Glossary

Add-backs: extraordinary one-time expenses, such as the cost of moving the plant or owner’s perquisites such as travel and entertaining that are added back to earnings to give a more realistic view of the company’s earning power. Add-backs are subject to acute scrutiny by the buyer because business travel and business entertaining are usually a regular cost of doing business.

Allocation of purchase price: In an asset sale, the purchase price must be allocated to certain assets; the balance is goodwill.

Angels: An individual high-risk investor who likes to make investments in promising acquisitions. Angels often have valuable business experience and can be helpful as a member of the board of directors.

Asset based lenders: Commercial lenders who are willing to take on more risk than commercial banks’ lending against accounts receivable and inventory and being subordinate to commercial banks.

Asset sale: purchase of certain assets and/or liabilities leaving the seller the remainder as well as the corporate entity.

Auction: when the seller or its intermediary orchestrates the selling process by encouraging buyers to bid and re-bid until the highest and best offer is received.

Audit: examination of the financial records and accounting books in order to verify their accuracy.

Basket: a rand amount set forth by the seller in the indemnification provision for any losses suffered by the buyer.

Book value: also known as net worth, the figure derived by deducting all the liabilities from all the assets.

Bottom fishing: when a buyer will only pay a very low price for a business.

Bridge loans: a temporary loan to cover the financing shortfall of the acquisition until permanent funding is available.