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Deals glossary

We deal with hundreds of acronyms and a thesaurus-full of technical jargon on a daily basis and it’s sometimes easy to forget that not everyone is familiar with the terms we use. Here we set out a glossary of terms commonly used in deals.


Auction process
The process whereby offers are invited for a business from several potential bidders. Typically, the highest bidder will then obtain exclusivity, although other factors such as the financial credibility of each bid may also influence the outcome of the auction process.


Audit access letter
A form of release letter which is issued by the auditors of a company prior to making audit files or working papers available to a third party or its reporting accountants for Stock Exchange or due diligence purposes. The letter must be signed by the third party and the reporting accountants prior to their review of the audit files or working papers. The letter states that the auditors have no duty of care and also indemnifies the auditors against any claim which might arise from the third party as a result of the access to the audit files or working papers.


Auditor’s report
A report prepared by accountants, which is included in a circular or listing particulars, detailing the results for the last two years (or any applicable period), the cash flow statements and the balance sheets.


Bank covenants
Those financial and other conditions which must be met on an ongoing or periodic basis in order for a company to comply with the terms of a bank facility. Bank covenants typically require a company to be above or below predetermined levels of gearing, interest cover, repayments cover and net assets. The breach of a bank covenant may have the potential to result in the withdrawal of the bank facility depending on the terms of the underlying facility agreement.


Break fee
A reduced level of fee payable in the event that a transaction does not proceed. Typically used as part of a differential fee arrangement where an increased “success” fee is payable in the event that the transaction completes.


Business plan
A document prepared by a management team setting out their plans for the business and providing information about the key areas on which a financing institution will ultimately make an investment decision. Typically includes a description of the business and its markets, together with information on products, customers, suppliers, management and employees, trading performance, trading prospects and management information systems.


The purchase of at least a controlling interest in a company’s share capital.


Compound annual growth rate. It is a useful measure of growth over multiple time periods. It can be thought of as the growth rate that gets you from the initial investment value to the ending investment value if you assume that the investment has been compounding over the time period.

Canadian Dealer Offer Rate

The rate of interest at which banks offer to lend money to one another in the wholesale money markets.

Carve out

The process facilitating the disposal of a business which is currently part of or integrated with other businesses of the vendor (i.e. of carving it out from the remaining businesses). Typically involves the consideration of significant management, operational and financial separation issues which need to be overcome before the disposal can proceed. PwC provides assistance in connection with larger, complex disposals to minimize business disruption up to the point of sale, guide management through the sales process and ensure that separation issues are addressed early in the sale process and are beneficial to the vendor.

Comfort letter

A letter given by a professional adviser to a company and/or its sponsor supporting statements made in listing particulars or a circular.


The moment at which the final legal transfer of ownership occurs, i.e. the point at which the contract of sale is completed.

Completion audit

An audit of an acquired business which is carried out immediately following completion. Completion audits are typically undertaken where the sale and purchase agreement provides for some form of completion mechanism and where the financial position of the acquired business at the date of completion must therefore be known with accuracy.

Completion mechanism

A mechanism for determining the level of purchase consideration which is normally established in the sale and purchase agreement. Typically, the level of purchase consideration will be determined by reference to some financial measure as at the date of completion. The level of purchase consideration may be subject to defined maximum and minimum levels.

Commercial due diligence

Examines the external market and assesses the target’s competitive position and strategy. The ultimate objective is to form a coherent view of the projected performance of the target business based both on a detailed understanding of the business itself and on an understanding of the competitive market in which it operates. Market due diligence is of particular relevance where there is market or competitive uncertainty or significant projected growth and is typically carried out by a separate specialist team.

Confidential Information Memorandum (CIM)

A document issued by a lead advisor which contains information on the target business. Typically includes a description of the target business and its markets, together with information on products, customers, suppliers, management and employees, trading performance, trading prospects and management information systems. The information memorandum is usually provided to potential acquirers/investors at the start of the transaction process and should be regarded as a sales document, the contents of which must be confirmed by appropriate due diligence.

Consent letter

Where the opinion of an expert is given in a public document, the expert must supply a letter consenting to the inclusion in the document of the opinion or statement made by them.


The total costs of purchase or proceeds realized on sale, i.e. the amount which is paid for a company or business.

Consolidations and Roll-ups

A technique which entails the simultaneous merger of a group of “founding companies” with the registration of a new public entity.

Contingent fee

A fee which is wholly dependent on whether or not a transaction completes, i.e. no fee is payable if the transaction does not proceed.

Convertible securities

Securities which are convertible into or exchangeable for other securities or securities accompanied by warrants or options to subscribe or purchase other securities.


Data room
A physical or virtual room containing financial and other information on a target business which is normally located off site (for example at the vendor’s lawyers) and which is typically open to potential purchasers for a limited period only (normally at the early stage of the transaction process). Data rooms may also be used on transactions which involve a particularly high degree of confidentiality.

Debt securities

Debentures, debenture or loan stock, bonds and notes, whether secured or unsecured.

Deferred consideration

An element of consideration to be paid on a specified date in the future, the amount of which might be dependent upon the achievement of performance or other targets by the business which was the subject of the transaction.

Disclosure letter

A letter issued by the vendor prior to completion which consists of disclosures in respect of specific issues of significance to the purchaser, usually relating to potential liabilities.

Discounted cash flow

A method of assessing the value of an investment based on projected cash flows discounted to take account of the value of money over time.

Distressed Investing
An investment made into a company that is near to or going into financial or operational distress. This method of investment can offer investors higher returns as the financial instruments of the company in distress have experienced a reduction in value.

Dividend cover

A ratio which measures the amount of times the dividend in a given year could be paid out of the earnings for that year, i.e. the higher the ratio, the “safer” the dividend.


Usually refers to the likely financial impact of those sensitivities to the base case financial projections for a target business which would have the effect of worsening the projected level of financial performance.

Due diligence

The detailed analysis and appraisal of a business by a range of specialists. Normally includes financial and legal due diligence but can also include market, operational, environmental or management due diligence.

Duty of care

Reports or opinions generally establish a duty of care to those persons to whom they are addressed. A failure to exercise that duty of care in respect of a report or opinion may render the issuer or the report or opinion liable for any loss that a client or addressee has suffered as a result of relying on the report or opinion. It is necessary to limit those parties to which a duty of care is owed in order to avoid a situation where a duty of care is unintentionally assumed to a third party.


Earn out
A provision written into the terms of a transaction that a vendor will receive additional consideration payments if the performance of the business sold achieves predetermined target levels.


Earnings before interest and tax. A measure of a company’s profit that includes all expenses except interest and income tax expenses. It is the difference between operating revenues and operating expenses.


Earnings before interest, tax, depreciation and amortization. A common metric used in valuing a business as it is considered to be a good proxy for the cash profits of a business.


Earnings before interest, tax, depreciation, amortization and rent. Rent is included in the measure when evaluating the financial performance of companies, such as casinos or restaurants, which have significant rental and lease expenses derived from business operations. By excluding these expenses, it is easier to compare one company to another and get a clearer picture of their operational performance.


The opportunity for investors to realize (i.e. sell) their investment, typically either by a trade sale, a flotation, share repurchase or a secondary buy-out. Exits normally provide the principal returns to venture capital investors.


When a single potential acquirer is given exclusive access to the target business and its advisers, typically for a defined period of time and following some form of competitive bidding process. All other potential acquirers are effectively shut out from the proposed transaction during the exclusivity period.


Fairness opinion
Any written communication containing a conclusion as to the fairness of a proposed transaction to security holders (or a group of security holders), from a financial point of view. Fairness Opinions are routinely used by boards of directors to satisfy their fiduciary duties to act with due care and in an informed manner with respect to the fairness, from a financial point of view, of a proposed transaction.

Financial buyer
Typically a long-term investor looking for a solid, well-managed company. Financial buyers rarely make any immediate changes, except in turnaround situations where companies are not currently profitable.

Financial Services Commission of Ontario
The body charged with the regulation of the financial services industry in Ontario, also known by its initials as the FSCO.

Financial due diligence

A financial review of a target business which analyses and validates all the financial, commercial, operational and strategic assumptions underpinning the deal. It considers historical performance, current status, maintainable earnings and future prospects; highlights negotiation points and potential deal breakers and confirms that there are no “black holes”. It also seeks to highlight ways of improving the target’s performance in order to maximize the return on the deal going forward. Financial due diligence can be provided to both corporate purchasers and financial purchasers.

Fiscal year (FY)

The period used for calculating annual financial statements in businesses and other organizations all over the world.


The process of obtaining a stock market listing whereby shares in a company are offered or issued to the public for the first time.


The directors may make or have made a forecast of the profits expected to be made by the company for the current or subsequent accounting period. The principal assumptions used when making the forecast must be included. It should be noted that a forecast includes any statements which might give rise to expectations of future performance.


The ratio of debt to equity. A type of leverage analysis that incorporates owner’s equity, often expressed as a ratio in financial analysis.

Going private

Another name for a public to private transaction.


The extent to which the available borrowing facilities are projected to be unutilized based on the projected level of borrowings in the period following the proposed transaction; i.e. the smaller the headroom, the greater the risk that the available borrowing facilities will be breached.


The aggregate bank or other borrowings of a company and its subsidiaries.


A mechanism which establishes an automatic right to payment to money in given circumstances. Typically, an indemnity is given in respect of the happening of a certain event. For example, a seller may agree to indemnify the buyer in respect of a specific liability. When the liability arises the seller become liable to pay an ascertained amount.

Information circular

Any document issued to holders of listed securities including notices of meetings but excluding prospectuses, annual reports and accounts, interim reports, proxy cards and dividends or interest vouchers.

Initial public offering (IPO)

Also referred to as a flotation. An offering of shares to the public where a company is making its debut on the stock market, generally either to raise new money which can be used for the expansion of the business or to allow the existing shareholder(s) to sell some (or all) of their holding.

Institutional buy-out (IBO)

Where a financial institution acquires a company and then installs its chosen management team.

Internal rate of return (IRR)

A measurement of the return on an investment based on discounted cash flow and expressed as a percentage rate.


Any company or other legal person or undertaking, any class of whose securities has been admitted to listing or which is, or is proposed to be, the subject of an application for admission to listing.


Key performance indicator (KPI)
A measurable value that demonstrates how effectively a company is achieving key business objectives. Organizations use KPI’s to evaluate their success at reaching targets.


Last twelve months (LTM)
Also known as trailing twelve months (TTM), is the 12-month interval occurring before a given point in time.

Lead advisor

The advisor with responsibility for the overall management of a transaction. Generally appointed by the acquirer and/or vendor in the case of a corporate transaction or by the management team in the case of a buyout. Responsibilities typically include the project management of the transaction, advising their client, transaction structuring, marketing the transaction to other parties, issuing the information memorandum and assisting with the preparation of financial projections. Lead advisers will frequently work on a contingent fee basis.

Lead investor

An investor which takes the lead in negotiating the terms of a substantial investment and has responsibility for finding other syndicate members to share in the funding of the transaction.

Leveraged buyout

A management buyout which is supported by a very large amount of debt; i.e. which is highly leveraged.

Liability cap

The maximum limit to the financial liability of a firm of professional advisors in respect of a particular transaction, as defined in its engagement letter. The liability cap is generally related to the value of the transaction and subject to a maximum level.


Debt which has to be repaid at a specific time in the future, as distinct from a bank overdraft which might be called in at short notice.

Locked box

A mechanism used to make sure the assets and liabilities that a buyer is getting are agreed/fixed prior to completion.

Long form report

A detailed report on the company and its affairs prepared by the reporting accountants and addressed to the directors and to the sponsor.


Management buy-in (MBI)
A transaction whereby an incoming management team acquires a business, usually with the backing of institutional investors, and replaces the previous management team.

Management buy-out (MBO)

A transaction whereby the management team of a business, usually with the backing of institutional investors, takes over the ownership of the business where they are employed. Typically sources of MBOs are where a large company disposes of one of its non-core subsidiaries to its management team or where the owners of a family business wish to retire.

Mezzanine finance

Effectively a half way position between equity and debt. The mezzanine finance provider is compensated for an increased level of risk by a slightly higher rate of interest and a small stake in the company’s equity. Mezzanine finance has historically been used to fill the gap between conventional debt and equity in buy-outs and buy-ins and is increasingly being used as a standalone alternative to equity finance for expansions, acquisitions and capital restructurings.


Typical method for valuing a business based on the multiple of EBITDA (see above) investors are prepared to pay for a businesses in a certain sector.


The National Association of Securities Dealers Automated Quotation stock market based in the United States. NASDAQ is comprised of two separate electronic stock markets, the Nasdaq National Market (a market for the larger and more actively traded securities which is subject to stringent financial, capitalization, and corporate governance entry requirements) and the Nasdaq Small Cap Market (a market for emerging growth companies with less stringent financial criteria for listing).


Provisional new legal entities which are established in connection with transactions and other restructurings and which typically acquire the shares or assets of an existing business.

New issue

Where a company is making its debut on the stock market, generally either to raise new money which can be used for the expansion of the business or to allow the existing shareholder(s) to sell some (or all) of their holding. The term “new issue” can also be used to describe the process of fund raising by a company already listed on the stock market, typically by means of a rights issue.

No-access due diligence

A complete market and target review based on publicly available information only, for those situations such as auctions and hostile take-overs where these is no access to the target business or to a data room. May also be used in the early stages of a competitive bid process.


A contract giving the right to sell or buy a commodity, financial instrument or index, at a specified price for a certain period.


P/E ratio
The price/earnings ratio, comprising the market price per share divided by the earnings per share. The P/E ratio is sometimes applied to the profits of a business to calculate its value.

Potential acquirer

Term used in sell side due diligence to signify those interested parties to whom a copy of the final draft sell side due diligence report is sent, subject to receipt of an appropriate release letter.

Prime rate

The minimum rate at which banks are prepared to lend money; also acts as the benchmark for other interest rates.

Private equity

Refers to the buyout funds that have played such a dramatic role in restructuring mature industrial firms in the 1980s and 1990s in the United States and more recently in Europe, as well as in undertaking "roll-ups" and other consolidation investments.

Private placement

The sale of a block of shares in a private company to an investment institution. Does not normally involve any change in control of the business. Might occur when shareholders wish to retire or otherwise wish to realize all or part of their holdings.

Prospective financial information (PFI)

Financial information based on assumptions about events that may occur in the future and possible actions by an entity.

Pro forma financial information

Statement made in the prospectus which provide investors with information on the impact of the proposed transaction. It illustrates how the transaction might have affected the financial information given in the prospectus, had the transaction been undertaken at the start of the period being reported on or at the date stated. The Prospectus Rules and Listing Rules require pro forma financial information to be publicly reported on by accountants.


A situation whereby, if two or more parties are responsible for the same loss, each bears its share of the liability according to the extent to which it is responsible for the loss.


A published document containing all the details of an offer for sale or placing of the shares a company on its initial IPO.

Public to private

The process by which a public company is delisted and converted to a private company. This process is commonly undertaken because a company is undervalued as a public company or because the company is small and is burdened by the costs and reporting requirements of being a public company.


Typically fees are structured to have a base success fee on completing a deal and then a ratchet to increase the fee based on the price achieved.

Release letter

A letter which is issued by a firm of accountants prior to making reports or working papers available to another party. The release letter must be signed by the client prior to the accountant’s access to the reports and working papers.


Presentation of facts or reasons expressed in words or inferred from conduct to induce a particular course of action, such as signing of a contract. Representation includes any condition, warranty, or undertaking, whether oral or written.

Representation letter

A signed letter issued by a vendor or a management team to support the verbal representations made by them during the course of a Stock Exchange or due diligence assignment.


A major change in the structure or organization of a group or company which typically involves a change in senior management and/or the share ownership structure.

Reverse takeover

Occurs when a company takes over a larger one or is likely to become the major element in the combined business.

Rights issue

An invitation to existing shareholders to purchase additional shares in a company.


The presentations at which the company’s securities are marketed to prospective major institutions and to securities analysts. These are held in the period prior to publication of the final listing particulars.


Secondary buyout
A buyout of a company which has already been the subject of a buyout; for example, where the original MBO managers sell the business to a new management team.

Secondary listing

Any listing which is not a primary listing.


A general name for stocks and shares of all types.

Senior debt

The element of a finance package which consists of bank lending. It ranks above equity and mezzanine finance in the event that the company ceases to trade.

Sensitivity Analysis

A revision of an assumption included in the base case financial projections in order to show an alternative scenario (for example, a lower rate of sales growth). Sensitivities can be used to challenge management’s expectations of the future and are also helpful in assessing banking requirements.

Share options

Options issued to managers which confer the right to acquire shares at a specified price at or after a future date and which may be performance related. The release of share options will normally dilute the value of other shares in issue.

Share Purchase Agreement (SPA)

Or Sale and Purchase Agreement. The document that contains the terms surrounding the sale of the business and the key terms.

Short form report

Another name for an auditor’s report on historical financial information.

Stalking-horse bid
A stalking-horse bid is an initial bid on a distressed company’s (bankrupt or in bankruptcy protection) assets from an interested buyer chosen by the distressed company. The stalking horse is chosen by the company in distress in order to get the first bid and establish a minimum price.


A new business. A critical phase may occur during expansion if a start-up business requires significant funding.

Strategic or corporate buyer

A corporate purchaser of company which is typically involved in the same or a related sector.

Success fee

An increased fee which is payable in the event that a transaction completes and where the client has opted for a differential fee arrangement where a reduced abort fee is payable in the event that the transaction does not proceed.


A group of investors in a business which typically includes a lead investor.


Take private
Another name for a public-to-private transaction.


A company considered suitable for takeover.

TSX Venture Exchange

The Toronto Stock Exchange’s market for small, young and growing companies. 


An arrangement made between the company and the sponsor that the sponsors will, for a fee, acquire all shares not taken up by the public. The sponsor will usually spread its financial risk by arranging to sub-underwrite the issue with major financial institutions, the sub-underwriters taking up any unsold shares.


Usually refers to the likely financial impact of those sensitivities to the base case financial projections for a target business which would have the effect of improving the projected level of financial performance.


The seller of a business.

Vendor due diligence

Due diligence which is commissioned by the vendor at the beginning of the disposal process and made available to potential purchasers, ultimately with a duty of care to the eventual purchaser only. Used to accelerate the sale process and control the information flow by identifying any deal issues at an early stage so that these are controlled and dealt with by the seller, rather than used as negotiation points by the purchaser. Paid for by the seller.

Venture capital

Risk capital in the form of equity investments and loan capital provided by an investment institution to back a business venture which is expected to grow in value. The provider of the venture capital is rewarded means of dividends and/or interest and by expected capital growth. Venture capital is typically used by entrepreneurs who seek financial backing as they start or expand their businesses and who might otherwise experience difficulty in securing financing from banks and other debt providers.

Venture capital funds

Managed by venture capital funds who raise funds from external sources, such as pension funds and insurance companies.


A term in a contract the breach of which gives rise to a claim for damages, but not a right to treat the contract as repudiated. The measure of damages for a breach of warranty is that the aggrieved party is entitled to damages which are sufficient to put him in a position he would have been in had the contract been properly performed. Warranties are generally in the form of signed statements by the vendor or management team covering various matters in connection with the transaction.

Working capital

The capital of a business that is used in its day to day trading operations, calculated as the current assets minus the current liabilities.

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Domenic Marino

Domenic Marino

National Deals Leader, PwC Canada

Tel: +1 416 941 8265

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