The Steve Stuart Partnership - Corporate Finance Solutions

Jargon Buster

Corporate Finance has a splendid collection of slang and jargon. Here are some of the more common terms in current use:

A

acquisition: when one business buys another. Can be a hostile takeover or an agreed sale, see M and A.

AIM (Alternative Investment Market): the little brother of the London Stock Exchange. Companies don't need a three year trading history to qualify and investors are eligible for tax relief through an Enterprise Investment Scheme (EIS).

asset: an object of value owned by your business. Assets can be fixed (long term) like premises; current (short term) like stock and money owing; tangible, or intangible (eg intellectual property).

asset based lending: Covers traditional sources, such as, leasing, hire purchasing, factoring and invoice discounting. More recently evolved to finance all assets on the balance sheet.

B

barriers to entry: could be anything (often a cost implication) which stops a new firm entering a given market.

beauty parade: A shortlist of advisers or financiers pitching to a business.

BIMBO: (buy in/management buy out) an external entrepreneur, often with VC backing, joins the management team of the target business to buy it from its owner or parent.

BINGO: buy-in growth opportunity - an MBI team raises finance to develop and grow the business.

blue sky business: a business with potential for very high growth; often slow development with high burn rate / high risk for investors.

burn rate: the rate which a company loses (burns) cash.

C

caveat emptor: 'buyer beware' - the burden is on the buyer to make sure the asset for sale is fit for purpose.

caveat venditor: 'seller beware' - the seller has a legal obligation to disclose any problems with the asset. In theory, charging sellers with responsibility only requires them to be expert in their own business; buyers would have to be expert in every business.

company buy-back: a company buying back its own shares from the shareholders.

D

debt finance: and or other debt facilities; interest is payable at an agreed rate and agreed intervals (eg monthly or quarterly).

demerger: business splits into two or more separate companies, eg as the result of an MBO, or a failed M and A.

drag along: rights in a company's Articles of Association that allow the majority shareholder to drag along the minority shareholders in the sale of the business, see tag along

due diligence: detailed company analysis done once a deal is agreed in principle, to discover the financial, commercial and legal health of the company and management team.

E

early stage funding: see seed finance

earnings per share: profit after tax divided by the number of shares. A company may decide to reinvest some of the profit before dividing the remainder between shareholders. A useful tool in determining share and corporate value of plcs.

EBITDA: earnings before interest, tax, depreciation and amortisation. Roughly equates to cash flow.

equity gap: the size bracket of deals where businesses find it hardest to interest investors. Typically between £250,000 and £2 million - although the upper limit is steadily rising.

exit strategy: the various options for realising an investment in the business, which could include a secondary buyout, flotation, or trade sale.

F

first-round funding: funds available to start-ups, which - on the basis of a good business plan - receive financial support to take their idea or product to market.

flotation: listing a company on the stock market, by offering shares to the general public, see IPO.

FSA: Financial Services Authority, the regulator for the financial industry.

FTSE: Financial Times Stock Exchange - the list of share prices and movements on the London Stock Exchange and AIM.

funding cocktail: the mix of equity, debt, mezzanine and asset finance that can combine to fund a deal.