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Transaction Services Glossary
55+ key M&A, Due Diligence and LBO terms — with precise definitions, formulas, and real-world examples to excel in your interviews.
A
Adjusted EBITDA
EBITDA adjusted for non-recurring items (one-offs, exceptional costs, pro-forma elements).
EBITDA Reported + Adjustments
E.g.: an FDD team identifies €500k of non-recurring restructuring costs → Adjusted EBITDA = Reported EBITDA + €500k.
Amortisation
Accounting depreciation of an intangible asset (≠ Depreciation for tangible assets). In Transaction Services, often added back to earnings to calculate EBITDA.
E.g.: software amortised over 5 years → €20k/year added back to arrive at EBITDA.
B
Bridge (Financial Bridge)
A reconciliation table from one aggregate to another (e.g. Reported EBITDA → Adjusted EBITDA). Central tool in FDD reports.
E.g.: EBITDA bridge showing +€200k one-offs and −€100k favourable non-recurring items.
C
CapEx
Capital Expenditure: investments in fixed assets. Maintenance CapEx (to sustain the asset base) vs. growth CapEx.
FCF = EBITDA − CapEx − Change in NWC − Tax paid
E.g.: maintenance CapEx 3% of revenue, growth CapEx 5% for a plant expansion.
Carve-out
Separation of a business unit from a group for disposal. FDD complexity: restate shared costs and intra-group transfer pricing.
E.g.: disposal of a logistics division → need to restate allocated head-office costs.
Cash sweep
Contractual mechanism requiring the borrower to repay debt with excess cash. Common in LBO structures.
E.g.: 75% of excess cash flow allocated each year to early repayment of senior debt.
Completion accounts
Post-closing price adjustment mechanism based on actual accounts at the completion date (≠ locked-box).
E.g.: if actual net debt at closing is €1m higher than estimated, the price is reduced by €1m.
Covenant
Financial undertaking in a credit agreement. If breached, the lender may demand early repayment.
E.g.: DSCR ≥ 1.2x, leverage < 3.5x tested quarterly.
D
DCF (Discounted Cash Flow)
Valuation method based on discounting future cash flows. Less common in TS than multiples, but useful for cross-checking.
EV = Σ FCF_t / (1+WACC)^t + Terminal Value
E.g.: 5-year DCF with terminal value calculated using the Gordon Growth Model.
Net Debt
Gross financial debt less cash and cash equivalents. Used to bridge from Enterprise Value to Equity Value.
Net Debt = Bank loans + Bonds + IFRS 16 leases + Earn-out + Pension provisions − Cash
E.g.: EV €10m − Net Debt €3m = Equity Value €7m.
Due Diligence
Pre-acquisition audit process. Main types: Financial (FDD), Legal, Tax, Commercial, IT, Environmental.
E.g.: 4-week FDD conducted by a Big 4 for a PE fund acquiring an industrial SME.
E
Earn-out
Conditional price supplement paid if post-closing targets are met. Treated as debt-like in the net debt calculation if probable.
E.g.: €2m earn-out if EBITDA exceeds €5m in year N+1.
EBIT
Earnings Before Interest and Tax. Reflects operating performance after depreciation and amortisation.
EBIT = EBITDA − D&A
E.g.: EBITDA €4m − D&A €600k = EBIT €3.4m.
EBITDA
Earnings Before Interest, Tax, Depreciation and Amortisation. Proxy for operating cash flow; central metric in Transaction Services.
EBITDA = Net Income + Tax + Financial result + D&A
E.g.: Adjusted EBITDA €6m × 8x multiple = Enterprise Value €48m.
Equity Bridge
Reconciliation table from the theoretical Equity Value (EV − Net Debt) to actual shareholder proceeds, including earn-outs, disposal dividends, etc.
E.g.: EV €50m − Net Debt €15m − Earn-out €2m + Surplus cash €1m = Equity Value €34m.
Equity Value
Value of shareholders' equity. The actual price paid for the shares.
Equity Value = Enterprise Value − Net Debt
E.g.: Equity Value €34m split between PE fund (70%) and management (30%).
Enterprise Value (EV)
Total value of the business (debt + equity). Calculated using market comparables or DCF.
EV = Equity Value + Net Debt | EV = EBITDA × Multiple
E.g.: Adjusted EBITDA €6m × sector multiple 8x = EV €48m.
F
FDD (Financial Due Diligence)
Pre-acquisition financial audit. Objectives: validate revenue quality, normalise EBITDA, calculate net debt, analyse NWC, validate the business plan.
E.g.: 80-page FDD report delivered to a PE fund before LBO signing.
Free Cash Flow (FCF)
Available cash generated by the business. Indicates capacity to repay debt and remunerate shareholders.
FCF = EBITDA − CapEx − ΔNWC − Tax paid
E.g.: FCF €3m on EBITDA €5m → conversion rate 60%.
G
Goodwill
Acquisition premium. Recorded as an intangible asset and tested annually for impairment.
Goodwill = Price paid − Fair value of net assets
E.g.: acquisition at €20m, net assets fair value €14m → Goodwill €6m.
H
Hold period
Duration a PE fund holds an investment, typically 4-7 years. Affects the IRR calculation.
E.g.: 5-year hold with exit via trade sale → IRR calculated over 5 years.
I
IFRS 16
Accounting standard treating lease contracts as on-balance-sheet assets/liabilities. TS impact: rents are removed from EBITDA (replaced by D&A and interest), increasing Reported EBITDA but also Net Debt (lease liability).
E.g.: annual rent €500k restated as amortisation €450k + interest €50k → EBITDA increases by €500k but IFRS 16 net debt increases by ~€2.5m.
IRR (Internal Rate of Return)
Internal rate of return. The discount rate at which NPV = 0. In PE/LBO, typical target: IRR > 20%.
E.g.: equity invested €10m → exit at €25m in 5 years → IRR ≈ 20%.
K
KPI (Key Performance Indicator)
Operational performance metric. In TS: revenue by segment, customer retention rate, average basket, conversion rate.
E.g.: customer retention rate 92% → signal of high recurring revenue quality.
L
LBO (Leveraged Buyout)
Acquisition of a company financed primarily by debt. Structure: Equity (30-40%) + Senior debt + Mezzanine debt. Repaid using the target's FCF.
E.g.: LBO at 5x EBITDA, 60% senior debt, 40% equity.
LOI (Letter of Intent)
Non-binding letter of intent signed before due diligence. Sets the indicative price, structure, and conditions precedent.
E.g.: LOI at 8x EBITDA signed before launching the FDD.
Locked-box
Price adjustment mechanism where the price is fixed at a past date (the locked-box date) with no post-closing adjustment. The buyer receives compensation for any leakage between the locked-box date and closing.
E.g.: locked-box date 31 Dec → any dividend paid between 1 Jan and closing is reimbursed to the buyer.
M
Management fees
Management charges billed by the holding company to the operating subsidiary. In TS: to be restated if non-recurring or above/below market.
E.g.: €500k/year management fees eliminated post-acquisition → addback to EBITDA.
Management package
Management incentive scheme in an LBO (sweet equity, warrants, preferred shares). Aligns managers' and fund's interests.
E.g.: management package giving 10% of upside above an 8% hurdle IRR.
EBITDA Multiple
Valuation ratio. In Transaction Services, deals typically trade between 4x and 12x EBITDA depending on sector.
EBITDA Multiple = EV / EBITDA
E.g.: B2B SaaS → 10-12x multiple; traditional manufacturing → 5-7x.
N
NDA (Non-Disclosure Agreement)
Confidentiality agreement signed before accessing the data room. Protects the target's sensitive information.
E.g.: NDA signed by 5 PE funds before VDD data room access.
Normalisation
Process of adjusting exceptional items to arrive at a 'run-rate' EBITDA representative of recurring performance.
E.g.: restatement of €300k restructuring costs and €150k below-market rent.
NWC (Net Working Capital)
Working capital measure excluding cash and short-term financial debt.
NWC = Current Assets − Current Liabilities
E.g.: NWC peg negotiated at 12% of revenue in the SPA.
O
One-off
Exceptional, non-recurring item. In TS: to be identified and adjusted from EBITDA.
E.g.: restructuring costs €200k, asset disposal gain €100k → net €100k to adjust.
P
PPA (Purchase Price Allocation)
Allocation of the acquisition price among identifiable assets (at fair value) and residual goodwill. Post-closing exercise.
E.g.: brand valued at €5m amortised over 10 years → €500k additional D&A per year.
Pro-forma
Financial data adjusted to reflect a past or future event (acquisition, divestiture, restructuring).
E.g.: pro-forma revenue including 12 months contribution from a subsidiary acquired in July → annualisation of 6 actual months.
Q
QoE (Quality of Earnings)
Analysis of the quality and recurring nature of revenues and EBITDA. Key questions: are revenues recurring? Is EBITDA normalised? Are there one-offs?
E.g.: QoE reveals 30% of revenue comes from a non-renewable contract → downward revaluation.
R
Run-rate
Annualised extrapolation of recent performance. Relevant for high-growth companies or post-acquisition.
E.g.: run-rate revenue = last 3 months × 4 = €2m × 4 = €8m annualised.
Revenue Recurrence
Proportion of revenue from multi-year contracts, subscriptions, or repeat orders. Key indicator of EBITDA quality.
E.g.: 75% recurring revenue → multiple premium vs. a competitor at 30% recurrence.
S
SPA (Share Purchase Agreement)
Share transfer agreement, the final legal document of the transaction. Contains reps & warranties, conditions precedent, and price mechanism.
E.g.: SPA signed after satisfaction of conditions precedent (antitrust clearance, LBO financing).
Seasonality
Regular, predictable fluctuations in revenue by period. In TS: impacts average NWC and run-rate. Must be neutralised in analyses.
E.g.: revenue peak in December for an e-retailer → peak NWC to finance in November.
T
EBITDA-to-FCF Conversion Rate
Indicates what proportion of EBITDA converts to available cash. A rate > 70% is generally considered strong.
Conversion rate = FCF / EBITDA
E.g.: FCF €3.5m / EBITDA €5m = 70% conversion rate.
U
Upstream cash
Cash transferred from a subsidiary up to its holding company. In LBO, the key mechanism for debt service.
E.g.: €2m annual dividend from OpCo to HoldCo to repay senior debt.
V
VDD (Vendor Due Diligence)
Due diligence commissioned by the seller before the sale process, to accelerate proceedings and reassure potential buyers. The report is shared with bidders.
E.g.: Big 4 VDD completed in 6 weeks, shared with 4 potential acquirers during the process.
W
WACC (Weighted Average Cost of Capital)
Weighted average cost of capital. Used as the discount rate in a DCF valuation.
WACC = (E/V) × Ke + (D/V) × Kd × (1−t)
E.g.: WACC 8% with Ke = 12%, Kd = 4%, D/V ratio = 40%, tax rate 25%.
Working Capital Peg
Target 'normal' NWC agreed in the SPA. If actual NWC at closing differs from the peg, the price is adjusted accordingly.
E.g.: NWC peg €3m; actual NWC at closing €2.5m → price reduction of €500k.
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