Deal Room Dictionary Glossary

Reported profit stripped of non-recurring costs, personal owner expenses, and anomalies. The figure buyers multiply to arrive at enterprise value.

The annualised value of all contracted or subscription revenue currently in force. The headline metric for SaaS and managed service businesses.

A transaction structure in which the buyer acquires specific assets of the business rather than its shares. Creates double taxation for the seller but protects the buyer from historic liabilities.

UK CGT relief reducing the rate on qualifying business disposal gains. Currently 18% from April 2026 on a £1M lifetime limit, against a standard higher rate of 24%.

The factor applied to Adjusted EBITDA to derive enterprise value. Varies by sector, revenue quality, growth rate, and management depth.

A schedule recording every shareholder, the class and number of shares held, the price paid, and the resulting ownership percentage on a fully diluted basis.

A contractual provision allowing a counterparty to terminate or renegotiate an agreement if the ownership of the business changes hands.

The percentage of recurring revenue or customers lost in a given period. High gross churn signals model fragility even where net revenue retention looks healthy.

A post-signing pricing mechanism in which the final purchase price is adjusted based on a balance sheet prepared as at the actual completion date.

The degree to which revenue is dependent on a small number of clients. A single customer above 25% of revenue is flagged as a material risk in due diligence.

The universal mid-market deal structure. The seller keeps surplus cash but settles all financial debt. Equity Value = Enterprise Value + Cash − Debt.

Balance sheet liabilities — pension deficits, holiday accruals, deferred revenue, director loans, finance leases — deducted from enterprise value at completion.

Net debt divided by Adjusted EBITDA. The primary metric lenders use to determine acquisition debt quantum. Also the central covenant in leveraged finance facilities.

Any portion of the purchase price not paid in cash on completion day, payable at one or more future dates subject to agreed conditions or a fixed schedule.

Formal schedules to the SPA listing every exception to the Representations and Warranties. Items fairly disclosed cannot become the basis of a post-completion claim.

The formal buyer-led investigation of a business between LOI signing and SPA execution, covering financial, legal, commercial, and operational workstreams.

A line-by-line schedule reconciling reported profit to Adjusted EBITDA. Every proposed add-back must be supported by documentation and survive QofE scrutiny.

A deferred payment contingent on the acquired business achieving defined financial milestones post-completion. Bridges the gap between buyer and seller valuation expectations.

The total value of a business before adjusting for cash, debt, and working capital. Calculated as Adjusted EBITDA multiplied by the agreed valuation multiple.

The reduction in an existing shareholder's ownership percentage when new shares are issued in a funding round. Cumulative dilution across multiple rounds can be substantial.

A third-party-held retention of 5–15% of consideration for 12–24 months post-completion, providing the buyer with security against undisclosed post-sale warranty claims.

A legally binding commitment preventing the seller from approaching alternative buyers for a defined period. Typically the only binding element of the Letter of Intent.

A contractually mandated post-completion period during which the founder must remain as employee, director, or consultant. Good and Bad Leaver status governs deferred payment retention.

The definitive map of where every pound goes at completion — from buyer through debt repayment, fees, escrow, and tax retentions to shareholder bank accounts.

Revenue minus cost of sales, expressed as a percentage. The metric buyers use to assess unit economics, pricing power, and whether EBITDA margins are structurally sustainable.

See Letter of Intent. The document outlining principal commercial and structural terms before the SPA is drafted. Mostly non-binding except for the exclusivity clause.

The primary marketing document distributed to buyers under NDA. Sets the narrative, presents the EBITDA Bridge, and anchors the initial valuation in a competitive auction process.

A non-binding document setting out the headline terms of a proposed transaction. Signing triggers the legally binding exclusivity clause and ends competitive tension.

An investor's contractual right to receive a defined return before ordinary shareholders in a sale or liquidation. Participating preferences allow double-dipping in remaining proceeds.

A pricing structure fixing the purchase price at a historical balance sheet date. No post-completion adjustment is made. Leakage provisions prevent value extraction between signing and completion.

A formal IOU from buyer to seller documenting deferred consideration, carrying a repayment date, interest rate, and security arrangements. Only as secure as the entity issuing it.

Internal monthly financial reports used for operational decision-making. Must reconcile cleanly to statutory filings or buyers will challenge the EBITDA Bridge as unreliable.

An equity scheme implemented by a PE buyer giving the management team a stake in future value. Typically uses Sweet Equity and Ratchet mechanisms tied to return thresholds.

A formal meeting in which the senior team presents to the buyer's investment committee during due diligence. The highest-leverage event in the transaction for demonstrating management depth.

An SPA clause allowing the buyer to withdraw or reprice if the business suffers a significant deterioration between signing and completion.

The percentage of recurring revenue retained from an existing customer cohort over 12 months, including expansions and upsells. NRR above 100% signals organic recurring revenue growth.

The agreed benchmark level of current assets minus current liabilities the seller must leave in the business. Shortfalls below the peg reduce the completion payment pound-for-pound.

The agreed value of the business immediately before a funding round closes. Higher pre-money means less dilution for existing shareholders for the same capital raised.

Pre-money valuation plus the new investment. The investor's ownership percentage is always calculated on a post-money basis.

A forensic financial assessment testing the sustainability and accuracy of reported earnings. The core output of financial due diligence and the primary mechanism for challenging the EBITDA Bridge.

Income earned by default under contractual or subscription arrangements without active re-selling. Contracted recurring revenue is the highest-quality revenue tier in any valuation.

Formal legal statements in the SPA about the accuracy of the business's accounts, contracts, people, IP, and tax position. Breaches give rise to post-completion warranty claims.

Post-completion restrictions on the seller's commercial freedom — non-compete, non-solicit, non-dealing — typically enforceable for two to five years under English law.

The accounting framework (FRS 102 / IFRS 15) governing when revenue is legally earned. Misapplication understates or overstates reported EBITDA and creates warranty exposure.

The principal legal contract governing a share sale. Defines completion mechanics, price adjustments, warranties, indemnities, and restrictive covenants. The most consequential document the seller signs.

A transaction structure in which the buyer acquires the company's shares. The preferred seller structure — gains are subject to CGT at 24% (or 18% BADR rate) without the double taxation of an asset sale.

A small tranche of shares allocated to management at a nominal price in a PE deal. Sits below the institutional capital in the waterfall but generates disproportionate returns at strong exit multiples.

A non-binding document setting out the commercial, financial, and governance terms of a funding round. Every economically significant decision is made at this stage before lawyers are instructed.

A secure digital repository of all financial, legal, and operational documents shared with buyers during due diligence. Its structure and completeness signal management quality to institutional buyers.

Warranty and Indemnity insurance transferring post-sale warranty claim risk to the insurance market. Can replace escrow, unlocking full cash proceeds on completion day.

The sequential distribution of exit proceeds across the capital structure — debt first, then preference shareholders in seniority order, then ordinary shareholders. Multi-round preference stacks can leave founders with nothing at modest exits.