Private equity

A leveraged buyout (LBO) is the acquisition of control of a company by a financial sponsor, paid for partly with borrowed money that is secured on, and repaid from, the acquired company's own cash flows and assets.

Growth equity is investment, usually a minority stake bought as preferred or other structured equity, in an established company with proven revenue that uses the capital to expand or to give existing owners partial liquidity.

Buy-and-build is a private equity strategy in which a sponsor acquires a platform company and grows it through a programme of add-on acquisitions, aiming to sell a larger business for more than the combined prices paid and invested.

GP stakes investing is the purchase of a minority, usually passive, equity interest in a private markets firm, giving the investor a share of the firm's management-fee earnings and often of its carried interest and balance-sheet investments.

A co-investment is a minority equity investment made directly in a specific portfolio company alongside a private fund sponsor's main fund, typically offered to the fund's LPs or other partners on reduced or no management fee and carried interest.

A platform investment is a private equity fund's initial acquisition in a sector, usually a control buyout, made with the intention of growing the company through further acquisitions (add-ons) as well as organic growth.

An add-on acquisition is the purchase of a company by an existing private equity-owned portfolio company (the platform), funded from the platform's debt capacity, cash, seller financing or new sponsor equity, to add scale, products, customers or geography.

A take-private is the acquisition of all the shares of a listed company by a private buyer, usually a private equity sponsor using a leveraged buyout structure, after which the shares are delisted and the company is privately owned.

A secondary buyout (SBO) is a leveraged buyout in which one private equity sponsor sells a portfolio company to another, unaffiliated sponsor, so control passes from one financial owner to the next.

A corporate carve-out is the acquisition of a division, subsidiary or business line from a larger company, which must then be separated from its former parent into a stand-alone business with its own systems, people, contracts and financial statements.

A dividend recapitalization is a transaction in which a company, usually owned by a private equity sponsor, raises new or incremental debt and uses the proceeds to pay a dividend or other distribution to its shareholders.

A quality of earnings (QoE) report is a transaction-focused financial due diligence analysis that tests whether a target's reported and adjusted EBITDA reflect sustainable, cash-generating earnings and quantifies normalisation adjustments, working capital and debt-like items.

Rollover equity is the part of a seller's or manager's existing ownership that is reinvested into the buyer's acquisition vehicle instead of being paid out in cash, so the seller keeps a stake in the business after the sale.

An earnout is a contractual promise by a buyer to pay additional purchase price to the seller after closing if the acquired business meets agreed financial or operational targets over a defined measurement period.

A portfolio company is an operating company in which a private equity, venture capital or other private fund holds an investment, whether a controlling stake or a minority position.

Adjusted EBITDA is EBITDA modified by add-backs and deductions that remove items management or a contract treats as non-recurring, non-operating or unrepresentative; pro forma versions also add acquired earnings and planned cost savings.

Debt-to-EBITDA is the ratio of a borrower's debt to its EBITDA, usually over the last twelve months, expressed as a multiple ("turns"); leveraged lenders use it to size loans and commonly test it in financial covenants.

The enterprise value to EBITDA multiple (EV/EBITDA) is enterprise value divided by earnings before interest, taxes, depreciation and amortisation (EBITDA); it expresses a business's value as a multiple of its operating earnings and is commonly used to price buyouts.

An independent sponsor is an individual or small team that sources, negotiates and leads acquisitions of private companies without a committed fund, raising equity for each transaction from capital partners such as family offices and private equity funds.

Independent sponsor economics are the payments a deal-by-deal sponsor negotiates for each transaction, typically a closing fee, an ongoing management or consulting fee, a promote on the capital partner's profits and the return on its own co-investment.

Entrepreneurship through acquisition (ETA) is the path to business ownership in which an individual or small team buys an existing, usually privately held small or mid-sized company and runs it, instead of founding a new one.

A search fund is an investment vehicle through which investors pay for an entrepreneur's search for a private company to buy, receive the right to fund the acquisition, and back the entrepreneur as the acquired company's chief executive.

Search fund economics are the terms that divide an acquired company's value between investors and the searcher: a step-up on search capital, participating preferred equity for investors, and searcher common equity that vests in tranches.