FINANCIAL GLOSSARY
M&A · PRIVATE EQUITY · HEDGE FUNDS · INVESTMENT BANKING
M&A (Mergers & Acquisitions)
PE (Private Equity)
HF (Hedge Funds)
IB (Investment Banking)
| Term | Category | Definition |
|---|---|---|
| Acquisition | M&A | Purchase of a company or asset by another entity |
| Add-on | PE | Follow-on acquisition by a PE firm after acquiring a platform company; accretive buyout |
| Alpha | Hedge Fund | Excess return above market benchmark; manager's value-add |
| Arbitrage | M&A | Profit from price differential; buy low in one market, sell high in another |
| Arranger | Inv. Banking | Bank structuring and managing debt or equity issuance |
| Asset-backed securities (ABS) | M&A | Securities structured against cash flows, mortgages, receivables, or contracted revenue |
| Basis points (bps) | PE | Unit of measurement for interest rates; 100 bps = 1% |
| Best efforts | Inv. Banking | Underwriter commits to sell shares but no minimum guarantee |
| Beta | Hedge Fund | Market risk exposure; correlation to broad benchmark |
| Blended rate | PE | Weighted average cost of capital from multiple funding sources |
| Book building | Inv. Banking | IPO process of taking investor orders; sets demand and price range |
| Bookrunner | Inv. Banking | Lead underbank managing IPO order book and pricing |
| Book value | PE | Net asset value on balance sheet (assets minus liabilities) |
| Bridge financing | PE | Short-term debt to cover gap until long-term financing closes |
| Bulk acquisition | M&A | Purchase of multiple assets or businesses from a single seller in one transaction |
| Carried interest | PE | PE manager's profit share from deal returns; performance-based compensation |
| Cash-flow sweep | PE | Allocation of excess cash flow to debt repayment or investor returns |
| Closing | M&A | Final settlement of deal; transfer of assets and funds |
| Commitment letter | Inv. Banking | Bank's binding promise to fund financing for deal; backs seller's LOI |
| Comparable companies (comps) | M&A | Peer firms used for valuation multiples and benchmarking |
| Comparable transactions | M&A | Similar M&A deals used as precedent for valuation |
| Contingent consideration | M&A | Deferred or variable purchase price linked to future performance (earnout) |
| Covenant | PE | Binding agreement clause restricting or requiring specific actions |
| DCM (Debt Capital Markets) | Inv. Banking | Investment banking division managing debt issuance (bonds, loans) |
| Debt-to-equity ratio | PE | Leverage metric; total debt divided by shareholder equity |
| Deal sourcing | M&A | Process of finding and originating acquisition targets |
| Discounted cash flow (DCF) | M&A | Valuation method using projected cash flows discounted to present value |
| Discretionary strategy | Hedge Fund | Manager makes subjective investment decisions; vs. systematic/quantitative |
| Drawdown | Hedge Fund | Peak-to-trough decline in fund value during downmarket period; loss measure |
| Drag-along rights | M&A | Majority shareholder power to force minority shareholders to sell |
| Due diligence | M&A | Comprehensive investigation of target company financials, legal, ops, and risks |
| Earn-out (earnout) | M&A | Contingent payment tied to post-acquisition performance metrics |
| EBITDA | PE | Earnings before interest, taxes, depreciation, amortization; operating profit proxy |
| EBITDA multiple | PE | Enterprise value divided by EBITDA; primary M&A valuation metric |
| ECM (Equity Capital Markets) | Inv. Banking | Investment banking division managing equity issuance (IPO, secondary offerings) |
| Enterprise value (EV) | M&A | Total market value of equity plus net debt; true acquisition price |
| Equity check | PE | PE investor's cash contribution to acquire a target (first money in) |
| Event-driven strategy | Hedge Fund | Profit from corporate events: M&A, restructuring, spinoffs, earnings surprises |
| Exit strategy | PE | Plan to sell or liquidate holding; IPO, sale to buyer, or secondary sale |
| Fairness opinion | Inv. Banking | Independent banker analysis that deal price is fair to shareholders |
| Financial sponsor | PE | PE firm or investment entity financing and managing an acquisition |
| Firm commitment | Inv. Banking | Underwriter's binding guarantee to buy shares not sold to investors |
| Fixed income | PE | Debt securities paying fixed or predetermined interest payments |
| Floor/ceiling | M&A | Minimum and maximum valuation bounds in deal negotiation |
| Hedging | Hedge Fund | Offsetting risk by taking opposing positions; reduce downside exposure |
| High water mark | Hedge Fund | Performance fee only paid on gains above prior peak; protects LPs from double fees |
| Hold period | PE | Time a PE fund owns a company before exit (typically 3–7 years) |
| IPO (Initial public offering) | Inv. Banking | First public sale of company shares; primary role for ECM bankers |
| Internal rate of return (IRR) | PE | Annualized return on PE investment; key performance metric |
| Leveraged buyout (LBO) | PE | Acquisition financed primarily with debt; equity check is 20–40% |
| Lender consent | PE | Requirement for existing lenders to approve deal or debt refinancing |
| Letter of intent (LOI) | M&A | Non-binding offer outlining deal terms and timelines before formal binding |
| Lock-up period | Inv. Banking | Restriction preventing sale of shares post-IPO; typically 6 months |
| Long/short strategy | Hedge Fund | Buy undervalued stocks (long), short overvalued; net long or market neutral |
| Last twelve months (LTM) | PE | Financial metrics for past 12 months; used for valuation base |
| Management buyout (MBO) | PE | Acquisition where existing management takes control; PE-backed |
| Management fees | Inv. Banking | Percentage charged by bank for advisory services; typically 0.5–2% of deal value |
| Merger arbitrage | Hedge Fund | Bet on M&A deal closing; buy target at discount to acquisition price |
| M&A (Mergers & Acquisitions) | M&A | Corporate deals combining or transferring ownership of businesses |
| Merger | M&A | Combining two companies into one legal entity |
| Minority stake | PE | PE investment of <50%; passive or influence-based position |
| Multiple on invested capital (MOIC) | PE | Return multiple; total value returned divided by capital invested |
| Net debt/cash position | PE | Total debt minus cash; reflects true leverage |
| Non-disclosure agreement (NDA) | M&A | Confidentiality contract signed before sharing sensitive deal information |
| Notional value | Hedge Fund | Total value of leveraged positions; may exceed fund assets due to short leverage |
| Opex (operating expenses) | PE | Day-to-day costs to run the business; salaries, rent, utilities |
| Origination | M&A | Source or create capital structures and financial solutions for clients |
| Pitchbook | Inv. Banking | Proposal presentation to client showing credentials, deals, and valuation approach |
| Placement agent | Inv. Banking | Intermediary raising capital for private placement offerings or funds |
| Platform company | PE | Anchor acquisition; base for strategic add-ons in buy-and-build PE strategy |
| Post-money valuation | PE | Company value after new investment round closes |
| Pre-money valuation | PE | Company value before new investment or deal closes |
| Preemptive rights | PE | Right to participate in future funding rounds to maintain ownership % |
| Prime broker | Hedge Fund | Bank providing hedge funds credit, securities lending, and clearing services |
| Purchase price | M&A | Total amount paid for acquisition; base price plus adjustments |
| PVE (Private value extraction) | PE | PE strategy focused on cost-cutting and asset monetization |
| Recapitalization | PE | Restructuring of debt and equity; often precedes exit |
| Redemption | Hedge Fund | LP withdrawal of capital from hedge fund; subject to lock-up and notice period |
| Relative value strategy | Hedge Fund | Exploit pricing mismatch between related instruments; arbitrage/neutral strategies |
| Representations and warranties | M&A | Seller's guarantees about accuracy of deal information; backed by escrow |
| Reverse merger | Inv. Banking | Private company merges into shell company to go public without traditional IPO |
| Roadshow | Inv. Banking | Management tour to meet investors; builds demand and determines IPO price |
| RWD (Representations warranty insurance) | M&A | Insurance coverage protecting buyer against breaches of seller reps |
| Secondary sale | PE | PE fund sells portfolio company to another PE fund or investor |
| Sensitivity analysis | M&A | Valuation modeling testing impact of varying key assumptions |
| Short selling | Hedge Fund | Borrow and sell security expecting price decline; profit if repurchased lower |
| Signing | M&A | Execution of binding purchase agreement; precedes closing |
| SPAC (Special purpose acquisition company) | Inv. Banking | Blank-check company listing on stock exchange to acquire private firm |
| SPV (Special purpose vehicle) | M&A | Legal entity created to hold assets and isolate risk in a deal |
| Stapled financing | Inv. Banking | Bank commits debt financing to deal; helps seller attract buyer certainty |
| Strategic buyer | M&A | Corporate entity buying for synergy; vs. financial buyer (PE) |
| Syndicate | Inv. Banking | Group of underwriters jointly managing IPO or debt issuance |
| Syndication | M&A | Multiple investors pooling capital for a single large deal |
| Systematic/quantitative strategy | Hedge Fund | Rules-based algorithmic trading; vs. discretionary manager judgment |
| TEV (Total enterprise value) | PE | Market value of all equity and debt; unlevered value |
| Term sheet | PE | Summary of key deal terms and investor rights; precedes full agreements |
| Tombstone | Inv. Banking | Formal advertisement of completed deal; lists deal participants and terms |
| Underwriting fees | Inv. Banking | Compensation for managing IPO or debt issuance; typically 3–7% of proceeds |
| Valuation | M&A | Estimated fair value of target; methods include DCF, multiples, comps |
| Vendor financing | PE | Seller provides part of purchase price as deferred payment |
| Volatility arbitrage | Hedge Fund | Trade implied vs realized volatility; profit from mismatch |
| WACC (Weighted average cost of capital) | PE | Average cost of debt and equity funding; discount rate for valuation |
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