Frequently Asked Questions

Rollover equity refers to a portion of the proceeds from the sale of your business that you reinvest into the company the buyer uses to acquire their business. Many private equity groups prefer sellers roll over at least 20% of their proceeds into the company post acquisition. Generally speaking the buyer will buy 100% of your company and then require a portion to be rolled into their pool of funds called Class A shares into the main fund.

“Earnings Before Interest, Taxes, Depreciation and Amortization”: A measure of cash flow calculated as: Revenue – Expenses (excluding tax, interest, depreciation and amortization). EBITDA looks at the cash flow of a company.  EBITDA is also usually close to your net income.

If your EBITDA is 500k and the multiple for your company is 4x then you would receive 2M for your business sale. Multiples can range generally between 4x - 12x depending on the industry and the gross revenue size, and quality of EBITDA.

Generally sales can take around 6 weeks but depending on the buyer it can also take up to 6 months so vetting the buyer before accepting an offer is very important.

Quality of earnings (“QofE”), or financial accounting due diligence by an independent accounting firm, takes a deep dive into a company's financial and operating information emphasizing earnings before interest, taxes, depreciation, and amortization, or EBITDA.  A QOE is generally conducted early in the sale process and is potentially the most vital part of the process.

A letter of intent (LOI) is a document written in business letter format that declares your intent to do a specific thing. It's usually, but not always, non-binding, and it states a preliminary commitment by one party to do business with another party.  Generally speaking it's an offer on a business detailing the offer and its conditions.

In finance terms, TTM stands for “trailing twelve months” and refers to figures that represent the company's performance over the past year.  If a TTM or LTM (last twelve months) is noted it's a request for a profit and loss over the past 12 months.

Multiple on Invested Capital (“MOIC”) is a metric used to describe the value or performance of an investment relative to its initial cost, commonly used within private markets. MOIC is among the most relevant metrics to be assessed while conducting fund due diligence. If a rollover investment is considered in the MOIC generally the industry performs at a 3x MOIC of a rollover investment depending on the time period invested.

Adam Coffey wrote two very simple yet informative books called the Private Equity Playbook and The Exit Strategy Playbook both extremely helpful in understanding the process and terms involved in dealing with private equity and the sale of your business if you want go deeper. A book on a larger scale by the numbers would be What It Takes by Stephen Schwarzman CEO of Blackstone likely the biggest M&A specialist of our time.

A teaser document is a type of feeler sent out to major investors or buyers to gauge interest in an investment opportunity. The teaser may not name the company considering the offering.

For companies selling their business and involved in a sell-side process, a confidential information memorandum (CIM) is a lengthy (typically 50–150 pages) marketing document that provides potential buyers with a detailed first impression of your business before they would meet the selling company in person

An Opinion of Value is a third-party estimate of the value of a business. Our business experts will compose and calculate a thorough array of valuation approaches to calculate the current market value of your business.

Mergers and acquisitions.  

Internal Rate of Return (IRR): IRR reflects the performance of a private equity fund by taking into account the size and timing of its cash flows (capital calls and distributions) and its net asset value at the time of the calculation.

An indication of interest (IOI) is a brief letter or notice that expresses a buyer's interest in buying a security in registration or a company's interest in acquiring another company. For investments, the IOI precedes the IPO, and in finance, it precedes the letter of intent (LOI).