M&A Terminology



Antitrust laws are federal laws that prohibit companies from acquiring too much market power and therefore retain fair competition between market participants. Conceptually this means that the regulator makes sure there are incentives in place for companies to work as efficient as possible and offer the best product and price for consumers as opposed to a monopolistic company that can dictate prices.

This is especially important in M&A, as acquiring another company can lead to unfair advantages, as the sheer size of the business may harm smaller competitors. Therefore, acquisitions are often subject to antitrust review and must be greenlighted by the authorities.


Binding Offer

Binding offer to be addressed by the purchaser to the target and its shareholders for the acquisition of the target’s share capital or certain assets.



A cap limits the seller’s exposure towards claims arising from violated reps and warranties of a share purchase agreement. A typical range for the cap is around 20% to 50% of the enterprise value.


Closing refers to the completion of a transaction. It is the starting date from which on the acquirer has actual control over the assets resp. the business. In case the parties have agreed on an economic transfer date prior to closing, the acquirer is entitled to the fruits of the business already from this point in time (also see Signing). Closing happens when all relevant conditions precedent of the contract are fulfilled and all relevant closing actions have been undertaken by the parties. The conditions precedent can be defined by both parties and, sometimes rely on the regulations in each country. In many cases, the obtaining of an antitrust clearance is the sole – or at least most relevant – condition which needs to be fulfilled before an effective completion. It should be noted that, in some countries such, e.g. the UK, the antitrust ruling will not stand against an effective completion. 

Closing Conditions

Closing conditions are requirements that must be fulfilled before the actual completion of a transaction, i.e. the starting point from which on the acquirer has actual control over the assets or the business. These conditions are agreed by both parties upfront and can include e.g. antitrust clearance, waiver letters in case of change of ownership clauses, carve-outs, informing employees a certain period in advance and many more.



A data room (or virtual data room, “VDR”) is a secured virtually room in which documents of and about the company and/or assets to be sold are provided for the purpose of due diligence of potential acquirers. In this data room, all documents are made available that the company for sale wants to make available to the buying company. These data rooms usually contain documents relating to corporate matters, finance, operations, contracts, human resources, taxes, regulatory and legal matters, intellectual property etc.

The most commonly used VDR providers in M&A are Intralinks and Merrill Dataside.

Deal Breakers

Certain issues of a deal that are unacceptable to a party in the negotiation and that might result in the discontinuation of the transaction if not resolved.

Due Diligence

A due diligence (“DD”) is the thorough analysis of all relevant documents of a company and/or assets, usually conducted by the buyer and in a virtual data room (“VDR”).  In a standardized M&A process the length and timing of the DD is set by the seller or its advisors and is laid out in the process letter.

Investors use DDs for a range of reasons, e.g. validate their business assumptions, identify risks, tax and legal considerations etc. The most commonly conducted DDs are financial, tax, legal and commercial and with increasing popularity the technical DD.



An earnout is a contingent deferred payment that the seller of a business is going to obtain if certain agreed upon financial targets have been reached. An earnout is often found in deals where the buyer and seller disagree on the expected future performance of the deal. A part of the purchase price is paid upfront, whereas the variable part, i.e. the earnout, is dependent on usually revenue, EBIT, EBITDA or certain non-financial metrics like number of customers etc. This allows the seller to be secured against paying too much in case the business is not reaching the business plan financials and at the same point gives the seller the opportunity to participate on the future growth up until a pre-set cap.  








Letter Of Intent

A letter of intent is a preliminary agreement that sets forth the intention of a buyer and seller to enter into a contract by mentioning preliminary terms and conditions. The concept is similar to a term sheet or memorandum of understanding.



Non-disclosure Agreement

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Purchase Agreement

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Reps and Warranties

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Signing relates to the process of agreeing on the terms and conditions of a transaction and contractually manifest them by setting forth the rights and obligations of the parties involved. The signing itself does not necessarily result in the actual transfer of assets, as there might be certain conditions to be met (e.g. informing employees, carve-out of assets, regulatory approval) before the actual transfer can occur and, hence, the transaction is fully completed. The acquirer can generally only reap the fruits of the business, respectively the share in net profit, once all closing conditions are met and closing has occurred. It should be noted, though, that parties can agree that the acquirer shall already receive the benefits of the acquired assets (and also bear related risks) from a date prior to signing, i.e. the economic transfer can occur at a point in time prior to signing (example: locked box). In case of no closing conditions, signing and closing can fall on the same date.


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