Handover
Sign In

A Plain-English Glossary of M&A Terms for UK Business Owners

Handover Team••2 min read

M&A conversations are dense with terminology that's rarely explained along the way. This is a working glossary of the terms that come up most often in a UK SME sale process.

Valuation and financial terms

  • EBITDA — Earnings Before Interest, Tax, Depreciation, and Amortisation; the standard proxy for underlying operating cash generation
  • Adjusted (or recast) EBITDA — reported EBITDA adjusted for owner-specific or one-off items, to reflect what the business would earn under typical ownership
  • Multiple — a valuation expressed as a multiple of EBITDA (or another metric), e.g. "5x EBITDA"
  • Comparable transaction ("comp") — a real, disclosed transaction used as evidence for what a similar business is worth
  • Enterprise value — the value of the business's operations, before adjusting for cash and debt
  • Working capital adjustment — a completion-mechanics adjustment ensuring the business is transferred with a normal level of working capital, neither stripped nor over-funded

Structure and process terms

  • Asset sale — the buyer acquires specific assets and contracts out of the company, while the company and its liabilities stay with the seller
  • Share sale — the buyer acquires the company itself, including everything it owns and owes
  • NDA — a non-disclosure agreement, signed before a buyer sees identifying or commercially sensitive detail
  • Heads of terms (HoTs) — a non-binding summary of the key agreed terms, signed before full legal documentation begins
  • Earnout — a deal structure where part of the price is contingent on the business hitting agreed future performance targets
  • Warranty and indemnity — contractual promises the seller makes about the business's condition, and the mechanism for a buyer to claim if they turn out to be false

Diligence and documentation terms

  • DDQ — a due diligence questionnaire; structured questions a buyer's team sends during diligence
  • Data room — a controlled repository where diligence documents are shared with a qualified buyer
  • Recast bridge — the step-by-step adjustment from reported EBITDA to adjusted EBITDA, each step tied to a supporting document
  • Findings register — a log of issues identified during diligence, each tracked to resolution

Frequently asked

What's the difference between EBITDA and adjusted EBITDA?

EBITDA is the reported figure as the business was actually run. Adjusted (or recast) EBITDA adds back owner-specific or one-off costs — above-market owner pay, personal expenses, genuine one-offs — to reflect what the business would earn under typical ownership. Every adjustment should be backed by a real source document.

What is an earnout, in simple terms?

An earnout is when part of the sale price isn't paid upfront — it's paid later, contingent on the business hitting agreed performance targets after the sale. It's often used to bridge a valuation gap between what a seller believes the business is worth and what a buyer is confident paying upfront.

A Plain-English Glossary of M&A Terms for UK Business Owners | Handover Learn