--- title: "Private Equity Glossary: 40 Deal Terms Defined | Capstreet" description: "Plain-English definitions of 40 private equity and M&A terms for business owners, from EBITDA and rollover equity to earnouts and quality of earnings." url: https://capstreet.multisites.ai/glossary publisher: Capstreet phone: +1-713-332-2700 contact: https://capstreet.multisites.ai/contact --- # Private equity glossary 40 private equity and M&A terms in plain English, for owners thinking about a sale or a partner. Search the glossary No terms match. Try a shorter word. ## A [Add-Backs](https://capstreet.multisites.ai/glossary/add-backs) Add-backs are one-time or owner-specific costs added back to profit, so the earnings show what a new owner would actually earn. [Add-On Acquisition](https://capstreet.multisites.ai/glossary/add-on-acquisition) An add-on acquisition is a smaller company bought by an existing platform company and combined into it, which adds customers, services or locations. [Adjusted EBITDA](https://capstreet.multisites.ai/glossary/adjusted-ebitda) Adjusted EBITDA is EBITDA after add-backs and other changes that remove unusual, one-time or owner-specific items to show normal earnings. ## B [Buy and Build](https://capstreet.multisites.ai/glossary/buy-and-build) Buy and build is a strategy where an investor buys a platform company and then adds smaller companies to it, creating one larger and stronger business. ## C [Confidential Information Memorandum](https://capstreet.multisites.ai/glossary/confidential-information-memorandum) A confidential information memorandum is a detailed document that describes a company to potential buyers who have signed a non-disclosure agreement. ## D [Data Room](https://capstreet.multisites.ai/glossary/data-room) A data room is a secure online folder where a seller shares documents with buyers and their advisers during due diligence. [Dividend Recapitalization](https://capstreet.multisites.ai/glossary/dividend-recapitalization) A dividend recapitalization is when a company borrows money and pays it out to its owners as a dividend, without selling the business. [Due Diligence](https://capstreet.multisites.ai/glossary/due-diligence) Due diligence is the buyer's detailed check of a company's finances, operations, legal matters and customers before the deal closes. ## E [Earnout](https://capstreet.multisites.ai/glossary/earnout) An earnout is extra purchase price paid to the seller after closing, but only if the company reaches agreed targets such as revenue or profit. [EBITDA](https://capstreet.multisites.ai/glossary/ebitda) EBITDA is a company's earnings before interest, taxes, depreciation and amortization. Buyers use it as a quick measure of operating cash earnings and as the base for setting a price. [EBITDA Multiple](https://capstreet.multisites.ai/glossary/ebitda-multiple) An EBITDA multiple is the purchase price divided by EBITDA. Buyers use it to compare what they pay for different companies. [Enterprise Value](https://capstreet.multisites.ai/glossary/enterprise-value) Enterprise value is the total value of a business, including its debt, minus its cash. It shows what it costs to buy the whole operation. [Escrow](https://capstreet.multisites.ai/glossary/escrow) Escrow is money held by a neutral third party after closing to cover possible claims against the seller, then released if no claims arise. [Exclusivity Period](https://capstreet.multisites.ai/glossary/exclusivity-period) An exclusivity period is a set time after a letter of intent when the seller agrees not to negotiate with, or share information with, other buyers. [Exit Strategy](https://capstreet.multisites.ai/glossary/exit-strategy) An exit strategy is an owner's plan for how and when to leave a business, such as through a sale, a recapitalization or a handoff to the next generation. ## F [Financial Buyer](https://capstreet.multisites.ai/glossary/financial-buyer) A financial buyer is an investor, such as a private equity firm, that buys a company mainly to grow its value and sell it later. [Fragmented Industry](https://capstreet.multisites.ai/glossary/fragmented-industry) A fragmented industry is one with many small companies and no dominant leader, which makes it a natural fit for buy-and-build strategies. ## G [Growth Equity](https://capstreet.multisites.ai/glossary/growth-equity) Growth equity is investment in an already growing company, often for a minority stake, to fund expansion rather than to buy control or pay off the owner. ## H [Holding Period](https://capstreet.multisites.ai/glossary/holding-period) The holding period is the length of time an investor owns a company before selling it. For a private equity fund, it runs from the purchase to the exit. ## I [Incentive Equity](https://capstreet.multisites.ai/glossary/incentive-equity) Incentive equity is ownership offered to managers so they share in the company's growth, usually as options or a share pool. [Investment Thesis](https://capstreet.multisites.ai/glossary/investment-thesis) An investment thesis is an investor's researched view of why a certain sector or type of business is a good place to put money. ## L [Letter of Intent](https://capstreet.multisites.ai/glossary/letter-of-intent) A letter of intent is a document that sets out the main terms of a proposed deal, such as price and structure, before the final contracts are signed. [Leveraged Buyout](https://capstreet.multisites.ai/glossary/leveraged-buyout) A leveraged buyout is the purchase of a company using a large share of borrowed money, which is repaid from the company's own cash flow. [Lower Middle Market](https://capstreet.multisites.ai/glossary/lower-middle-market) The lower middle market is the group of smaller private companies, often defined by earnings of a few million to about fifteen million dollars of EBITDA. ## M [Majority Recapitalization](https://capstreet.multisites.ai/glossary/majority-recapitalization) A majority recapitalization is a deal where an investor buys more than half of a company, and the owner keeps a smaller stake and often stays on to help lead. [Management Buyout](https://capstreet.multisites.ai/glossary/management-buyout) A management buyout is a sale of a company to its own senior managers, usually funded with outside capital such as debt or an investor. [Minority Recapitalization](https://capstreet.multisites.ai/glossary/minority-recapitalization) A minority recapitalization is a deal where an investor buys less than half of a company, so the owner keeps control and takes some cash out. ## N [Non-Disclosure Agreement](https://capstreet.multisites.ai/glossary/non-disclosure-agreement) A non-disclosure agreement is a contract that requires the other party to keep shared company information private and use it only to evaluate a deal. ## P [Platform Company](https://capstreet.multisites.ai/glossary/platform-company) A platform company is the first business a private equity firm buys in a sector. It is chosen to be the base for later add-on acquisitions. [Private Equity](https://capstreet.multisites.ai/glossary/private-equity) Private equity is money from investment funds used to buy or invest in private companies. The fund works with management to grow the business, then sells its stake later. ## Q [Quality of Earnings](https://capstreet.multisites.ai/glossary/quality-of-earnings) A quality of earnings report is an accountant's review that tests whether a company's reported profits are accurate, complete and likely to repeat. ## R [Recapitalization](https://capstreet.multisites.ai/glossary/recapitalization) A recapitalization changes a company's mix of owners and debt. It lets owners take cash out of the business while keeping part of the equity. [Representations and Warranties](https://capstreet.multisites.ai/glossary/representations-and-warranties) Representations and warranties are the seller's written statements of fact about the company, which the buyer relies on in the purchase contract. [Rollover Equity](https://capstreet.multisites.ai/glossary/rollover-equity) Rollover equity is the part of a seller's proceeds that the seller reinvests in the company after the sale, instead of taking that value in cash. ## S [Second Bite of the Apple](https://capstreet.multisites.ai/glossary/second-bite-of-the-apple) The second bite of the apple is the later payout a seller can get on rolled-over equity when the investor sells the company again. [Seller Financing](https://capstreet.multisites.ai/glossary/seller-financing) Seller financing is when the seller lends the buyer part of the purchase price, and the buyer pays it back over time with interest. [Strategic Buyer](https://capstreet.multisites.ai/glossary/strategic-buyer) A strategic buyer is a company that buys another company to gain customers, products, locations or other benefits that fit its own business. [Succession Planning](https://capstreet.multisites.ai/glossary/succession-planning) Succession planning is the process of preparing for a change in who owns or runs a business, whether the next leader is family, staff or a new owner. ## V [Value Creation](https://capstreet.multisites.ai/glossary/value-creation) Value creation is the work an owner or investor does to make a company more valuable, such as growing sales, improving margins and building a stronger team. ## W [Working Capital Adjustment](https://capstreet.multisites.ai/glossary/working-capital-adjustment) A working capital adjustment changes the final price if the company's short-term assets and liabilities at closing differ from an agreed target level. ## Ready to get started? Let’s talk. Tell us about your company and what you want next. Conversations are private, and there is no obligation. 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