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Financial terminology
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BIMBO
Combination of MBO and MBI. Acquisition of a company by a group of persons consisting of the company's management team and third parties. There is usually support from a financial investor.
BUSINESS PLAN
Detailed description of a company's business plans and financial projections.
BUY & BUILD
Investment in a company in order to acquire competitors and promote a build-up process.
CARRIED INTEREST
Investment structure giving company employees incentives to invest in the capital.
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DEAL FLOW
The number of investment proposals currently being studied by a private equity firm.
CASH FLOW DISCOUNT
Business valuation method based on estimating the cash flow that the company will generate in the future minus a percentage reflecting the time value of money and the investment risk.
DUE DILIGENCE
For acquisitions, the bidder needs detailed information on the state of affairs of the target company. The basic purpose of the due diligence is to evaluate the target company's assets and liabilities, analysing significant aspects of its past, present and projected future. >
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Financial terminology
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>Due diligence makes it possible to analyse a company and identify legal aspects such as contracts and statutes, compliance with current legislation, registered trademarks and intangible assets; determine risks and current and potential litigation; and determine the existence of undisclosed, real and contingent liabilities.
Following this task, a report is written with comments and observations that will serve as the basis for negotiating the final agreement on aspects such as potential contingent risks, security clauses, etc.
In practice, due diligence does not normally commence until both parties have at least agreed to heads of agreement on the essential aspects of the deal.
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These heads of agreement are usually put in writing in an engagement letter.
EARN OUT
Deferred part of the purchase price paid out based on a series of conditions on the business plan being met.
GOODWILL
Goodwill is an accounting and economic term defined in the Spanish Standard Chart of Accounts as all the intangible and immaterial elements that give value to a company.
These include the client base, the business name and the location.
The value of the goodwill may appear on the balance sheet only if it was acquired by third parties, and not if it was self-generated.
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Financial terminology
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LBO (LEVERAGE BUY OUT)
Purchase of a company financed largely by borrowing.
M&A
The purchase, sale and merging of companies.
MBI (MANAGEMENT BUY IN)
Acquisition of a company by an external management team with the support of a capital investment firm.
MBO (MANAGEMENT BUY OUT)
Acquisition of a company, part of a company or a company's assets by a group on managers group already working in the target company, with the support of a capital investment firm.
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SECONDARY BUY-OUT
Sales operations between two private equity firms.
TIR
The profitability of an investment project measured from the cash flows generated by the project over time.
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