In M&A, unfamiliar terms can slow you down or leave you dependent on your advisors for every interpretation. While you don’t need to become a lawyer or investment banker overnight, you do need a working vocabulary.

Here are a few core terms every first-time buyer or seller should understand:

• Letter of Intent (LOI) – A preliminary, non-binding agreement outlining the key terms of the proposed transaction before full due diligence. It usually sets the purchase price, payment terms, and exclusivity period.
• Due Diligence – A deep dive into a company’s financial, legal, operational, and commercial information to confirm it’s as represented.
• EBITDA – Earnings Before Interest, Taxes, Depreciation, and Amortization. This is a common profitability metric used to value a company. Purchase prices are often quoted as a multiple of EBITDA. For example, if a company generates $1M in EBITDA and sells for $5M, the purchase multiple is 5× EBITDA.
• Purchase and Sale Agreement (PSA) – The final, legally binding contract that lays out all the terms of the deal.
• Asset Purchase Agreement (APA) – A specific type of PSA where the buyer purchases individual assets (and possibly liabilities) of the business rather than buying the entire legal entity. This can be preferable for buyers looking to avoid certain liabilities, but it may have tax implications for the seller.
• Share Purchase Agreement (SPA) – In contrast to an APA, this involves buying the shares of the company, meaning the buyer takes over the entity along with all its assets and liabilities.

Other useful terms include working capital adjustments, earnouts, representations and warranties, and closing conditions. You don’t need to memorize every definition now — but knowing the basics will make you an active participant in negotiations instead of a silent observer.  We would love to help you navigate your next move.  Please feel free to contact us at any time.