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Everything you wanted to know about M&A but didn't know who to ask...
Paramax Corporation a
leading independent investment banking firm, headquartered in Williamsville, has
a wealth of experience in completing multi-million-dollar global transactions
ranging from $5 million to $500 million, for public and private companies.
Paramax is dedicated to delivering high-level strategic consulting services that
exceed its clients’ expectations.
Paramax specializes in the sale or divestiture of both public and privately
held, domestic and international companies and business units of Fortune 500
companies. Its strength lies in a diverse and highly knowledgeable group of
transaction advisory experts who also possess broad senior level operating
experience. This means that the firm’s vast expertise is applicable to virtually
any industry. With this expertise, Paramax has successfully completed
transactions in such varied industries as aerospace, consumer products,
distribution, fire safety & security, manufacturing, motion control, franchises,
food processing, supermarkets, software, and transportation/logistics.
M&A Terms
Book Value Broker-Dealer (BD) Buyer’s Net Working Capital Capital market Current Ratio Definitive Purchase Agreement/Asset Purchase Agreement Descriptive Memorandum Goodwill Intangible Asset Investment Banker Investment Banks - Bulge Bracket Firms Investment Banks - Middle Market Investment Banks - Lower Middle Market Investment Banks - Boutique Firms Letter of Intent (LOI) LIBOR Listed Security Nonaccredited Investor Nonsystematic Risk Preemptive right Preferred stock Price/earnings ratio (P/E) Private placement Recapitalization Regulation D Right Securities Act of 1933 Securities and Exchange Commission (SEC) Securities Exchange Act of 1934 Security Self-regulatory organization (SRO) Series 7 Series 24 Series 63 Series 79 Systematic Risk Tombstone Working capital
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M&A Definitions
Book Value – An amount calculated by subtracting Total Liabilities from Total Assets on the Balance Sheet of a subject company, all in conformity with Generally Accepted Accounting Principles [GAAP].
Broker-Dealer (BD) – A person or firm in the business of buying and selling securities. A firm may act as both broker (agent) and dealer (principal), but not in the same transaction. Broker-Dealers must register with the Securities and Exchange Commission [SEC], the appropriate Self-Regulating Organization [SRO], and any state in which they conduct business.
Buyer’s Net Working Capital – The agreed-upon levels of Current Assets and Current Liabilities remaining in the business upon closing of the transaction. It is calculated by subtracting total current liabilities from total current assets immediately after the closing of the deal.
Capital market – The segment of the securities market that deals in instruments with more than one year to maturity – that is, long-term debt and equity securities.
Current Ratio – A measure of a corporation’s liquidity; that is, its ability to transfer assets into cash to meet current short-term obligations. It is calculated by dividing total current assets by total current liabilities.
Definitive Purchase Agreement/Asset Purchase Agreement – The binding contract that makes the divestiture official, subject to the final change of ownership.
Descriptive Memorandum – Offering circular of property or securities used when a Prospectus is not required.
Goodwill – An intangible asset that represents the additional value of a firm in addition to its Book Value.
Intangible Asset – A property owned that is not physical, such as a formula, a copyright, or Goodwill.
Investment Banker – An institution in the business of advising clients on capital transactions such as selling a business, buying a business, or raising capital for corporations and municipalities. An investment banker may not accept deposits or make commercial loans contrary to the general term “Banker”.
Investment Banks - Bulge Bracket Firms – In common use, the term 'bulge bracket' refers loosely (in the US) to the group of investment banks considered to be the largest and most profitable in the world, as measured by various league table standings. Since the criteria for this judgment are unclear, there is often debate over which banks form part of the bulge bracket. In early 2008, the largest bulge bracket firms on Wall Street, by market capitalization, included Goldman Sachs, Morgan Stanley, Merrill Lynch, Lehman Brothers, and Bear Stearns. In late 2008, as a result of the subprime mortgage crisis, Bear Stearns was purchased by JPMorgan Chase, Lehman Brothers filed for bankruptcy, Merrill Lynch being purchased by Bank of America, and Goldman Sachs and Morgan Stanley are moving to become bank holding companies. [see wikopedia] As bank holding companies their capitalization and operating rules will dramatically change.
Investment Banks: Middle Market – Firms that provide corporate finance activities such as advisory, mergers and acquisitions, underwriting, and financial restructuring services to clients with revenue of more than $25 million but less than $1 billion.
Investment Banks: Lower Middle Market - Firms that provide corporate finance activities such as advisory, mergers and acquisitions, underwriting, and financial restructuring services to clients with revenue of more than $25 million but less than $500 million.
Investment Bank: Boutique Firms – The word “boutique” can be misleading, however because some of these firms employ hundreds of associates, have multiple offices, and conduct billions of dollars worth of transactions each year. The common thread running through all is a higher level of limited services and specialization especially in particular industries and services provided. Transactions may be smaller as well, generally ranging from $10 million to $500 million.
Letter of Intent (LOI): A written offer based on the representations of the seller that is usually non-binding (except for confidentiality and “no-shop” provisions) and subject to due diligence.
LIBOR – London Interbank Offered Rate – The average of the interbank-offered interest rates for dollar deposits in the London market, based on the quotations at five major banks. Libor is sometimes substituted [with a different “spread”] for Prime Rate, as a way to price interest rates.
Listed Security – A stock, a bond, or another security that satisfies certain minimum requirements and is traded on a regional or national securities exchange such as the New York Stock Exchange.
Nonaccredited Investor – An investor not meeting the net worth requirements of Regulation D. The solicitation of nonaccredited investors is counted for purposes of the 35-investor limitation for Regulation D private placements. A nonaccredited investor lacks both a minimum net worth of at least $1 million and average yearly income of at least $200k.
Nonsystematic Risk – Company-specific risk.
Preemptive right – A stockholder’s legal right to maintain his or her proportionate ownership by purchasing newly issued shares before or as the new stock is offered to the public.
Preferred stock – An equity security that represents ownership in a corporation. It is issued with the stated dividend, which must be paid before dividends are paid to common stockholders. It generally carries no voting rights but may have preferential treatment in dissolution or sale.
Price/earnings ratio (P/E) – A tool for comparing the prices of different common stocks by assessing how much the market is willing to pay for a share of each corporation’s earnings. It is calculated by dividing the current market price of the stock by the earnings per share.
Private placement – An offering of new issue securities that complies with Regulation D of the Securities Act of 1933. According to Regulation D, a security generally is not required to be registered with the SEC if it is offered to an unlimited number of accredited investors.
Recapitalization – Changing the capital structure of a corporation by issuing, converting, or redeeming securities.
Regulation D – The provision of the Securities Act of 1933 that exempts from registration offerings sold to maximum of 35 nonaccredited investors during a 12-month period.
Right – A security representing a stockholder’s entitlement to the first opportunity to purchase shares issued by the corporation at a predetermined price (normally less than the current market price) in proportion to the number of shares already owned. Rights are issued for a limited time only, after which they expire.
Securities Act of 1933 – Federal legislation requiring the full and fair disclosure of all material information about the issuance of new securities.
Securities and Exchange Commission (SEC) – Commission created by Congress to regulate the securities markets and protect investors. It is composed of five commissioners appointed by the President of the United States and approved by the Senate. The SEC enforces, among other acts, the Securities Act of 1933, the Securities Exchange Act of 1934, and the Trust Indenture Act of 1939, the Investment Company Act of 1940, and the Investment Advisors Act of 1940.
Securities Exchange Act of 1934 – Federal legislation that establishes the Securities and Exchange Commission. The act aims to protect investors by regulating the exchanges, the over-the-counter market, the extension of credit by the Federal Reserve Board, broker/dealers, insider transactions, trading activities, client accounts, ad net capital.
Security – other than an insurance policy of fixed annuity, any piece of securitized paper that can be trades for value. Under the Act of 1934, this includes any vote, stock, bond, investment contract, debenture, certificate of interest in a profit-sharing or partnership agreement, certificate of deposit, collateral trust certificate, preorganization certificate, opinion of security, or other instrument of investment commonly known as a security.
Self-regulatory organization (SRO) – One of eight organizations accountable to the SEC for the enforcement of federal securities laws and the supervision of securities practices within an assigned field of jurisdiction. For example, the Financial Industry Regulatory Authority regulates trading on the NYSE and the over-the-counter market; Municipal Securities Rulemaking Board supervises state and municipal securities; and certain exchanges, such as the Chicago Board Options Exchange, act as self-regulatory bodies to promote ethical conduct and standard trading practices.
Series 7 – The general securities registered representative license, which entitles the holder to sell all types of securities products, with the exception of commodities futures (which requires a Series 3 license). The Series 7 is the most comprehensive of the FINRA representative licenses and serves as a prerequisite for most of the principals examinations.
Series 24 – The General Securities Principal License, which entitles the holder to supervise the business of a broker/dealer. A Series 7 or a Series 62 qualification is a prerequisite for this license.
Series 63 – The uniform securities agent state law exam.
Series 79 – Investment Banking Representative exam. This examination qualifies an individual to advise on or facilitate debt or equity offerings through a private placement or public offering or to advise or facilitate mergers or acquisitions, tender offers, financial restructurings, asset sales, divestitures or other corporate reorganizations or business combination transactions, including stock and asset sales.
Systematic Risk – Industry or overall market risk.
Tombstone – A printed advertisement that announces the completion of a capital transaction or solicits indications of interest in a securities offering.
Working capital – A measure of a corporation’s liquidity; that is, its ability to transfer assets into cash to meet current short-term obligations. It is calculated by subtracting total current liabilities from total current assets.
