M&A Glossary: Business Acquisition Terms Defined

Every term you'll encounter when buying or selling a small business — defined in plain English, with deal examples. Use this alongside the AcquireCalc deal calculator to model your specific transaction.

Valuation & Earnings

• SDE (Seller's Discretionary Earnings) — the primary earnings metric for small business valuation
• EBITDA vs. SDE — when EBITDA is used instead of SDE, and why it matters
• Add-backs — adjustments that normalize a seller's P&L for valuation
• Recasting financial statements — the process of normalizing reported earnings
• Goodwill — the premium paid above the fair market value of tangible assets
• Enterprise value — total acquisition cost including assumed debt
• Working capital — the operating cash left in the business at closing

Deal Structure

• Deal stack — the layered combination of funding sources in an acquisition
• Seller financing — when the seller acts as lender for part of the purchase price
• Seller note — the promissory note documenting seller-financed debt
• Earnout — performance-based deferred payment tied to future results
• Equity rollover — when a seller retains a minority stake post-close
• Management buyout (MBO) — acquisition by the existing management team
• Asset-based lending — financing secured by the business's own assets

Financing

• SBA 7(a) loan — government-guaranteed loan program used in most financed acquisitions
• DSCR (Debt Service Coverage Ratio) — the lender's primary measure of deal affordability
• Promissory note — legal document recording debt terms between buyer and seller

Legal & Documentation

• Representations and warranties — seller's legally binding factual statements about the business
• Non-compete agreement — prevents the seller from opening a competing business after closing
• No-shop clause (exclusivity) — LOI provision that stops the seller from negotiating with other buyers
• Bulk sale escrow — creditor-notification process required in some states for asset purchases
• UCC filing — public lien record buyers check during due diligence

Due Diligence & Risk

• Due diligence — the buyer's investigation period to verify everything about the business
• Customer concentration — the risk of revenue depending on a small number of customers
• Key man risk — the risk that the business depends on one person to function

People & Process

• Business broker — the intermediary who represents sellers in the sale process
• Search fund — a vehicle for finding, funding, and acquiring a single business