Glossary
Virtual data room and M&A glossary
The words you meet in a data room, a due diligence process or a deal, in plain English. Each term links to the guides and conversations where it comes up.
A
- Asset purchase agreement
- The contract for buying selected assets and liabilities of a business, instead of its shares.
- Audit trail
- The data room's record of who opened, downloaded or printed which document, and when.
B
- Binding offer
- A buyer's final offer after due diligence, usually with a marked-up purchase agreement attached.
- Board portal
- Software for running board meetings: agendas, board packs, votes and minutes.
- Bolt-on acquisition
- A smaller company bought to add to an existing platform business, common in private equity.
- Buy-side
- The buyer's side of a deal: the acquirer or investor, and the advisers who help them find, check and price a target.
C
- Cap table
- The table showing who owns what in a company: shares, options and convertibles.
- Carve-out
- The sale of a division or business unit that has to be separated from its parent company.
- Change of control clause
- A contract term that lets the other party end or renegotiate the contract if the company is sold.
- Clean team
- A small, ring-fenced group allowed to see a competitor's sensitive data during a deal, under strict rules.
- Commercial due diligence
- A test of the target's market, customers, competitors and growth plan, to see whether the business case holds.
- Completion accounts
- Accounts drawn up at closing to adjust the price for the actual cash, debt and working capital on that day.
- Confidential information memorandum
- The detailed sales document a seller's adviser sends to buyers after they sign an NDA.
- Convertible note
- A loan to a startup that converts into shares at a later funding round instead of being repaid.
- Corporate development
- The in-house team that finds, runs and integrates a company's acquisitions and partnerships.
D
- Data residency
- Where a provider physically stores your data, which can matter for regulation and client requirements.
- Data room index
- The numbered folder structure of a data room, which acts as its table of contents.
- Deal room
- Another name for a virtual data room: a secure online space for sharing deal documents with outside parties.
- Disclosure letter
- The seller's list of known exceptions to its warranties, which limits what the buyer can later claim for.
- Distressed M&A
- Buying or selling a business in financial trouble, often under time pressure or in insolvency.
- Due diligence
- The investigation a buyer, investor or lender runs on a company before committing: its finances, contracts, legal position and operations.
- Dynamic watermarking
- Stamping each viewer's name, email or time on documents as they open them, to discourage leaks.
E
- Earn-out
- Part of the price that is only paid later if the business hits agreed targets after the sale.
- EBITDA
- Earnings before interest, tax, depreciation and amortisation: the profit figure most deals are priced on.
- Engagement analytics
- Reports that show which bidders and users are reading which documents, and how much.
- Escrow
- Money held back from the price by a third party, released later if no claims are made.
- Exclusivity period
- A set time in which the seller agrees to negotiate with one buyer only.
F
- FDI screening
- Government review of foreign investments in sensitive sectors, which can delay or block a deal.
- Fence view
- A viewing mode that shows only a strip of the document at a time, to block screenshots and shoulder surfing.
- Financial due diligence
- Diligence on the numbers: earnings, working capital, debt and cash flow behind the headline figures.
G
- GDPR
- The EU's data protection law, which governs how personal data, including data in a data room, is handled.
- Granular permissions
- Settings that control, per user or group and per folder, who can view, download or print each document.
I
- Indemnity
- A promise to repay a specific loss in full, often used for known risks found in due diligence.
- Indicative offer
- A first, non-binding price and set of terms from a buyer, used to pick who goes through to due diligence.
- ISO 27001
- The international standard for information security management, certified by independent auditors.
L
- Large language model
- The type of AI model behind tools like ChatGPT, now used in data rooms for search, summaries and Q&A drafts.
- Legal due diligence
- The lawyers' review of a company: ownership, key contracts, disputes, licences, employment terms and intellectual property.
- Letter of intent
- A mostly non-binding document that sets out the main terms of a deal before the final contract is negotiated.
- Leveraged buyout
- An acquisition paid for largely with borrowed money, secured on the target company itself.
- Locked box
- A way of fixing the price on a past balance sheet date, with no adjustment after closing.
M
- Management buyout
- A deal in which the company's own managers buy the business, usually with a private equity backer.
- Material adverse change
- A clause that lets a buyer walk away if something seriously damages the business between signing and closing.
- Merger control
- The review by competition authorities that larger deals need before they can close.
N
- Net working capital
- Current assets minus current liabilities: the cash tied up in running the business day to day.
- Non-disclosure agreement
- A contract in which the receiving party promises to keep the information it is given confidential.
O
- Operational due diligence
- Diligence on how the business actually runs: processes, systems, supply chain, sites and people.
P
- Post-merger integration
- Combining two businesses after a deal closes: people, systems, processes and customers.
- Prospectus
- The legal document a company must publish when it offers shares to the public, for example in an IPO.
Q
- Q&A module
- The part of a data room where buyers ask questions and the seller's team answers them, with a full record.
- Quality of earnings
- An accountant's report on how much of a company's profit is real, recurring and likely to last.
R
- Red flag report
- A short diligence report that lists only the serious issues, instead of describing everything that was reviewed.
- Redaction
- Blacking out sensitive parts of a document, such as names or prices, before others can see it.
- Representations and warranties
- Statements of fact the seller makes about the business in the purchase agreement, with a remedy if they prove untrue.
- Roll-up
- A strategy of buying many smaller companies in one sector and combining them into a larger group.
S
- SAFE note
- A simple agreement for future equity: early-stage funding that converts into shares at a later round.
- Sell-side
- The seller's side of a deal: the company or owners selling, and the advisers who run the sale for them.
- Share purchase agreement
- The contract by which a buyer acquires the shares of a company, with the price, warranties and conditions.
- Single sign-on
- Logging in with a company account, such as Microsoft or Okta, instead of a separate password.
- SOC 2
- An independent audit report on a service provider's security controls, common in the US.
T
- Tax due diligence
- A review of the target's tax filings, structures and exposures, so hidden tax liabilities are priced in or covered.
- Teaser
- A one or two page summary of a business for sale, often anonymous, sent to possible buyers before they sign an NDA.
- Term sheet
- A short, mostly non-binding summary of the key terms of an investment or deal.
- Two-factor authentication
- A login that needs a second proof of identity, such as a code on a phone, on top of a password.
V
- Vendor due diligence
- Due diligence a seller commissions on its own business before a sale, so bidders get one independent report up front.
W
- W&I insurance
- Insurance that pays out if the seller's warranties in a deal turn out to be wrong.
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