When buying or selling a marketing, public relations, or advertising agency, you may be prepared for a lengthy process but may not know essential terms that could help you through the deal. Although you don’t have to know every detail of an M&A process, it’s helpful to know some terms that will continually come up in conversation.
If you’ve hired an M&A advisor, they can help you through the process. And if you know some important key terms will ensure that you avoid confusion and are ready to negotiate with the other party better. Here’s a guide on some terms you should know when considering an M&A deal.
What Terms Are Important for an M&A Deal?
The terms continually coming up during your M&A process can be confusing if you haven’t learned the basics. And while some may be explainable, you may need more clarification on some. The following are important terms you should know when considering an M&A deal.
- Multiple: a significant indicator of an agency’s market value based on the market, industry space, size and growth rate, and individual needs of the buyer or seller.
- Earnout: a deal that provides additional contingent payments from a buyer to a seller.
- Closing: an end to the transaction process where both parties sign the purchase and employment agreement.
- Valuation: a process and methodology the buyer uses to determine the agency’s value they want to acquire.
- Pro Forma Financial Statements: a method of calculating financial results using certain projections and adjustments.
- Letter of Intent: a written, non-binding document outlining the major points of an agreement in principle for the buyer to purchase the seller’s business.
- Working Capital: the capital of a business for day-to-day operations is calculated as Current Assets minus Current Liabilities.