Glossary

GLOSSARY OF TERMS

Definitions of terms used in the EMAT reports and Epsilon Research Publications

Acquisition:

The act of one corporation acquiring control of another corporation or asset.

Price that will be paid by an acquiring firm for the target firm’s shares.

Writing off an intangible asset investment over the projected life of the assets.

Buyin-management-buyout. A combination of a management buyin (MBI) and a management buyout (MBO). In a BIMBO, an entrepreneurial manager or group of external managers financed by venture capitalists buys into a company and  teams up with members of the target management team to run it as an independent business.

(Source: EVCA)

The net-asset value of a company as determined by subtracting its liabilities from its assets.

The interest payment on a bond.

A non-cash expense that reduces the value of an asset as a result of wear and tear, age, or obsolescence. Most assets lose their value over time (in other words, they depreciate), and must be replaced once the end of their useful life is reached. Because it is a non-cash expense, depreciation lowers the company's reported earnings while increasing free cash flow.

(source: JP Morgan)

Discounted Cash Flow (DCF) Valuation Method: 

      A common means of valuing companies involving forecasting the cash flow expected from a company in the future and discounting them back to today.

When a company sells off a subsidiary or assets of the business to a buyer which acquires the subsidiary or assets.

A payment by a company to shareholders of its stock, usually as a way to distribute profits to shareholders.

Earn-out:

An arrangement whereby the sellers of a business may receive additional future payments for the business, conditional to the performance of the business following the deal.

Earnings before interest and taxes.

In Epsilon’s reports, EBIT is restated for Goodwill Amortization.

Earnings Before Interest, Taxes, Depreciation and Amortization. An approximate measure of a company's operating cash flow.

EV = Equity Value + net financial debt + Minority interest.

Liquidation of holdings by a private equity fund.

(source: ECVA)

In an acquisition, goodwill appears on the balance sheet of the acquirer in the amount by which the purchase price exceeds the net tangible assets of the acquired company.

A buyout in which the NewCo’s capital structure incorporates a particularly high level of debt, much of which is normally secured against the company’s assets.

(source: ECVA)

The ownership of a company, where the owner holds more than 50% of the total shareholding.

A buyout in which external managers take over the company. Financing is provided to enable a manager or group of managers from outside the target company to buy into the company with the support of private equity investors.

(source: ECVA)

A buyout in which the target’s management team acquires an existing product line or business from the vendor with the support of private equity investors.

(source: ECVA)

Market capitalization

(or market cap)

The number of shares outstanding multiplied by the market price of the stock. Market capitalization is a common standard for describing the worth of a public company.

The ownership of a company, where the owner holds less than 50% of the total shareholding.

Net financial debt = short and long-term interest-bearing debt minus cash and equivalents.

Post-money valuation:

The valuation made of a company immediately after the most recent round of financing.

The valuation made of a company prior to a new round of financing.

A transaction involving an offer for the entire share capital of a listed target company by a new company - Newco - and the subsequent re-registration of that listed target company as a private company. The shareholders of Newco usually comprise members of the target company’s management and private equity equity providers. Additional financing for the offer is normally provided by other debt providers.

(source: ECVA)

A valuation technique that uses prices and other relevant information generated by market transactions involving identical or comparable (ie similar) assets, liabilities or a group of assets and liabilities, such as a business.

Compensation sought by risk-averse market participants for bearing the uncertainty inherent in the cash flows of an asset or a liability. Also referred to as a ‘risk adjustment’.

The costs to sell an asset or transfer a liability that are directly attributable to the disposal of the asset or the transfer of the liability and meet both of the following criteria:

(a) They result directly from and are essential to that transaction.

(b) They would not have been incurred by the entity had the decision to sell the asset or transfer the liability not been made.