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LBO Model

Jargon you must be

Familiar with.
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1. *LBO (Leveraged Buyout):*
The acquisition of a company using a significant
amount of borrowed money.

2. *EBITDA (Earnings Before Interest, Taxes,

Depreciation, and Amortization):*
A measure of a company's operating performance.

3. *DCF (Discounted Cash Flow):*

A valuation method that estimates the value of an
investment based on future cash flows.

4. *ROI (Return on Investment):*

A measure of the profitability of an investment.

5. *Equity Value:*
The total value of a company's outstanding shares.

6. *Enterprise Value:*
The total value of a company, including debt and
equity.

7. *Transaction Multiple:*
The ratio of the purchase price to a financial metric
like EBITDA.
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8. *Senior Debt:*
Debt with a higher claim on assets.

9. *Junior Debt:*
Debt with a lower claim on assets.

10. *Working Capital:*

Current assets minus current liabilities.

11. *Equity Contribution:*

A portion of the purchase price is provided by equity
investors.

12. *WACC (Weighted Average Cost of

Capital):*
The average rate a company is expected to pay to
finance its assets.

13. *LTM (Last Twelve Months):*

Financial data for the most recent 12-month period.

14. *EBIT (Earnings Before Interest and Taxes):*

A measure of a company's operating profit.
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15. *Goodwill:*
An intangible asset represents the excess purchase
price over tangible assets.

16. *Control Premium:*

An additional amount is paid for control of a
company.

17. *Debt Schedule:*

A table showing debt repayments over time.

18. *Debt Covenant:*

Conditions set by lenders in debt agreements.

19. *Mezzanine Financing:*

A hybrid of debt and equity financing.

20. *Accretion/Dilution Analysis:*

Assessing the impact of an acquisition on per-share
earnings.

21. *Sensitivity Analysis:*

Assessing the impact of changing variables on
financial outcomes.
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22. *Interim Financing:*
Short-term financing to bridge a gap.

23. *Management Fee:*

Compensation paid to a fund's management.

24. *Amortization:*
Gradual reduction of an intangible asset's value.

25. *Carve-Out:*
Selling a portion of a business.

26. *Cash Flow Waterfall:*

A structured sequence of cash distributions.

27. *Market Risk:*

The risk of losses due to market fluctuations.

28. *Roll-Up:*
The acquisition of multiple smaller companies in the
same industry.

29. *Debt Tranche:*

Different portions of debt with distinct terms.
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30. *PIK Interest (Payment-in-Kind):*
Interest paid with additional debt instead of cash.

30. *PIK Interest (Payment-in-Kind):*

Interest paid with additional debt instead of cash.

31. *LIBOR (London Interbank Offered Rate):*

The benchmark interest rate at which banks lend to
each other.

32. *Debt Coverage Ratio:*

A measure of a company's ability to service its debt.

33. *Hurdle Rate:*

The minimum acceptable rate of return.

34. *Holdco:*
The holding company that owns the target and any
subsidiaries.

35. *Sponsor:*
The private equity firm leading the LBO.

36. *Exit Strategy:*

A plan for selling or divesting the acquired company.
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37. *Secondary Buyout:*
The sale of a portfolio company from one private
equity firm to another.

38. *Working Capital Adjustment:*

An adjustment to the purchase price based on the target
company's working capital.

39. *Non-Recourse Debt:*

Debt for which lenders have no claim against the
borrower's other assets.

40. *Waterfall Analysis:*

A distribution of funds in a predefined order.

41. *Stub Period:*

A short accounting period that doesn't align with the
company's fiscal year.

42. *Preferred Equity:*

A class of ownership in a corporation with higher claim
over common equity.

43. *Private Equity (PE):*

Investments in private companies with the goal of
achieving capital appreciation.
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44. *EBITDAR (Earnings Before Interest, Taxes,

Depreciation, Amortization, and Rent):*
A variation of EBITDA that includes rent expenses.

45. *Coverage Ratio:*

A measure of a company's ability to cover its interest
payments with earnings.

46. *Management Equity:*

Equity ownership by the company's management
team.

47. *Proxy Statement:*

A document filed with the SEC that provides
information about a company's executive
compensation, corporate governance, and more.

48. *Downside Protection:*

Strategies to mitigate potential losses.

49. *Fair Market Value (FMV):*

The price an asset would sell for on the open market.

50. *Dry Powder:*

Unused capital is available for investments.
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51. *Rollover Equity:*
Equity contributed by the existing management team.

52. *Convertible Debt:*

Debt that can be converted into equity.

53. *IRR (Internal Rate of Return):*

A measure of the profitability of an investment.

54. *Private Placement:*

The sale of securities directly to investors.

55. *Strategic Buyer:*

A buyer with a specific strategic interest in the target
company.

56. *Reverse Breakup Fee:*

Compensation paid by the seller if the deal falls
through.

57. *Bifurcation of Ownership:*

Splitting ownership into different classes.

58. *Controlled Auction:*

A sale process where the seller actively seeks buyers.
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59. *Deal Sourcing:*
The process of finding potential investment
opportunities.

60. *Minority Interest:*

Ownership stake in a company that's less than 50%.

61. *M&A (Mergers and Acquisitions):*

The consolidation of companies through various
financial transactions.

62. *Run Rate:*

Extrapolating current financial performance to estimate
future results.

63. *Pitchbook:*
A document used by investment bankers for client
presentations.

64. *PIPE (Private Investment in Public Equity):*

The sale of publicly traded equity to private investors.

65. *Synergy:*
The additional value created through the combination
of two companies.
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66. *Pari Passu:*
Equal ranking in terms of financial claims.

67. *Escrow Account:*

A third-party holding account for assets during a
transaction.

68. *Unlevered Free Cash Flow:*

Cash flow before accounting for debt and interest
expenses.

69. *Lock-Up Agreement:*

A restriction on selling company shares after an IPO.

70. *EBT (Earnings Before Tax):*

A measure of earnings before taxes.

71. *Regulatory Risk:*

Risks associated with changes in laws and regulations.

72. *Scalability:*
The ability of a business model to handle growth.

73. *Due Diligence:*

In-depth investigation and analysis of a potential
investment.
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74. *Rolling Forecast:*
Continually updating financial projections.

75. *Equity Clawback:*

The ability to repurchase shares from investors.

76. *Material Adverse Change (MAC) Clause:*

A provision that allows a buyer to exit a deal due to
significant negative changes.

77. *Non-Disclosure Agreement (NDA):*

A legal contract protecting confidential information.

78. *Market Capitalization (Market Cap):*

The total value of a publicly traded company's
outstanding shares.

79. *Yield:*
The return on an investment, typically expressed as a
percentage.

80. *Non-GAAP Financial Measures:*

Metrics not defined by Generally Accepted
Accounting Principles.
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81. *Seller's Discretionary Earnings (SDE):*

A measure of a company's cash flow used in small
business valuation.

82. *EBITDAX:*
EBITDA with additional exploration expenses.

83. *Recapitalization:*
Changing a company's capital structure, often
involving debt.

84. *Private Placement Memorandum (PPM):*

A legal document used in private equity fundraising.

85. *Poison Pill:*

A defense mechanism to deter hostile takeovers.

86. *EBITDAS (Earnings Before Interest, Taxes,

Depreciation, Amortization, and Stock-based
Compensation):*
EBITDA with stock-based compensation added.

87. *Runway:*
The time a company can operate before running out of
funds.
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88. *Spin-Off:*
A company creating a separate entity from a
division or subsidiary.

89. *Reverse Merger:*

A private company merging with a public
company to go public.

90. *Capital Structure:*

The mix of debt and equity used to finance a
company.

91. *Covenant-Lite Loan:*

A loan with fewer restrictions for the borrower.

92. *Greenfield Investment:*

Establishing a new business from the ground up.

93. *Hard Stop:*

A point at which a deal can't proceed without
certain conditions.

94. *Covenant:*
A promise or agreement in a debt contract.
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95. *ROA (Return on Assets):*

A measure of profitability relative to total assets.

96. *PIPE Deal:*

A Private Investment in Public Equity transaction.

97. *Haircut:*
A reduction in the value of an asset for risk
management purposes.

98. *Liquidation Preference:*

The order in which shareholders are paid in a
liquidation.

99. *Tax Shield:*

A reduction in taxable income due to deductions.

100. *Materiality Threshold:*

A level of significance used in financial reporting.
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