M&A GLOSSARY

Break-Up Fee: A fee that is payable to the seller or buyer if the other party backs out of a transaction after signing a letter of intent; penalty for causing due diligence without closing the deal.

Broker: A licensed agent of a principal that is registered with the state department of real estate.

Buyer (Financial): A financial buyer is an equity sponsor that uses institutional and private capital to create a portfolio of operating companies.

Buyer (Strategic): A strategic buyer is an actual operating company (usually in the same or a similar business) that makes acquisitions in order to grow.

Confidentiality Agreement: A binding contract that holds signatories liable for damages resulting from the disclosure of proprietary information.

Covenants: Promises to do or not to do something (e.g. covenant not to compete/non-compete agreement).

Definitive Purchase Agreement/Asset Purchase Agreement: The binding contract that makes the divestiture official, subject to the final change of ownership.

Divest, Divestiture: To sell off or the act of selling off an asset.

DSO: Days Sales Outstanding; average number of days required to collect accounts receivable.

Due Diligence: On site inspection of the clinical, operational, and financial records of the company to allow the buyer to verify the representations made by the seller.

Earn Out: Opportunity for a seller to increase total consideration above the enterprise value of the company by staying with the new owner to achieve agreed upon performance objectives in exchange for additional consideration.

EBITDA: Earnings Before Interest Taxes Depreciation and Amortization: a universal measure of financial performance calculated by adding interest, depreciation and amortization back to the pretax net profit, commonly used to derive the enterprise value of a company in conjunction with a multiplier.

EBITDA, Adjusted (AEBITDA): A normalized EBITDA calculated by adding back reasonable personal and non-recurring expenses subject to explanation and review.

Enterprise Value: The anticipated selling price of a company based on a valuation analysis. Actual selling price may be higher or lower depending on market conditions.

Finder: An unlicensed intermediary who has been engaged by either a seller or a buyer to introduce them to prospective merger and acquisition candidates and/or financing sources; not a broker nor an agent.

G&A: General and Administrative: expenses other than those associated with the direct cost of goods and services provided including officer salaries, rent, interest, depreciation and other discretionary expenses.

Gross Profit: A measure of financial performance determined by subtracting the direct cost of goods and services provided from the revenue. Gross Profit does not include officer salaries and other discretionary G&A expenses.

Letter of Intent (LOI): A written offer based on the representations of the seller that is usually non-binding (except for confidentiality and “no-shop” provisions) and subject to due diligence.

M&A: Mergers and Acquisitions: the buying and selling of companies.

Non-Recurring Costs: Unscheduled one-time costs that are added back into the adjusted EBITDA calculation because they do not impact the revenue, gross profit or earnings trends.

Promissory Note: A written promise by the buyer to pay a specified portion of the total consideration (usually with interest) at an agreed upon time after closing, subject to the satisfaction of all outstanding contingent liabilities by the seller.

Recast or Restated Financials: Financial statements that present the calculations used to determine the adjusted EBITDA.

Representations and Warranties: Statements that another party is relying on as factual (e.g. “the company does not have any tax liens”).

Sale (Asset): In an asset sale the buyer only buys certain core assets of the company usually not including cash, accounts receivable and any liabilities.

Sale (Stock): In a stock sale the buyer buys the entire corporation usually including all assets and liabilities.

Success Fee: A fee that is only due to an intermediary upon the successful close of a transaction.

Total Consideration: Everything the buyer gives the seller in exchange for the business opportunity including cash, stock, promissory notes, assumption of debt, earn outs, or any other material consideration.

Transactional Attorney: An attorney who specializes in M&A transactions.

Valuation: The act of estimating the value of a business opportunity.

Value Drivers: Individual company characteristics that can impact enterprise value.