Forty terms you will meet when researching private equity and M&A, grouped by topic and explained in plain English with short examples.
Private equity has its own vocabulary, and a lot of it is shorthand. This glossary explains forty common terms, grouped by theme. Where AcquityData uses a term in its own data, we say so. For a shorter list of the terms used inside the platform, see the Glossary of deal terms in the Help Center.
General partner (GP). The firm, and the people in it, that manage a private equity fund and decide where it invests. When people say "the PE firm", they usually mean the GP.
Limited partner (LP). An investor in a fund, such as a pension fund, an endowment, an insurance company, a family office or a wealthy individual. LPs provide most of the money but do not manage it.
Sponsor. The private equity firm backing a deal. A "sponsor-backed" company is one owned by a PE firm.
Financial buyer. A buyer whose main aim is a financial return, such as a private equity firm. It plans to sell later.
Strategic buyer. An operating company that buys another business to fit its own strategy, for example to enter a market or add a product. It usually plans to keep the business.
Portfolio company. A company that a private equity firm or fund has invested in. Example: if a PE firm owns a software company, that company is one of the firm's portfolio companies.
Assets under management (AUM). The total value of the investments a firm manages for its investors. AcquityData uses reported AUM to place firms in size classes, from Emerging Manager to Mega.
Committed capital. The amount investors have promised to a fund. The fund draws this money as it needs it, over several years.
Dry powder. Committed capital that has not been invested yet. A firm with a lot of dry powder has plenty of money available for new deals.
Fund vintage. The year a fund started investing, or closed its first round of fundraising. Comparing funds of the same vintage is a common way to compare performance, because they faced the same market conditions.
Fund life. How long a fund exists. Private equity funds commonly run for around ten years, often with options to extend.
Investment period. The years during which a fund can make new investments, often the first five or so. After it ends, the fund mainly manages and sells what it owns.
Management fee. A yearly fee paid by the fund's investors to the GP to cover running costs, usually a percentage of committed or invested capital.
Carried interest ("carry"). The GP's share of the fund's profits, paid only if the fund performs well. A common arrangement is around 20 percent of profits above a hurdle.
Hurdle rate (preferred return). The minimum return investors must receive before the GP earns carried interest. Often around 8 percent a year.
Buyout. An investor buys a controlling stake in a company. In a leveraged buyout (LBO), a large part of the price is paid with borrowed money that the company then carries.
Management buyout (MBO). The existing management team buys the company, usually with financial backing. A management buy-in (MBI) is the same, but the buyers come from outside the company.
Secondary buyout. A private equity firm sells a company to another private equity firm. AcquityData tracks these as a separate type of exit and acquisition.
Platform company. A company a PE firm buys to be the base for further acquisitions in the same sector. Example: a regional accounting firm bought as the platform for a national roll-out.
Add-on acquisition. A smaller company bought and merged into a platform company to make it bigger. Also called a bolt-on.
Buy-and-build. A strategy of buying a platform company and then growing it through a series of add-on acquisitions.
Carve-out. The purchase of a division or subsidiary from a larger company, so that it can run as a separate business.
Take-private. The purchase of a public company by an investor, followed by delisting it from the stock exchange.
Growth equity. An investment in an established, growing company to fund expansion. It is often a minority stake, and uses little or no debt.
Recapitalization. A change in a company's mix of debt and equity. A "dividend recap" uses new debt to pay a dividend to the owners, returning some cash before a sale.
Continuation fund. A new vehicle set up by a sponsor to hold one or more companies from an older fund, giving that fund's investors a choice to cash out or continue.
Enterprise value (EV). The value of the whole business, not just its shares. Roughly, equity value plus debt, minus cash.
EBITDA. Earnings before interest, taxes, depreciation and amortization. A common measure of a company's operating profit, used to compare companies and set prices.
Valuation multiple. The price paid expressed as a multiple of a financial figure. Example: a company bought for 80 million with 10 million of EBITDA is valued at 8 times EBITDA.
Leverage. The amount of debt a company or deal carries, often shown as debt divided by EBITDA.
Internal rate of return (IRR). The yearly rate of return on an investment, taking the timing of cash flows into account. A quick sale at a modest profit can give a higher IRR than a slow sale at a larger profit.
Multiple on invested capital (MOIC). Total value returned divided by money invested. A MOIC of 2.0x means investors received twice what they put in.
Non-disclosure agreement (NDA). A confidentiality agreement signed before a seller shares information about its business.
Confidential information memorandum (CIM). A detailed document describing the business, prepared by the seller or its advisor for serious buyers.
Letter of intent (LOI). A document, usually not legally binding, setting out the price and main terms a buyer proposes.
Due diligence. The buyer's detailed investigation of the business, covering its finances, legal position, customers and operations, before committing to the deal.
Data room. A secure online space where the seller stores the documents buyers need for due diligence.
Exit. The sale of an investor's holding in a company. The usual routes are a sale to another company, a sale to another investor, or a stock market listing.
Hold period. How long an investor has owned a company. AcquityData's Capital Connect uses a hold period of five to ten years for its Ripe for Exit view.
Initial public offering (IPO). The first sale of a company's shares to the public on a stock exchange. It is one way for a private equity owner to exit.
Many of these terms appear as fields and filters on AcquityData profiles, including acquisition types, exit types, ownership and firm size. To see them in context, open a company or PE firm profile, or read the Help Center.
AcquityData provides information for research and informational purposes only. These definitions are general explanations, not legal, tax or investment advice. Terms and typical figures vary between firms and markets.