It the most prominent valuation methodology is the multiple of earnings method, where earnings is defined as EBITDA.

So what is EBITDA? Earnings Before Interest, Taxes, Depreciation, and Amortization

Often, when you hear about EBITDA multiples in M&A valuation, what’s really meant is adjusted EBITDA.

So what is adjusted EBITDA? Just like EBITDA itself is intended to give a clearer picture of financial performance by eliminating the effects of capital structure, deprecation policy, and tax, adjusted EBITDA adjusts standard EBITDA for non-recurring, irregular, or discretionary expenses, which are often called add backs, because they’re added back to EBITDA to increase earnings.

Most M&A deals are priced on a cash-free, debt-free basis. What does that mean?

That means that the purchase price is determined on the basis that the target company will be delivered without cash or debt on its balance sheet.

Under generally accepted accounting principles or GAAP, working capital is defined as the difference between a company's current assets and current liabilities.

It represents the short-term liquidity available to a business and is a measure of its ability to cover its short-term obligations.

A Quality of Earnings (QoE) report is a comprehensive analysis conducted during an M&A transaction to assess the sustainability and accuracy of a company's earnings. It’s typically apart of the buyer’s overarching financial due diligence.

Representation and Warranty insurance (RWI) insurance is a tool used in M&A transactions to protect the buyer from losses arising from breaches of the seller's representations and warranties in the purchase agreement.

Some common deal killers include:

• Valuation disagreements:

• Due diligence issues: things like financial discrepancies,

legal problems, operational challenges, or undisclosed liabilities. Significant concerns can cause a buyer to renegotiate the deal terms or walk away altogether

The bid-process instructions provided to buyers will set a deadline for them to submit letters of intent (LOIs)

Asset deal M&A transactions are more prevalent in the lower middle market for several reasons:

In an asset deal, sellers typically retain certain assets that are not

explicitly included in the transaction, which may vary depending on the specific terms of the deal. Common assets that sellers often keep include:

In M&A transactions, one party, typically the seller, agrees to compensate the other party, usually the buyer, for specific losses or liabilities that may arise after the deal closes. These losses may result from breaches of representations and warranties, inaccuracies in the disclosure schedules, or failure to fulfill certain covenants. Indemnification clauses protect the buyer against un

foreseen issues and help allocate risk between the parties

Rollover equity is a financing structure in M&A transactions where the seller retains a portion of their ownership in the target company after the deal is completed. This arrangement aligns the interests of the buyer and seller by allowing the seller to participate in the future upside of the business.

In an earnout, a portion of the purchase price is contingent on the target company's future performance. It helps bridge valuation gaps between the buyer and seller by tying payment to specific financial or operational milestones.

A search fund is a unique investment vehicle used by entrepreneurs to raise capital from investors for the purpose of acquiring and operating an established, profitable business. The search fund model was first developed at Stanford University in the 1980s and has since gained popularity among entrepreneurs and investors.

Selling to a PE firm can be a great decision depending on your circumstances

Letters of Intent (LOIs) are important in M&A transactions for several reasons:

When you begin exploring buying or selling a business, you’ll inevitably come across the term “seller financing.” What exactly is seller financing?