A transaction in which a manager or management group from outside a company buys in to that company, often with the assistance of venture capital or private equity investors.

144 Stock

(USA) See ‘Rule 144 Stock.’

1933 Act (or ’33 Act)

(USA) See ‘Securities Act of 1933.’

1934 Act (or ’34 Act)

(USA) See ‘Securities Exchange Act of 1934.’

83(b) Election

(USA) An election by an employee to treat property (usually stock) that is subject to a risk of forfeiture (i.e., unvested stock) as being vested, with the result that the employee is taxed currently on the difference between the fair market value and the amount paid for it (often zero or a nominal amount) rather than being taxed on the value when the risk of forfeiture ends. This technique is frequently used when the property is expected to dramatically increase in value by the time the risk of forfeiture ends.

Acceleration Order

(USA) An order by the SEC declaring a registration statement effective (and thereby making sales of securities permissible) before expiration of the statutory 20 day period from the date of filing. The filing of an amendment to a registration statement by the issuing company restarts the 20 day clock. See ‘Acceleration Request,’ ‘Effective Date,’ and ‘Going Effective.’

Acceleration Request

(USA) A letter (or, in some cases, oral communication) to the SEC from both the issuer and the managing underwriters of a public offering, requesting that the SEC declare a registration statement effective. The SEC’s policy, often waived, is that the acceleration request be received at least two business days prior to the date the registration statement is to become effective.

Accountant’s Opinion

A report signed by an independent accountant, which describes the scope of the accountant’s review and expresses an opinion on the quality of the financial statements presented. Also called accountant’s letter. See ‘Long Form Report’ and ‘Short Form Report.’

Accredited Investor

(USA) A term defined in Regulation D under the 1933 Act to include any of certain financial institutions; certain corporations and trusts; an officer or director of the issuer; a natural person with a net worth (with spouse) of $1 million or more; or a natural person with individual income in excess of $200,000 in each of the two most recent years (or $300,000 jointly with spouse) and an expectation of the same level in the current year.

Accreted Value

The theoretical price a bond would sell at if market interest rates were to remain at current levels.

Accrual Basis

The most commonly used accounting method, which reports income when earned and expenses when incurred, as opposed to cash basis accounting, which reports income when received and expenses when paid. See ‘Cash Basis.’

Accrued Expenses

Expenses that are incurred, but for which payment is not yet made, as of a given date.

Accrued Market Discount

An increase in the market price of a discounted bond resulting from an approaching maturity date rather than from declining interest rates.

Accumulated Earnings Tax

An additional tax on earnings that a business retains in an attempt to avoid the higher income taxes the owners would be subject to if the earnings were paid out to them as dividends. Also called “accumulated profits tax.”

Accumulated Profits Tax

See ‘Accumulated Earnings Tax.’

Acid Test Ratio

See ‘Quick Ratio.’

Acquisition

The obtaining of control, possession or ownership of a company.

Acting In Concert

Persons acting in concert are persons who, pursuant to an agreement or understanding (whether formal or informal), actively cooperate, often in the context of an acquisition by any of them of shares in a company, to obtain or consolidate control of that company.

Adjustable Rate Preferred Stock

Preferred stock whose dividend rate changes periodically based upon changes in a reference interest rate.

Adjusted Present Value Model

This model is similar to the Enterprise DCF model, with the difference that the Adjusted Present Value Model separates the value of the company into two components: (a) the value of the company’s operations at the cost of capital as if the company had no debt; and (b) an additional element reflecting the impact on this value of the tax savings related to leverage.

Admission

The event evidencing commencement of trading of securities on either the Official List of the London Stock Exchange or on AIM.

Admission and Disclosure Standards

The London Stock Exchange’s Admission and Disclosure Standards are for companies admitted or seeking to be admitted to trading on the London Stock Exchange.

ADV Form

(USA) The form required to be filed with the SEC in order to register as an investment adviser under the Investment Advisers Act of 1940.

Advisory Board

A group of external advisors to a private equity group or portfolio company. Advice provided varies from overall strategy to portfolio valuation. Less formal than a Board of Directors and without any of the Board of Directors’ legal authority.

Affiliate

(USA) A person that controls, is controlled by, or is under common control with (directly or indirectly) the entity specified. The SEC takes the position that a corporate officer, director, or 10% stockholder is presumed to be an affiliate of the corporation. An individual officer’s, director’s or 10% stockholder’s spouse and children living at home are normally considered affiliates as well.

Aftermarket

The trading activity in a security in the period immediately following its offer to the public.

All Hands Meeting

A meeting during the public offering process attended by representatives of the issuer, underwriters, their respective lawyers, and issuer’s accountants. A public offering will typically involve several all hands meetings to conduct due diligence and to draft the registration statement and prospectus.

Allocation

The number of securities assigned to an investor, broker, or underwriter in an offering.

All-or-None

An offering of securities that provides that unless all the offered securities are sold, the offering is terminated and all funds received by the issuer, underwriter, or escrow agent are returned to the investors. See ‘Best Efforts Underwriting’ and ‘Firm Commitment Underwriting.’

Alternative Investment Market (AIM)

The London Stock Exchange’s global market for smaller and growing companies. AIM offers the benefit of operating both an electronic quote and order trading facility. Dealings began on AIM in June 1995. Unlike the Official List of the London Stock Exchange, there is no general three year trading history requirement as a precondition of admission on AIM.

Alternext

Created by Euronext in April 2005, Alternext is an unregulated stock market dedicated to small and mid-cap companies.

American Depositary Receipts or American Depositary Shares (ADR or ADS)

The terms ADR and ADS are interchangeable with GDR and GDS, and typically refer to depositary receipt facilities based in the United States. See ‘Global Depository Receipts or Global Depository Shares (GDR or GDS)’

American Stock Exchange (AMEX)

(USA) An exchange or a securities market which generally lists securities of small or newer corporations than those listed on the New York Stock Exchange, located in New York, has historically been popular for trading of companies involved in the production and sale of natural resources and option trading. In 1998, Nasdaq and the American Stock Exchange combined into one corporate organization: The Nasdaq-Amex Market Group.

Analyst

A research analyst, usually employed by an investment bank, who ‘follows’ a company and issues reports regarding the condition and prospects of the company and its securities. The quality and reputation of an investment bank’s analyst will often be a key component in selecting an underwriter, since analyst coverage of the company after the public offering helps to generate interest in the company’s securities.

Angel

A person or entity that typically provides financing to companies that have progressed beyond the start-up phase but are not yet ready for venture financing. Also known as “Business Angels.”

Angel Financing

Capital raised for a private company from Angels and generally used as seed financing.

Angel Network

A typically informal network of Angels that invest together as a group.

Annual General Meeting (AGM)

(UK) An annual meeting called by the directors of a company that allows shareholders to stay informed and involved with company decisions and workings.

Anti-dilution Provisions

Provisions in an option or a convertible security (such as convertible preferred stock, which is the typical form of venture capital or mezzanine investment) which protect the holder’s investment from price dilution as the result of later issues of stock at a lower price than the investor paid by adjusting the option price or conversion ratio. Allowance is usually made for some degree of dilution without adjustment as a consequence of issuance of options to employees under share in stock option plans. See ‘Anti-dilution, Full Ratchet’ and ‘Anti-dilution, Weighted Average.’

Anti-dilution, Full Ratchet

(USA) Anti-dilution provisions that apply the lowest sale price for any shares of common stock (or equivalents) sold by the company after the issuing of an option or convertible security with anti-dilution protection as the adjusted option price or conversion ratio. As an example, if a prior round of financing raised capital at $2.00 per share with investors receiving full ratchet anti-dilution protection, and a subsequent round of financing was completed at $1.00 per share, the prior round investors would have the right to convert their shares at the $1.00 price, thereby doubling the number of shares they would receive. See ‘Anti-dilution Provisions’ and ‘Anti-dilution, Weighted Average.’ In the UK, ‘ratchet’ is customarily associated with a mechanism whereby the equity share of a management team may vary depending on achievement of milestones or level of exit valuation. See ‘Ratchet.’

Anti-dilution, Weighted Average

Anti-dilution provisions that apply a weighted average formula to adjust the option price or conversion ratio of an early-round investor, based on the sale price and number of common equivalent shares sold by the company after the issuing of the option or convertible security. As an example, if a first round of financing raised $2 million of capital at $2.00 per share and the first round investors received weighted average anti-dilution protection, the company has 2 million shares outstanding on an as converted to common stock basis and a second round of financing was consummated for another $1 million at $1.00 per share, then the first round investors would have the right to convert their shares at a weighted average adjusted price of $1.67 per share. See ‘Anti-dilution Provisions’ and ‘Anti-dilution, Full Ratchet.’

Anti-flowback Rules

(USA) SEC rules under Regulation S that apply to offerings initially made outside the USA to prevent subsequent sales into the USA in violation of applicable restrictions or registration requirements. See ‘Regulation S.’

Anti-takeover Provisions

(USA) Provisions in a company’s organizational documents that are designed to discourage undesired takeover bids. See ‘Blank Check Preferred Stock.’ ‘Poison Pill.’ ‘Shark Repellent,’ and ‘Staggered Board of Directors.’ In the UK, company law, combined with the provisions of the Takeover Code, which discourages attempts to frustrate bona fide takeovers, would likely result in such provisions being unenforceable.

Antitrust Laws

(USA) The United States laws regulating competition and monopolies. Although similar in general purpose to the European Union’s competition regulations, US rules may differ in details forbidding businesses from monopolizing a market or restraining free trade.

Archangel

(UK) Usually an outsider hired by a syndicate of Angel investors to perform due diligence on investment opportunities and coordinate allotment of investment duties among members. Archangels typically have no financial commitment to the syndicate.

Arm’s Length

The relationship between persons (whether companies or not) who deal on purely commercial terms, without the influence of other factors such as common ownership, a parent/subsidiary relationship between companies, or existing family or business relationships between individuals.

Arrearage

Unpaid dividends due to holders of preferred stock. See ‘Cumulative Preferred Stock.’

As Converted Basis

The determination of preferred stock rights, such as vesting and participation in a dividend, on a common stock equivalent basis, taking into account any adjustments that might be necessary.

Asset Allocation

A fund manager’s allocation of his investment portfolio into various asset classes (e.g., stocks, bonds, private equity).

Asset Class

A category of investment, which is defined by the main characteristics of risk, liquidity and return.

Asset Cover

One of the indicators used by banks to calculate debt ceiling. It is the extent to which debt is secured against the company’s assets. Banks apply different weighting factors to various classes of asset, depending on their liquidity and the typical reliability of the valuation.

Asset Deal

A sale of assets not essential for the vendor’s core business. Compare with Share deal.

Asset Purchase Agreement

Agreement to which one or more purchasers buy assets and take on certain liabilities (related to the purchased assets) from one or more sellers. The agreement will set out/forth the details of the sold assets and the transferred liabilities, the representations and warranties, indemnification in the event of misrepresentation, and the required approvals and actions in order for the transfer of the assets and liabilities to be valid and/or effective towards third parties. It usually includes post-closing covenants (such as the obligation for the sellers to continue to service the obligations of which the transfer cannot, cannot easily, or is deliberately not to, be enforced on the creditors and other third parties to the transfer).

Asset Stripping

Dismantling an acquired business by selling off operational and/or financial assets.

Association of Private Client Investment Managers and Stockbrokers (APCIMS)

APCIMS is the rapidly growing trade association of more than 240 firms who, on more than 400 sites, deal in stocks and shares for the UK’s 12 million private investors, as well as many overseas clients. In March 2002, APCIMS merged with the European Association of Securities Dealers (EASD) to create a pan-European association to address the concerns of investment firms.

Auction

A process in which an investment bank invites several private equity houses to look at a particular company that is for sale and to offer a bid to buy it.

Audit Committee

A committee of the board of directors responsible for selecting and overseeing the work of outside auditors and the conduct of various audit activities, normally composed of independent directors. Public issuers traded on major US markets are now required to appoint an audit committee of not less than three financially knowledgeable independent directors, one of whom must have a background in finance. The definition of an ‘independent’ director may vary from one market to another. In the EU, audit committee requirements can vary and in some instances may not exist.

Authorization

The process by which organizations are vetted and licensed to conduct investment business under the Financial Services and Markets Act 2000. Such organizations are known as Authorized Persons.

Automatic Execution Suspension Period (AESP)

The period during which automatic execution is suspended on the London Stock Exchange. An AESP is applied to a security during continuous trading, if the potential execution price of that security breaches the price tolerance levels.

Average IRR

The arithmetic mean of the internal rates of return (IRRs). See ‘Internal Rate of Return (IRR).’

Backdoor Listing

A technique used by a private company to become a public company without going through the customary initial public offering process. Such transactions typically involve the private company being merged into a public shell company. Also known as a ‘reversing-in’ process. In the UK, commonly known as a ‘reverse takeover’ or ‘RTO.’ See ‘Shell.’

Bad Leaver

An employee who leaves the company within a short time or who is dismissed for cause, or under other circumstances where the employee is not permitted to retain the benefit of options or other profit-sharing arrangements, such as increased value of shares or carried interest.

Balloon Note

A form of promissory note requiring repayment of little or no principal until the final payment. See ‘Balloon Payment.’

Balloon Payment

The final payment under a balloon note, commonly representing a large portion of the principal. See ‘Balloon Note.’

Basis

An investor’s total investment in an asset, including purchase price, commissions, and other expenses, used to determine capital gains and capital losses for tax purposes. Also called cost basis or tax basis. Also the difference between the cash price and the futures price of a given commodity.

Basis Point

One hundredth of a percent (0.01%). Used to measure changes in, or differences between, yields or interest rates.

Bearer Securities

Shares of capital stock or bonds evidenced by certificates that are not registered in any name. They are negotiable without endorsement and transferable by delivery. Bearer securities often carry numbered or dated dividend coupons. See ‘Registered Securities.’

Beauty Parade

An accepted mechanism for a portfolio company to select a provider of financial and professional services. The company normally draws up a short list of potential providers, who are then invited to pitch for the business.

Benchmark

A previously agreed upon point of reference or milestone at which venture capital investors will determine whether or not to contribute additional funds to an investee company.

Beneficial Owner

The person who enjoys the economic benefits of ownership of securities, although the securities may be registered in another name.

Best Efforts Underwriting

(USA) An underwriting arrangement in which an underwriter agrees only to use its best efforts to sell the securities as the issuer’s agent. The underwriter does not purchase the securities itself and has no obligation to purchase any amount not purchased by investors. In the UK, such a limited duty of an underwriter would be described as being on a ‘reasonable endeavors’ basis. See ‘All-or-None’ and ‘Firm Commitment Underwriting.’

Best Execution Requirement

The obligation of market makers, broker/dealers, and others to execute customer orders at the best price currently available, usually with reference to the then-current market price.

Beta

A statistical measure of a security’s volatility as compared to the overall market (a beta lower than 1 would indicate less volatility than the general market; a beta of greater than 1 would indicate more volatility).

BI / MBO

Buy-In/Management Buy-Out. A combination of a Management Buy-In (MBI) and a Management Buy-Out (MBO). In a BI/MBO, an entrepreneurial manager or group of external managers financed by venture capitalists buys into a company and teams up with members of the target management team to run it as an independent business.

Big Bang

27 October 1986, when the London Stock Exchange’s new regulations took effect and the automated price quotation system was introduced.

Black-Scholes Formula

(USA) A statistical method of estimating the present value of stock options or warrants based upon the exercise price, fair market value of the underlying security, length of the exercise period of the option or warrant, and the volatility of the underlying security.

Blank Check Preferred Stock

(USA) Authorized preferred stock, the terms of which are left open under the company’s organizational documents, allowing the board of directors to fix the terms without stockholder approval. Blank Check Preferred Stock may be used as an anti-takeover device. See ‘Anti-Takeover Provisions,’ ‘Poison Pill,’ ‘Shark Repellent,’ and ‘Staggered Board of Directors.’

Blue Chip

Generally accepted as referring to stock or shares of a large company with a solid record of stable earnings and/or dividend growth and a reputation for high quality management and/or products. More generally, anything of very high quality.

Blue Sky Law

(USA) State laws regulating the offer and sale of securities and the registration of broker/dealers. All securities issued by a company must be offered and sold in compliance with or under an exemption from Blue Sky Laws and Regulations of each state in which securities are sold. The name ‘Blue Sky’ comes from the preamble to an early Wisconsin law designed to prevent companies from selling pieces of the blue sky to unsuspecting investors.

Board Minutes

Minutes of the meetings of the board of directors that record actions taken, typically written after a board meeting and approved at the subsequent meeting.

Board of Directors

Group of individuals elected by the shareholders of a company to promote and safeguard the shareholders’ interests, to oversee the general direction of the Company and appoint its officers.

Bond

A debt obligation, often secured by a mortgage on some property or asset of the issuer.

Book Manager

The lead managing underwriter who maintains the Book. See ‘Book.’

Book or Syndicate Book

The list of investors who have indicated an interest in purchasing shares in a public offering maintained by the lead managing underwriter during the offering process. See ‘Hard Circle.’

Book Value Per Share

A company’s net worth (assets minus liabilities) divided by the number of shares outstanding. Tangible book value is the company’s net tangible worth (tangible assets minus liabilities) divided by the number of shares outstanding. See ‘Fully Diluted Earnings Per Share.’

Bookbuilding

Process pursuant to which the lead underwriter(s) in a public offering solicit institutional and retail investors to commit to subscribe to shares prior to the closing of the offering.

Book-Entry Securities