M&A Essentials: Key Terms for $1M - $25M Deals.

1. No-shop clause: An agreement from the seller not to entertain offers from other buyers for a specified period.

2. Representation and Warranty Insurance (RWI): Policies safeguarding against financial losses due to inaccuracies in seller representations and warranties, smoothing negotiations and closing deals.

3. Working Capital: The funds necessary for day-to-day business operations, crucial to ensure the business doesn't run out of breath post-acquisition

4. Debt-like items: Debt-like items refer to financial obligations that share similarities with traditional debt but may not be reported as such on a company's balance sheet. These include operating leases, capitalized operating leases, deferred revenue, contingent liabilities, and convertible securities. While not categorized as debt on the balance sheet, these items represent financial commitments and potential future cash outflows for a company.

5. Indemnity Provisions: Early inclusion of detailed indemnification terms is crucial. These should comprehensively cover fundamental representations, warranties, liability limits, and survival periods.

6. Earnest Money Deposit: A deposit made by a buyer to demonstrate their serious intent to purchase a property or business. Earnest money deposits are often required in M&A transactions to secure the deal and show commitment.

7. Cash-free, debt-free (CFDF): This excludes a company's cash and debt from the transaction, with the seller settling debts and retaining cash before sale.

8. Asset Purchase Agreement (APA): A legal contract outlining the terms and conditions of asset sales, including specifics like assets transferred and purchase price.

9. Letter of Intent (LOI): A non-binding document outlining the preliminary agreement between buyer and seller, setting the stage for negotiations.

10. Earn-Out: A purchase price component contingent on the business reaching certain financial goals post-acquisition, aligning seller payouts with future performance.

11. Due Diligence: Think of it as a full health check-up for the business, evaluating assets, liabilities, and legal standing before purchase.

12. Asset Purchase vs. Stock Purchase: Buying assets rather than the company itself (Asset Purchase) or acquiring a company's stock, stepping into the shoes of previous owners (Stock Purchase).

13. Leveraged Buyout (LBO): A transaction in which a company is acquired using a significant amount of borrowed money, typically with the assets of the acquired company serving as collateral for the loan.

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1. Essential Buyer Questions

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