Acquisition
One company taking over controlling interest in another company. The assets or the stock of the seller are purchased for cash and/or stock of the buyer. The buyer is usually the dominant party in acquisition transactions.

Accretive
An acquisition that immediately adds to the earnings per share of the buying company after making adjustments for the buyer's cost of the acquisition and any change in the number of shares outstanding.

Agreement in Principle
An outline of the understanding among the parties, including the price and the major terms of a proposed transaction. It is usually put into writing as a Letter of Intent or Term Sheet.

Allocation
The amount of securities assigned to an investor, broker, or underwriter in an offering. An allocation can be equal to or less than the amount indicated by the investor during the subscription process depending on market demand for the securities.

Amalgamation
It is blending of two or more companies. The shareholders of each company would become the shareholders of the company which is undertaking the activity. It is similar to a merger.
Acquiree, Transferee, Victim, Offeree, Target Company: The company which is being merged or taken over by the other company.

Angel Financing
Capital raised for a private company from independently wealthy investors. This capital is generally used as seed financing. (See Seed Money)

Acquisition of assets
Acquirer may purchase only assets or some specific assets and not all the assets and liabilities of the company.

Acquirer, Predator, Offeror, Corporate raider:
The company which is making a bid for the merger or takeover of another company

Asset Purchase
A type of transaction in which the buyer purchases assets from the target company, rather than a Stock Purchase in which the buyer purchases the shares of the target company.

Balanced Fund
A venture fund investment strategy that includes the investment in portfolio companies at a variety of stages of development. (See Early Stage, Later Stage, Leveraged Buyouts, and Seed Money)

Bootstrapping
A means of finding creative ways to support a start-up business until it turns profitable. This method may include negotiating delayed payment to suppliers and advances from potential partners and customers.

Bottom Line
The net income "line" of the income statement

Business Development Company (BDC)
A vehicle established by Congress to allow smaller, retail investors to participate in and benefit from investing in small private businesses as well as the revitalization of larger private companies.

Capital Gains
The difference between an asset's purchase price and selling price, when the selling price is greater. Long-term capital gains (on assets held for a year or longer) are taxed at a lower rate than ordinary income.

Capital Gains Distribution
A fund's distribution of gains from investments to the investors in the fund. These gains can be distributed in the form of cash or stock.

Capital (or Assets) Under Management
The amount of capital available to a fund management team for venture investments.

Capitalization
Term used to describe a company's permanent capital, long-term debt and equity.

Capitalization of Earning Power Method
A method of determining the value of a business by dividing a company's earnings by a certain Discount Rate or Required Rate of Return. As an example, if a company had $900,000 in earnings, and a buyer needed an annual return of 15% on his or her money, the value of the business to that buyer would be $6,000,000. ($900,000/.15)

Capitalization Ratio
Measurement of the company's debt component of the company's capitalization. Measures the extent of debt used in relation to the company's permanent capital. Determined by dividing long-term debt by long-term debt plus equity

Cashflow
Cash earnings minus cash outflows for fixed- and working-capital investment. (Cash earnings are earnings before deducting noncash items, such as depreciation and amortization.)

Carried Interest
The portion of any gains realized by the fund to which the fund managers are entitled, generally without having to contribute capital to the fund. Carried interest payments are customary in the venture capital industry, in order to create a significant economic incentive for venture capital fund managers to achieve capital gains.

Circular merger
Companies producing distinct products seek amalgamation to share common distribution and research facilities and promoting market enlargement. The acquiring company benefits by economies of resource sharing and diversification.

Clandestine Takeover (or) Creeping Takeover
The clause 40 of the Listing Agreement of stock exchange allows a person to buy up to 5% stake in a company without any prior permission. After 5%, they ought to inform the stock exchange.

Closed-end Fund
A type of fund that has a fixed number of shares outstanding, which are offered during an initial subscription period, similar to an initial public offering. After the subscription period is closed, the shares are traded on an exchange between investors, like a regular stock. The market price of a closed-end fund fluctuates in response to investor demand as well as changes in the values of its holdings or its Net Asset Value. Unlike open-end mutual funds, closed-end funds do not stand ready to issue and redeem shares on a continuous basis. (See Initial Public Offering, Mutual Fund, Net Asset Value, and Open-end Fund)

Common Shares Outstanding
The number of common shares of stock outstanding at the end of the year, including stock held by the company in its treasury.

Common Stock
A unit of ownership of a corporation. In the case of a public company, the stock is traded between investors on various exchanges. Owners of common stock are typically entitled to vote on the selection of directors and other important events and in some cases receive dividends on their holdings. Investors who purchase common stock hope that the stock price will increase so the value of their investment will appreciate. Common stock offers no performance guarantees. Additionally, in the event that a corporation is liquidated, the claims of secured and unsecured creditors and owners of bonds and preferred stock take precedence over the claims of those who own common stock. (See Liquidation and Preferred Stock)

Comparable Analysis - Public Companies
A market-based valuation methodology in which the current share prices of similar publicly traded companies are analyzed. Derived value multiples, such as Price to Sales, Price to EBITDA and Price to EBIT, adjusted for the differences in private and public companies, can be useful benchmarks in determining the value of a company.

Comparable Transaction Analysis
A market-based valuation methodology in which the sale transactions of similar private companies are analyzed. Derived transaction multiples, such as Price to Sales, Price to EBITDA and Price to EBIT, can be used to estimate the value of a company.

Competitive Bid
This can be made by any person within 21 days of public announcement of the offer made by the acquirer. This can be made by the publice new company.

Continuing Operations
Term used in an income statement to denote recurring income as opposed to income generated by sales of assets or discontinued operations.

Conversion Price
The price paid for a common stock that is obtained by converting either convertible bonds or preferred convertible stock

Convertible Security
A financial security (usually preferred stock or bonds) that is exchangeable for another type of security (usually common stock) at a pre-stated price. Convertibles are appropriate for investors who want higher income, or liquidation preference protection, than is available from common stock, together with greater appreciation potential than regular bonds offer. (See Common Stock, Dilution, and Preferred Stock)

Covenants
Provisions in the legal agreements on loans, bonds, or lines of credit. Usually written by the lender to protect its position as a creditor of the borrowers

Crown Jewels
Sec 23 of SEBI Takeover Regulations indicates that the company calls its precious assets as crown jewels to depict the greed of the acquirer under the takeover bid. These precious assets attract the raider to bid for the company's control. The company sells these assets at its own initiative leaving the rest of the company intact. (Instead of selling the assets, the company may also lease them or mortgage them so that the attraction of free assets to the predator is suppressed.)

Deal Breaker
A significant item that arises during (or remains unresolved prior to beginning) the deal process that causes a deal to fall apart. Examples include losing a major customer, discovery of environmental problem, or a buyer losing financing arrangements.

Deal Structure
The manner in which a transaction is structured, and the related components of that structure, such as an Asset Purchase or a Stock Purchase.

Defensive merger
The directors of a threatened company may acquire another company for shares as a defensive measure to forestall the unwelcome takeover bid. For this purpose, they put large block of shares of their own company in the hands of shareholders of friendly company to make their own company least attractive for takeover bid.

Definitive Purchase Agreement (the P.A.)
The document(s) that are signed when completing the sale of a business. These are normally lengthy and complicated, but necessary to properly document the transaction to the satisfaction of the buyer, the seller, the IRS, the SEC and the shareholders. Also referred to as the Purchase and Sale Agreement.

Demerger or corporate split or division
This takes place when part of a company's undertaking is transferred to a newly formed or an existing company. Some or that part of the shares of the first company are also transferred to the new company. The reminder of the first company's undertaking continues to be vested in it and the share holders of the main company gets reduced by that extent.

Demerger by agreement
In this, the demerger takes place by an agreement with the shareholders and the creditors of the company. All the assets of the old company would be transferred to the new company and henceforth the new company would pay all the creditors.

Dilution
Dilution has two meanings in finance. The first is the process by which an investor's ownership percentage in a company is reduced by the issuance of new securities. The second is the effect on earnings per share and book value per share if all convertible securities were converted and all warrants or stock options were exercised. (See Stock Options and Warrants)

Dilutive
The process by which an investor's ownership percentage in a company is reduced by the issuance or additional stock. Also, the negative impact on a buyer's earnings per share as a result of the buyer paying too much for an acquisition. (opposite of accretive)

Discontinued Operations
Operations that have been or will be discontinued by the company. These items are reported separately on the income statement

Discount Rate
The rate used to determine the present value of a stream of future cash flows. The discount rate is calculated based on the Required Rate of Return after taking into account the riskiness and timing of the future cash flows.

Discounted Cash Flow (DCF) Analysis
An economic-based valuation methodology in which the sum of the present value of a company's future free cash flows is equal to the fair market value of a business. This method takes into account the risk factors associated with achieving the future cash flows when calculating present value. DCF analysis is one of the most commonly accepted valuation methodologies.

Divestiture
They are sale, for cash or for securities, of a segment of a company to a third party which is an outsider.

Drag Along Rights
A right that enables a majority shareholder to force a minority shareholder to join in the sale of a company. The majority owner doing the dragging must give the minority share holder the same price, terms, and conditions as any other seller. This is designed to protect the majority shareholder. Because some buyers are only looking to have complete control of a company, drag along rights help to eliminate minority owners and sell 100% of a company's securities to the buyer.

Due Diligence
The thorough review by the acquirer of a target company's internal books and operations. Transactions are often made contingent upon the resolution of the due diligence process.

Early Stage
A fund investment strategy involving investments in companies to enable product development and initial marketing, manufacturing and sales activities. Early stage investors can be influential in building a company's management team and direction. While early stage venture capital investing involves more risk at the individual deal level than later stage venture investing, investors are able to buy company stock at very low prices and these investments may have the ability to produce high returns. (See Seed Money)

Earn Out
A contractual provision enabling the seller to earn additional money after the sale of a business if certain conditions, generally relating to the operations of the business, are met. Also see Post Closing Adjustments.

EBIT & EBITDA
EBIT is the company's Earnings Before Interest and income Tax expenses. EBITDA is a company's Earnings Before Interest, income Tax, Depreciation and Amortization expenses.

Recast (adjusted) EBIT & EBITDA
A company's EBIT or EBITDA that is further adjusted to reflect items that would not take place in a business under ownership by a new buyer and for non-recurring items. Adjustment items commonly include a reduction in owner's compensation, reduction in travel and entertainment expenses, adjustments for expenses relating to a company move, etc. These adjustments are items that have reduced the earnings of the business hence earnings would have been higher had they not taken place. Adjusting EBIT & EBITDA to make them as high as possible is very important because buyers generally use this number as a basis for valuation.

Equity Carved Out
It is a type of divestiture and different to spin off. It resembles the IPO of some portion of equity stock of a wholly owned subsidiary by the parent company. Some of the subsidiary's shares are offered for sale to general public for increasing cash inflow without losing control.
This is also called split off IPO.

Escrow
A small portion of the purchase price held for a short period of time (usually under one year) used to offset against any undocumented liabilities that arise after a business is sold.

Exercise Price
The price at which an option may be exercised. This is also known as the strike price.

Exit Strategy
The business owner's intended method of retiring or transferring ownership of the company.

Fair Market Value
The aggregate price at which a business would change hands between a willing buyer and a willing seller, neither being under a compulsion to buy or sell, and both having reasonable knowledge of relevant facts.

Flipping
The act of buying shares in an IPO and selling them immediately for a profit. Brokerage firms underwriting new stock issues tend to discourage flipping, and will often try to allocate shares to investors who intend to hold on to the shares for some time. However, the temptation to flip a new issue once it has risen in price sharply is too irresistible for many investors who have been allocated shares in a hot issue. (See Hot Issue and New Issue)

Friendly mergers
Mergers and acquisitions through the negotiations, willingness and consent of the acquiree company are called friendly mergers.

Full Market Value
The best sales price that a business can achieve. This can only be determined in a competitive deal process where several buyers are attempting to acquire the business. This shifts negotiation leverage to the seller who can then negotiate the optimum business value.

Fund Focus (or Investment Stage)
The indicated area of specialization of a venture capital fund usually expressed as Balanced, Seed and Early Stage, Later Stage, Mezzanine or Leveraged Buyout (LBO). (See all of the stated fund types for further information)

Fund Size
The total amount of capital committed by the investors of a venture capital fund.

Golden Parachutes (or) First Class Passengers Strategy
This envisages a termination package for senior executives and is used as a protection tool against the takeover.

Goodwill
Goodwill is the excess of the purchase price over the fair market value of the net assets acquired. In a purchase, buyers can play with this number for accounting and reporting purposes. For example writing up assets and assigning value to intangible assets such as trademarks.

Green Mail
A large block of shares is held by an unfriendly company, which forces the target company to repurchase the stock at a substantial premium to prevent the takeover. (This could prove to be an expensive deal to the raider.)

Grey Knight
A friendly party of the target company who seeks to takeover the predator.

Holding company
The holding company would have more than 50% of the total voting power and has the control on the other company.

Holding Period
The amount of time an investment must be held to qualify for capital gains tax benefits. (See Capital Gains)

Horizontal merger
It is a merger of two competing firms, which are at same stage of industrial process.

Hostile takeovers
An acquirer may not offer the proposal to acquire the target company's undertaking, but may silently and unilaterally pursue efforts to gain controlling interest in it against the wishes of the management. They are also called raids or takeover raids.

Hot Issue
A newly issued stock that is in great public demand. Hot issues usually experience a dramatic rise in price at their initial public offering because the market demand outweighs the supply.

House of Issue
The investment bank that underwrites and floats a security issue.

In Play
A situation where one or more bidders are actively pursuing the acquisition of another company.

Initial Public Offering (IPO)
A company's first sale of stock to the public under the rules of the SEC. Securities offered in an IPO are often, but not always, those of young, small companies seeking outside equity capital and a public market for their stock.

Insider Trading
SEBI Regulations 1992, says that it is a criminal offence for an individual who is an insider by virtue of being connected with the company and has access to price sensitive information which other share holders do not have.

Intangible Assets
The non-physical assets of a business. E.g., customer lists, customer contracts, proprietary software, skilled employees, proprietary processes, name familiarity, goodwill, etc. Most of the value of a service business is contained in the intangible assets.

Integration
The process of combining two companies after an acquisition has occurred. Some buyers integrate operations extensively to capitalize on synergies such as improved efficiency, reduced costs and increased sales. Other integrate very little and allow the seller to continue to run the business autonomously.

Interlocking shareholdings or Cross Shareholdings
Two or more group companies acquire shares of each other in large quantity or one company may distribute shares to the share holders of its group company to avoid threats of takeover bids. (If the interlocking of shareholdings is accompanied by joint voting agreement then the joint system of defence is termed as "Pyramiding", which is the safest device or defense.)

Intermediary
A strategic and financial advisor employed by either the buyer or seller to facilitate a successful transaction.

Investment Philosophy - The stated investment approach or focus of a fund manager.

Joint Venture
This is an agreement between two or more companies where there will be an agreed contribution and participation of the respective companies.

Joint Holding or Joint voting agreement
Two or more major shareholders may enter into agreement to block voting or to block sale of shares or may sell the shares together. This agreement is entered into with the cooperation of Offeree Company's management.

Junk Bond
A bond that involves greater than usual risk as an investment and pays a relatively high rate of interest, typically issued by a company lacking an established earnings history or having a questionable credit history. Junk bonds became a common means for raising business capital in the 1980s, when they were used to help finance the purchase of companies, especially by leverages buyouts.

Later Stage
A fund investment strategy involving financing for the expansion of a company that is producing, shipping and increasing its sales volume. Later stage funds often provide the financing to help a company achieve critical mass in order to position itself for an IPO. Later stage investing can have less risk than early stage financing because these companies have already established themselves in their market and generally have a management team in place. Later stage and Mezzanine level financing are often used interchangeably. (See Early Stage, Initial Public Offering and Mezzanine Level)

Letter of Intent (LOI)
A nonbonding (normally) document that outlines the major terms of a proposed transaction. Can also be referred to as a Term Sheet or Agreement in Principle.

Leveraged Buyout (LBO)
A takeover of a company, using a combination of equity and borrowed funds (or loans). Generally, the target company's assets act as the collateral for the loans taken out by the acquiring group. The acquiring group then repays the loan from the cash flow of the acquired company. For example, a group of investors may borrow funds, using the assets of the company as collateral, in order to take over a company. Or the management of the company may use this vehicle as a means to regain control of the company by converting a company from public to private. In most LBOs, public shareholders receive a premium to the market price of the shares.
LBO funds are important players in the U.S. private equity markets. Leveraged buyout funds have generated returns by acquiring profitable, stable businesses in more mature sectors of the economy, or businesses characterized by high cash flows. Leveraged buyout firms also play an important role as consolidators of large, highly fragmented industries. Although traditionally LBO funds invested exclusively in mature economic sectors, recently several prominent LBO firms have extended their focus to more dynamic industries such as health care services and telecommunications. (See Acquisition)

Liabilities Not Assumed
In a transaction, liabilities not transferred to the buyer. Buyers will often assume liabilities such as accounts payable but not assume liabilities such as short or long-term debt.

Limited Partnerships
An organization comprised of a general partner, who manages a fund, and limited partners, who invest money but have limited liability and are not involved with the day-to-day management of the fund. In the typical venture capital fund, the general partner receives a management fee and a percentage of the profits (or carried interest). The limited partners receive income, capital gains, and tax benefits. (See Capital Gains and Carried Interest)

Liquidating Value
The amount which is available if the assets of the business are sold off and converted to cash

Liquidation
Liquidation has two meanings in finance. The first is converting securities into cash. The second is the sale of the assets of a company to one or more acquirers in order to pay off debts. In the event that a corporation is liquidated, the claims of secured and unsecured creditors and owners of bonds and preferred stock take precedence over the claims of those who own common stock. (See Acquisition, Common Stock and Preferred Stock)

Liquidity Ratios
A ratio that measures a company's ability to pay off short-term debt as it becomes due. The main ratio of this type is the current ratio (Current Assets divided by Current Liabilities).

Lock-up Period
The period of time that certain stockholders have agreed to waive their right to sell their shares of a public company. Investment banks that underwrite initial public offerings generally insist upon lockups of at least 180 days from large shareholders (1% ownership or more) in order to allow an orderly market to develop in the shares. The shareholders that are subject to lockup usually include the management and directors of the company, strategic partners and such large investors. These shareholders have typically invested prior to the IPO at a significantly lower price to that offered to the public and therefore stand to gain considerable profits. If a shareholder attempts to sell shares that are subject to lockup during the lockup period, the transfer agent will not permit the sale to be completed. (See Initial Public Offering)

Management Buyin
The purchase of a controlling interest of a company by an outside investor who leaves management unchanged.

Management Buyout
Going private through management's purchase of all outstanding shares. see also buyout.

Management Fee
Compensation for the management of a venture fund's activities, paid from the fund to the general partner or investment advisor. This compensation generally includes an annual management fee.

Management Team
The persons who oversee the activities of a venture capital fund.

Mandatory Bid
This bid is laid by the offeror when he has 30% or more and less than 50% of the voting rights of the offeree company and this should be in cash and the offer price should be the highest price, which offeror had paid in the past 12 months for that shares.

Merchant Banker
They are the middle men in settling negotiations for merger or takeover between the offeree and offeror.

Merger
Merger is the fusion of two or more companies (OR) Merger is a combination of two or more companies into a single company where, it survives and others loose the corporate identity. The survivor acquires the assets and liabilities of the rest.

Mezzanine Financing
Refers to the stage of venture financing for a company immediately prior to its IPO. Investors entering in this round have lower risk of loss than those investors who have invested in an earlier round. Mezzanine level financing can take the structure of preferred stock, convertible bonds or subordinated debt (the level of financing senior to equity and below senior debt). (See Convertible Securities, Early Stage, Initial Public Offering, Later Stage and Preferred Stock)

Multiple of EBIT or EBITDA
A method of valuation where a company's EBIT or EBITDA is multiplied by a negotiated multiple. Other common multiples include a multiple of book value and a multiple of revenue.

Mutual Fund
A mutual fund, or an open-end fund, sells as many shares as investor demand requires. As money flows in, the fund grows. If money flows out of the fund the number of the fund's outstanding shares drops. Open-end funds are sometimes closed to new investors, but existing investors can still continue to invest money in the fund. In order to sell shares an investor usually sells the shares back to the fund. If an investor wishes to buy additional shares in a mutual fund, the investor must buy newly issued shares directly from the fund. (See Closed-end Funds)

Net Asset Value (NAV)
NAV is calculated by adding the value of all of the investments in the fund and dividing by the number of shares of the fund that are outstanding. NAV calculations are required for all mutual funds (or open-end funds) and closed-end funds. The price per share of a closed-end fund will trade at either a premium or a discount to the NAV of that fund, based on market demand. Closed-end funds generally trade at a discount to NAV.

Net Working Capital
Calculated by subtracting current liabilities from current assets.

New Issue
A stock or bond offered to the public for the first time. New issues may be initial public offerings by previously private companies or additional stock or bond issues by companies already public. New public offerings are registered with the Securities and Exchange Commission. (See Securities and Exchange Commission and Registration)

Non-Compete Agreement
An agreement that prevents a party from engaging in competitive activities. Generally the buyer will insist that the seller, and other key management people, sign a non-compete agreement.

Non-Recurring Expenses
Refers to expenses that will not be incurred in subsequent periods.

Open-end Fund
An open-end fund, or a mutual fund, generally sells as many shares as investor demand requires. As money flows in, the fund grows. If money flows out of the fund the number of the fund's outstanding shares drops. Open-end funds are sometimes closed to new investors, but existing investors can still continue to invest money in the fund. In order to sell shares an investor generally sells the shares back to the fund. If an investor wishes to buy additional shares in a mutual fund, the investor generally buys newly issued shares directly from the fund. (See Closed-end Funds)

Option Pool
The number of shares set aside for future issuance to employees of a private company.

Pac-Man Strategy
The target company attempts to takeover the hostile raider. This happens when the target company is larger than the predator.

Par Value
The face value of a bond. Also, the arbitrary value given to the stock by the issuing company. This figure is relatively meaningless since the current value of a stock is its price established in the market, regardless of its stated par value.

Partial Bid
When a bid is made for acquiring part of the shares of a class of capital where the offeror intends to obtain effective control. This is made for the equity shares.

Payback Period
The length of time it takes to recover the initial cost of a project, without regard to the time value of money. For example, if a project costs $100 and brings in $20 per year, the payback period is 5 years.

Plant/Assets Ratio
The percentage of total assets that is tied up in land, buildings and equipment.

Platform Acquisition
An acquisition that takes a buyer into a new line of business or into a new geographic region. Generally, additional acquisitions are bolted on, or tucked-in to the platform.

Poison Put
A covenant allowing the bond holder to demand repayment in the event of a hostile takeover.

Portfolio Companies
Portfolio companies are companies in which a given fund has invested.

Post-Closing Adjustments
Changes, generally to the sales price or amounts still due, arising from post-closing discoveries, such as additional costs or payables, uncollected receivables, or erroneous accruals.

Post-money Valuation
The valuation of a company immediately after the most recent round of financing. This value is calculated by multiplying the company's total number of shares by the share price of the latest financing.

Preferred Stock
A class of capital stock that may pay dividends at a specified rate and that has priority over common stock in the payment of dividends and the liquidation of assets. Many venture capital investments use preferred stock as their investment vehicle. This preferred stock is convertible into common stock at the time of an IPO. (See Convertible Securities, Liquidation, Series A Preferred Stock)

Pre-money Valuation
The valuation of a company immediately prior to the most recent round of financing.

Private Equity
Private equities are equity securities of companies that have not "gone public" (in other words, companies that have not listed their stock on a public exchange). Private equities are generally illiquid and thought of as a long-term investment. As they are not listed on an exchange, any investor wishing to sell securities in private companies must find a buyer in the absence of a marketplace. In addition, there are many transfer restrictions on private securities. Investors in private securities generally receive their return through one of three ways: an initial public offering, a sale or merger, or a re-capitalization. (See Acquisition, Initial Public Offering and Re-capitalization)

Private Equity Group
A company that establishes a large pool of capital generally from wealthy individuals and institutions and uses this capital to purchase and grow businesses with the intention of flipping the businesses in three to five years.

Private Securities
Private securities are securities that are not registered and do not trade on an exchange. The price per share is set through negotiation between the buyer and the seller or issuer.

Prospectus
A formal written offer to sell securities that provides an investor with the necessary information to make an informed decision. A prospectus explains a proposed or existing business enterprise and must disclose any material risks and information according to the securities laws. A prospectus must be filed with the SEC and be given to all potential investors. Companies offering securities, mutual funds, and offerings of other investment companies including Business Development Companies are required to issue prospectuses describing their history, investment philosophy or objectives, risk factors and financial statements. Investors should carefully read them prior to investing. (See Business Development Company, Mutual Fund, Red Herring and Securities and Exchange Commission)

Proxy Battles
They take place when the agenda items at the meeting are likely to be opposed by dissident shareholders. Management of the company collect proxies to face these opponents in the meeting of Board of Directors.

Purchase Accounting
Method of accounting for a stock acquisition in which the acquirer is treated as having purchased the assets and assumed liabilities of the seller, which are all written up or down to their respective fair market values. The difference between the purchase price and the net assets acquired is classified as Goodwill.

Quick (Asset) Ratio
A liquidity measure: cash plus cash equivalents plus trade receivables divided by total current liabilities. Also known as the acid test ratio. It is a more stringent measure of short-term liquidity than the current ratio because it excludes inventories from current assets (which presumes that current liabilities cannot be paid with inventory).

Red Herring
The common name for a preliminary prospectus, due to the red SEC required legend on the cover. (See Prospectus)

Re-capitalization
The reorganization of a company's capital structure. A company may seek to save on taxes by replacing preferred stock with bonds in order to gain interest deductibility. Re-capitalization can be an alternative exit strategy for venture capitalists and leveraged buyout sponsors. (See Exit Strategy and Leveraged Buyout)

Recast Financial Statements
The reconstruction of the past and current financial statements of a business to adjust for certain changes. As an example, financial statements could be recast to focus on demonstrated earnings capability, not tax minimization. After a seller documents the company's adjustments to EBIT or EBITDA a new set of financial statements are prepared, showing the new assumptions.

Reconfirmation
The act a broker/dealer makes with an investor to confirm a transaction.

Reconstruction
In this, a company transfers its undertaking and its assets to a new company in consideration of the issue of the new company's shares to the first company's members. And if the first company members debentures are not paid off, the new company should give the debentures to the respective holders and thus the first company would loose the identity.

Registration
The SEC's review process of all securities intended to be sold to the public. The SEC requires that a registration statement be filed in conjunction with any public securities offering. This document includes operational and financial information about the company, the management and the purpose of the offering. The registration statement and the prospectus are often referred to interchangeably. Technically, the SEC does not "approve" the disclosures in prospectuses. (See Prospectus and Securities and Exchange Commission)

Required Rate of Return
The rate of return that an investor demands from an investment to compensate for the amount of risk involved. The riskier the venture, the higher the rate of return demanded.

Restricted Securities
Public securities that are not freely tradable due to SEC regulations. (See Securities and Exchange Commission)

Roll-up
A transaction where several individual companies are combined to create a larger entity. To date, roll-ups in the Document Management Industry have been notoriously unsuccessful.

Secondary Sale
The sale of private or restricted holdings in a portfolio company to other investors.

Seed Money
The first round of capital for a start-up business. Seed money usually takes the structure of a loan or an investment in preferred stock or convertible bonds, although sometimes it is common stock. Seed money provides start-up companies with the capital required for their initial development and growth. Angel investors and early-stage venture capital funds often provide seed money. (See Angel Investors, Convertible Securities, Early Stage, and Preferred Stock)

Selling Memorandum
The document that is prepared by the seller's advisors which describes the business for sale including its history, products, markets, management, facilities, competition, financial statements, product literature, and a review of its prospects. Can be called several other names such as offering document, information package. Commonly referred to as "The Book".

Series A Preferred Stock
The first round of stock offered during the seed or early stage round by a portfolio company to the venture investor or fund. This stock is convertible into common stock in certain cases such as an IPO or the sale of the company. Later rounds of preferred stock in a private company are called Series B, Series C and so on.

Shark Repellent
The companies amend their Bye-Laws and regulations to be less attractive for the raider company. Such features are called Shark Repellents. The company may issue that 80-95% of the shareholders should approve for the takeover and 75% of the Board of Directors consent.

Site Visit
A visit to the location of a business, usually performed as part of the Due Diligence process. This is an important part of the purchase process, as "a picture is worth a thousand words."

Spin Off
It is a kind of a demerger where an existing parent company distributes on a pro-rata basis all the shares it owns in a controlled subsidiary to its own shareholders by which it gains effect to make two of the one company or corporation. There is no money transaction, subsidiary's assets are not valued, transaction is not treated as stock dividend and tax free exchange. Both the companies exist and carry on business. It does not alter ownership proportion in any company.

Split Off
This occurs when equity shares of a subsidiary company are distributed to some of the parent company's shareholders in exchange for their holdings in parent company.

Split Up
It is a diversion of a company into two or more parts through transfer of stock and parent company ceases to exist.

Stock Options
There are two definitions of stock options.
1. The right to purchase or sell a stock at a specified price within a stated period. Options are a popular investment medium, offering an opportunity to hedge positions in other securities, to speculate on stocks with relatively little investment, and to capitalize on changes in the market value of options contracts themselves through a variety of options strategies.
2. A widely used form of employee incentive and compensation. The employee is given an option to purchase its shares at a certain price (at or below the market price at the time the option is granted) for a specified period of years.

Stock Purchase
A type of transaction in which the buyer purchases the shares of the target company, rather than an Asset Purchase in which the buyer purchases assets from the target company. The existing entity itself is transferred in a stock purchase.

Strategic Acquisition
The purchase of an operating business, by a buyer in the same industry, that enhances the buyer's strengths or strengthens the buyer's weaknesses.

Swallowing Poison Pills strategy
The target company might issue convertible securities which are converted into equity to deter the efforts of offeror and such conversion dilutes the bidder's shares and discourages acquisition. Or the target company might raise borrowings distorting normal debt: equity ratio.

Swap ratio
This is an exchange rate of the shares of the companies that would undergo a merger. This is calculated by the valuation of various assets and liabilities of the merging companies.

Syndicate
Underwriters or broker/dealers who sell a security as a group. (See Allocation)

Tag Along Rights
A procedure used to protect a minority shareholder (usually in a venture capital deal). Basically, if a majority shareholder sells their stake, then the minority shareholder has the right to join the transaction and sell their minority stake in the company. Tag alongs effectively oblige the majority shareholder to include the holdings of the minority holder in the negotiations in order to facilitate the possibility that a tagalong right is exercised.

Takeover
This is similar to acquisition. Takeover differs with merger in approach to business combinations ie, the process of takeover, transaction involved, determination of share exchange. for ex: process of takeover is unilateral and the offeror company decides about the maximum price. Time taken in completion of the takeover is less than that in the merger.

Takeover bid
It is the intention of the acquirer reflected in the action of acquiring the shares of the Target company.

Tender offer
The acquirer pursues takeover (with out consent of the acquiree) by making a tender offer directly to shareholders of the target company to sell their shares. This offer is made for cash.
Eg: Tata Tea offer to shareholders of Continental Coffee Ltd in which more than 50% of the shareholders offered to Tata Tea.

Tuck-in Acquisition (Bolt-on)
A term used to describe an acquisition that is to be folded into an existing division of the acquiring company. May also be called a tuck-in acquisition. Often the operations of the acquired company, in a tuck-in, are closed down and moved to the buyer's site.

Value Drivers
The unique aspects of a seller's business that make it attractive to buyers. This is a fundamental concept to achieving full market value for a business. The goal is to highlight these values to multiple buyers and make them "pay up" if they want to acquire them.

Venture Capital
Money provided by investors to privately held companies with perceived long-term growth potential. Professionally managed venture capital firms generally are limited partnerships funded by private and public pension funds, endowment funds, foundations, corporations, wealthy individuals, foreign investors, and the venture capitalists themselves. (See Business Development Company and Limited Partnerships)

Vertical merger
This would give backward integration to the company to assimilate the sources of supply and forward integration towards the market. ie, the merging undertaking would be a buyer or a supplier using its product as intermediary material for final production.

Voluntary winding up
The original company which has split into several companies after division could be wound up voluntarily.

Warrants
The type of security that entitles the holder to buy a proportionate amount of common stock or preferred stock at a specified price for a period of years. Warrants are usually issued together with a loan, a bond or preferred stock --and act as sweeteners, to enhance the marketability of the accompanying securities. They are also known as stock-purchase warrants and subscription warrants.

White Knights
White knight enters the fray when the target company is raided by a hostile suitor. The clause 25 of SEBI Takeover regulations gives the provision to the White Knight to offer a higher price than the predator to avert the takeover bid. (With the higher bid offered by the white knight, the predator might not remain interested in acquisition and hence the target company is protected from the raid.)

Write-off
The act of changing the value of an asset to an expense or a loss. A write-off is used to reduce or eliminate the value an asset and reduce profits.

Write-up/Write-down
An upward or downward adjustment of the value of an asset for accounting and reporting purposes. These adjustments are estimates and tend to be subjective; although they are usually based on events affecting the invested company or its securities beneficially or detrimentally.