the Competition Authority, which issued the approval in 30 days.
Transaction size: over EUR 4 million
Key results of the co-ordination provided by NBB Hungary (as we see):
Business value estimated by NBB Hungary was later confirmed by the indicative offer of the Buyer
Thanks to NBB’s work the amount of the binding offer remained close to the level of the indicative offer amount.
Due to the professionalism of the NBB team critical situations between the Seller and the Buyer have been solved.
NBB established a disciplined, well organised and efficient transaction process in favour of both the Seller and the Buyer. Key results of the co-ordination provided by NBB Hungary (as the Seller represented)
As the result of the co-operation of NBB the Seller achieved of 30% higher indicative offer from Arval as from the potential buyer introduced by the Seller
NBB served as efficient intermediary throughout the entire transaction process At the end let us cite from the opinion of Ernst & Young about how they have seen
NBB’s role from the other side:
NBB has organized a well-prepared physical dataroom with the copy of the major documents in electronic format which were provided to us. The opening of the physical dataroom was flexible even on bank holidays. Additional documents we marked in the physical dataroom were copied and sent to us. The dataroom index list was updated and sent to us daily. NBB has organized 2 management meetings for EY however only 1 was scheduled preliminary. During management meetings, NBB could fulfil the facilitator role between EY and the Target.
We very much appreciate the work of NBB to make the due diligence of Project Xenon quick, efficient and smooth.”
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