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Startup Checklist
Accretion Improving the per-share metrics after acquisition (after issuing additional shares). Acquirer The company that is buying a company in the acquisition. Acquisition The acquiring of the controlling interest or ownership of another company. Amalgamation/Consolidation The combining of one or more companies into a new company. None of the combining companies remain, forming a completely new legal entity. Asset Deal The acquirer only purchases the assets of the target company (not its shares) Backward Integration A company acquires a target producing the raw material or the ancillaries that the acquirer uses to guarantee a continuous supply of raw materials. Bootstrapping Generally used with startup companies, indicating the financing of the business efforts with personal, existing, and often scarce resources. Bottom Line The net income "line item" of the income statement Business Cycle A recurring expansion and contraction of the economy, with the average cycle lasting three to four years.
Capital Expenditure – CAPEX A large expenditure acquiring a new capital asset or improves the useful life of an existing capital asset. Spreading or expensing the costs over the useful life of the asset. A company's CAPEX needs are a consideration when valuing any business and with any large CAPEX needs reducing the amount of cash a buyer could expect from their investment. Capitalization The term is used to describe the overall size of a company's equity, debt, and permanent capital and can be calculated by multiplying shares outstanding by the current market price. Capital Structure The mixture of debt and financing the company uses to finance its growth. The invested capital of the business it uses to reinvest for growth. Cash Consideration The portion of cash used to acquire a company. Cash Flow Cash that flows from the efficient use of assets or the business operations. The long-term value of companies comes from the generation of cash flows, not earnings. There are many definitions, but the general definition includes cash from operations less the company's capital expenditures. Covenants Different provisions in the legal agreements concerning loans, bonds, and lines of credit. Lenders use them to protect their position with other borrows concerning the line of progression. Deal Structure Concerns how a company completes the purchase or merger with another company, regarding the amount of cash, stock, debt refinancing, and any other considerations. Dilution After issuing additional shares, the worsening condition of per-share metrics. Discontinued Operations The company's stopping or discontinuation of operations and reporting these items separately on the income statement.
A contractual agreement between acquirer and target preventing the target from soliciting or negotiating other deals for a specified period. Equity Issuance Fees Underwriting fees for issuing equity in a transaction charged by the investment bank underwriting the merger or acquisition. Excess Purchase Price The value above the purchase price of the net asset value of the target company. Fair Value Adjustments Arriving at the fair value of a company by adjusting up or down the net book assets of the target company. Friendly Takeover When management and board of directors approve of a takeover and will suggest that shareholders approve the offer. Forward Integration A company acquires the target to enable better production of their products or has a better distribution system for its products. Fully Diluted Shares Outstanding The total number of shares is available after exercising all outstanding options, warrants, and convertible securities. Golden Parachute A contractual agreement that guarantees a departing manager extensive benefits after being forced to leave the company. Goodwill After any fair value adjustments, the excess to the purchase price is above the target's identifiable net assets. Goodwill is added to the acquirer's balance sheet, with annual assessments to ensure there are no impairments to that value. Horizontal Integration
Companies merging in the same line of business, such as Daimler and Chrysler, usually to gain synergies. Hostile Takeover The management and board of directors do not approve of the takeover and advise shareholders to reject any deal. Identifiable Assets Any asset that can be assigned a fair value, including both intangible and tangible assets. Indication of Interest A non-binding letter from the acquirer to the potential target indicating fair value estimates and terms the acquirer is ready to pay for the target. Intangibles Intangible assets including goodwill, patents, trademarks, and deferred charges. Typically includes anything, not of a physical nature. Intrinsic Value The estimated value of the company's cash flows using a discounted cash flow model. Letter of Intent (LOI) The non-binding letter containing all the major provisions of the deal, signed by both the acquirer and target. Leveraged Buyout The acquisition of a company uses tremendous amounts of debt, hoping to achieve increased return on the investment. Liquidation Value The value of the business's assets after they are sold off and turned to cash, in the event of a bankruptcy. Merger The acquiring company receives all of the target company's assets/shares after the target company stops existing. Net Book Value of Assets
The allocating of assets and liabilities by the acquirer and determining the total purchase price from breakdown. Recapitalization Reorganizing a company's debt and equity mix to stabilize a company's capital structure. Restructuring Charges Any fees or charges related to debt repayments as a part of restructuring. Revenue Enhancements Any increases to revenue from cross-selling, price changes, or up-selling. Sandbagging The target company stalls, waiting for a better deal while playing along with potential acquirer. Sensitivity Analysis A technique of testing the sensitivity of different inputs in a model to certain assumptions, and Share Exchange Ratio The acquirer's share price is divided by the offer price. Share Issuance Discount A way of determining how many shares the target will receive based on any discounts to the current market price. Share/Stock Deal A method of purchasing the company's total assets and liabilities by acquiring all the target's shares. Stock Consideration The acquirer's stock was granted to the target company based on the portion of the purchase price agreed to in the deal. Subsidiary
Acquirer takes over the target company completely but allows the target to retain its brand for the sake of reputation or customer base. A perfect example is Microsoft's acquisition of LinkedIn. Synergies Any revenue improvements or cost savings anticipated in the merger/acquisition. Tag-Along Rights The rights allowing a shareholder to take part in a stock sale from another shareholder to a third party. Takeover Premium The takeover premium is the difference between the market price and the closing price, expressed as a percentage. For example, if the market price is $50, and the closing price is $60, then the takeover premium is 20% (60 – 50 = 10, then 10/50 = 20%). Target The company being bought by the acquirer (buyer) Term Sheet A non-binding document that outlines the terms and conditions of a proposed merger/acquisition. Timing of Synergies How long the acquirer expects anticipated synergies to come to fruition. Transaction Close Date The date both parties expect for the proposed transaction to close Vertical Integration A merger of companies that operate along the same supply chain, for example, if two grocers merge. VWAP Used in relation to the takeover premium, which refers to volume weighted average price. Warrants
