UK M&A glossary
The terms that come up when buying or selling a business in the UK, defined plainly and written for owners rather than advisers.
Plain definitions of the terms that come up when buying or selling a UK business. Written for owners rather than advisers, and specific to how deals actually work here.
The numbers
EBITDA
Earnings before interest, tax, depreciation and amortisation. A measure of trading profit that strips out financing and accounting decisions so two businesses can be compared. It is the figure most UK business sales are priced from.
Adjusted EBITDA
EBITDA normalised for costs a new owner would not carry and costs they would. Owner remuneration above a market rate replacement, personal expenses and genuine one off costs are added back. Unpaid family labour and deferred maintenance are deducted.
Add back
A cost removed from reported profit because it would not continue under new ownership. Every add back has to be evidenced. Disputes over add backs are one of the most common reasons a price is renegotiated after heads of terms.
SDE
Seller’s discretionary earnings. Adjusted EBITDA plus the owner’s entire remuneration. Used for small owner operated businesses changing hands between individuals, not by trade buyers or private equity, who have to pay someone to do the job.
Multiple
The figure applied to adjusted EBITDA to reach enterprise value. Set by sector, adjusted for the size of the earnings, and then decided by the specific risk profile of the business.
Enterprise value
The value of the trading business itself, before adjusting for cash and debt. Adjusted EBITDA multiplied by the multiple.
Equity value
What the shareholders actually receive. Enterprise value plus surplus cash, less debt, adjusted for working capital. The number that reaches your account, before fees and tax.
Normalised working capital
The level of working capital a business needs to trade, which a buyer expects to be left in the company on completion. Usually set from an average over twelve months. In sectors with long cash cycles this figure is large.
Cash free debt free
The standard basis for a UK business sale. Surplus cash comes back to the seller, borrowing is repaid, and the business transfers with a normal level of working capital.
Quality of earnings
A buyer’s accountants testing whether reported and adjusted profit is real and sustainable. Where a judgement cannot be verified, it is usually resolved in the buyer’s favour.
Structure and consideration
Share sale
Selling the shares in the company. The company continues, carrying its history and liabilities. Usually preferred by sellers for the cleaner break and the tax treatment.
Asset sale
The company sells its trade and assets, leaving the seller holding the company. Usually preferred by buyers, because they choose what they take. Can create a tax charge in the company and again on extraction.
Deferred consideration
Part of the price paid after completion on an agreed schedule, rather than conditional on performance. Common in management buyouts as vendor loan notes.
Earn out
Part of the price payable only if the business hits agreed targets after completion. Bridges a gap between what a seller thinks it is worth and what a buyer will risk. Judge an offer on the completion payment rather than the headline.
Vendor loan note
The seller leaving part of the price outstanding as a debt, repaid from future profits. Usually unsecured and ranking behind the bank.
Completion accounts
Accounts drawn up shortly after completion to set the final price, adjusting for actual cash, debt and working capital on the day. A common source of post completion argument.
Locked box
An alternative to completion accounts. The price is fixed from an agreed historical balance sheet date, with the seller undertaking not to extract value after it. Gives price certainty earlier.
Retention
Part of the price held back for a period to cover warranty claims or specific risks. Distinct from construction retentions, which are money held by customers.
Escrow
Money held by a third party until an agreed condition is met, often used alongside a retention.
Process
Heads of terms
The short document setting out what has been agreed in principle before lawyers draft. Mostly non binding on commercial terms, but exclusivity, confidentiality and costs usually do bind. Decides more of the deal than most sellers expect.
Exclusivity
A binding period during which the seller stops talking to other parties. Typically six to twelve weeks. Signing it removes the seller’s main negotiating leverage.
Due diligence
The buyer’s investigation of the business: financial, legal, commercial and often technical. The longest and least predictable stage, and where most deals slip.
Information memorandum
The document describing the business to prospective buyers. Prepared before going to market.
Non disclosure agreement
An agreement signed before confidential information is shared. Standard, and rarely the thing that protects you in practice. Staged disclosure matters more.
Share purchase agreement
The main contract transferring ownership. Sets out price, structure, warranties and indemnities.
Warranties
Statements by the seller about the business that the buyer relies on. If untrue, the buyer may claim. The seller limits exposure through disclosure, caps and time limits.
Disclosure letter
The seller’s formal qualification of the warranties. Anything properly disclosed cannot later be claimed on, which is why it is drafted carefully.
Indemnity
A promise to reimburse the buyer pound for pound for a specific identified risk. Stronger for a buyer than a warranty claim.
Change of control clause
A contract term allowing a counterparty to renegotiate or terminate if ownership changes. Found in customer contracts, leases and finance agreements, and checked early because it can shape the deal.
Data room
The secure repository of documents provided for due diligence.
Completion
The point at which ownership transfers and money moves. Sometimes simultaneous with signing, sometimes later if conditions must be satisfied.
Routes and buyer types
Trade buyer
A company in the same or an adjacent sector. Can pay above market value where there is a strategic reason, such as customers, capability, accreditation or removing a competitor.
Financial buyer
A private equity house or investor buying on the numbers rather than for synergies. Typically looking for a platform to build on or a bolt on to add.
Platform and bolt on
A platform is the first acquisition in a sector, built around. A bolt on is added to it for geography, capability or scale.
Management buyout
A sale to the existing management team, usually funded by personal contribution, bank debt and a vendor loan note. Confidential and often quicker, though it commonly pays less than a trade sale.
Management buy in
An external management team buying and then running the business, often backed by an investor.
Employee ownership trust
A trust buying a controlling interest on behalf of all employees, funded from future profits. Capital gains treatment changed on 26 November 2025 to fifty per cent relief.
Off market
Approaching businesses that are not for sale rather than reviewing what is being marketed. Slower, but the businesses worth buying are rarely the ones on a mailing list.
Buy box
An acquirer’s written acquisition criteria. A usable one can be applied by someone else to reject a company without asking.
Tax
Business Asset Disposal Relief
A reduced capital gains tax rate on qualifying disposals, applying to the first one million pounds of lifetime gains. Eighteen per cent from 6 April 2026, having been fourteen per cent in the 2025 to 2026 tax year.
Employment related securities
Rules taxing shares acquired because of employment. Central to management buyouts, where shares acquired below market value create an income tax charge rather than a capital gain.
Section 431 election
A joint election treating shares as acquired at unrestricted market value, so future growth is taxed as capital rather than income. Must be made within fourteen days of acquisition and cannot be made retrospectively.
Clearance
Advance confirmation from HMRC of the tax treatment of a transaction. Common on employee ownership trust and reorganisation transactions.
Funding
Senior debt
The main bank borrowing in an acquisition, serviced from the target’s cash flow. Leverage in the UK lower mid market typically sits around two times EBITDA, constrained by debt service cover.
Debt service cover
Whether the target’s cash flow covers its borrowing with headroom, tested against a downside case. Usually the binding constraint on how much a lender will advance.
Asset based lending
Borrowing secured against debtors, stock, plant or property. More expensive than senior debt, and often what makes a deal possible in asset heavy sectors.
Personal guarantee
A promise by an individual to repay if the company cannot. Taken at a lender’s discretion in line with normal commercial practice.
Growth Guarantee Scheme
A British Business Bank scheme giving accredited lenders a seventy per cent guarantee on facilities up to two million pounds, running to 31 March 2030. The guarantee protects the lender, not the borrower.
Value drivers
Customer concentration
The share of revenue from the largest customer. One client above roughly thirty per cent of turnover is one of the largest single discounts a buyer applies.
Owner dependency
How much the business relies on the owner for relationships, technical knowledge or decision making. Reducing it is usually the highest value change available, and one of the slowest.
Recurring revenue
Income that renews without being won again. The single biggest determinant of where a business sits within its sector band.
Weighted average unexpired term
Every contract weighted by annual value, showing how long a portfolio has left to run. The closest thing facilities management has to a headline valuation metric.
TUPE
Regulations transferring employees automatically when a business or contract changes hands, on their existing terms. Creates inherited liabilities that buyers quantify and deduct.
Accreditation
Third party assessed competence required to work in a sector. In utilities, connections and engineering these are genuine barriers to entry and a major part of what a buyer is paying for.
Some of these will apply to your situation and most will not. A free valuation tells you which ones actually matter for your business.
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What is the difference between EBITDA and adjusted EBITDA?
EBITDA is operating profit with depreciation and amortisation added back. Adjusted EBITDA normalises it further, removing costs a new owner would not carry, such as owner pay above a market rate replacement, and adding in costs they would, such as unpaid family labour. Multiples are applied to the adjusted figure.
What is the difference between enterprise value and equity value?
Enterprise value is the value of the trading business, adjusted EBITDA multiplied by the multiple. Equity value is what shareholders actually receive: enterprise value plus surplus cash, less debt, adjusted for working capital.
What is an earn out?
Part of the purchase price payable only if the business hits agreed targets after completion. It bridges the gap between what a seller believes the business is worth and what a buyer will risk. An offer should be judged on the completion payment rather than the headline figure.
What does cash free debt free mean?
The standard basis for a UK business sale. Surplus cash returns to the seller, borrowing is repaid on completion, and the business transfers with a normal level of working capital left in it.
Which of these actually apply to you?
A free valuation cuts through the terminology and gives you a real number to work from. Costs nothing and commits you to nothing.
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