What is EBITDA in M&A?

EBITDA stands for Earnings Before Interest, Taxes, Depreciation and Amortisation. It is the most commonly used profitability metric in M&A transactions and business valuations. In Indian SME deals, a business's enterprise value is typically calculated by multiplying its annual EBITDA by a sector-specific multiple — for example, a manufacturing business with INR 5 crore EBITDA at a 6x multiple has an indicative enterprise value of INR 30 crore.

What is an LOI (Letter of Intent) in M&A?

A Letter of Intent (LOI) is a non-binding document signed by both buyer and seller that outlines the key terms and conditions of a proposed M&A transaction — including price, deal structure, exclusivity period, and due diligence timeline. It signals serious intent without creating a binding legal obligation, and typically precedes the Share Purchase Agreement.

What is due diligence in an acquisition?

Due diligence is the comprehensive investigation conducted by a buyer or investor before completing an M&A transaction. It typically covers financial due diligence (auditing P&L, balance sheet, cash flows), legal due diligence (reviewing contracts, litigation, IP), commercial due diligence (market position, customer concentration), and operational due diligence (team, processes, technology). In Indian SME transactions, due diligence typically takes 4 to 12 weeks.

What is an earn-out in M&A?

An earn-out is a contingent payment structure in M&A deals where part of the purchase price is paid to the seller after the transaction closes, based on the business achieving agreed financial or operational targets — such as revenue, EBITDA, or customer retention over 1 to 3 years. Earn-outs are commonly used to bridge valuation gaps between buyer and seller when the future performance of the business is uncertain.

What is the difference between enterprise value and equity value?

Enterprise Value (EV) represents the total value of a business — including its equity and debt — and is independent of capital structure. Equity Value (also called market capitalisation for public companies) is what remains for equity shareholders after subtracting net debt from enterprise value. In M&A transactions, deal negotiations typically focus on enterprise value, and equity value is derived by adjusting for the company's debt and cash on closing.

What is a Share Purchase Agreement (SPA) in an acquisition?

A Share Purchase Agreement (SPA) is the binding legal contract between buyer and seller that governs the transfer of ownership in an M&A transaction. It includes the purchase price, payment terms, representations and warranties, closing conditions, indemnification provisions, and post-closing obligations. The SPA is typically the final document signed before deal completion.

What is working capital in an M&A deal?

Working capital is the difference between a company's current assets (cash, receivables, inventory) and current liabilities (payables, short-term debt). In M&A transactions, a working capital adjustment is typically made at closing — the buyer and seller agree on a 'normalised' working capital target, and the purchase price is adjusted up or down based on actual working capital delivered at close.

What is rep and warranty insurance in M&A?

Representations and Warranty (R&W) insurance is a policy that protects the buyer (or seller) in an M&A transaction from financial losses arising from a breach of the seller's representations and warranties in the SPA. It is commonly used in mid-market transactions to reduce the seller's indemnification obligations and provide the buyer with a clean recourse mechanism beyond the seller's balance sheet.

M&A Glossary

A comprehensive reference of mergers and acquisitions terminology — from deal origination to post-merger integration. Built for business owners, investors, and M&A professionals.

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