What are Drag Along Rights? Drag Along Rights (also referred to as “drags” or drag-along provisions) are rights that give the majority owners the right to force minority owners to join in the sale of a company. The rights give the majority owners the ability to sell the entire company based on the terms and…
What is an IPO (Initial Public Offering)? An Initial Public Offering (IPO) is the first sale of stocks issued by a company to the public. Before an IPO, a company is considered a private company, usually with a small number of investors (founders, friends, family, and business investors such as venture capitalists or angel investors)….
What is a Definitive Purchase Agreement? A Definitive Purchase Agreement (DPA) is a legal document that records the terms and conditions between two companies that enter into an agreement for a merger, acquisition, divestiture, joint venture, or some form of strategic alliance. It is a mutually binding contract between the buyer and seller and includes…
What is Reverse Morris Trust? The Reverse Morris Trust is a form of tax avoidance employed by companies. This tactic enables the company to sell off unwanted assets without incurring tax obligations on gains arising from the sale of these assets. The Reverse Morris Trust technique works in the following manner: a parent company spins…
Overview of a Statutory Merger In a statutory merger between two companies (where company A merges with company B), one of the two companies will continue to survive after the transaction has completed. This is a common form of combination in the mergers and acquisitions process. For example, Company B may lose its independent identity…
What are Investment Banking M&A Project Names? Until an investment banking M&A transaction is publicly announced, investment bankers should always use an M&A project name in place of the actual company name. It helps maintain the confidentiality of the transaction and prevents any material nonpublic information from being disclosed to members of the public before…
What is a White Knight? A white knight is a company or an individual that acquires a target company that is close to being taken over by a black knight. A white knight takeover is the preferred option to a hostile takeover by the black knight, as white knights make a friendly acquisition by generally…
M&A Glossary and Terms Welcome to CFI’s M&A Glossary of terms and definitions for mergers & acquisitions transactions. These terms are taken from CFI’s advanced financial modeling course on mergers and acquisitions modeling. General M&A Terms Accretion An improvement in per share metrics post-transaction (after issuing additional shares). Acquirer The firm that is purchasing a…
What is a Cash Rich Split Off? A cash rich split off is a merger and acquisition technique where a parent company exchanges the company’s stock for stock in a subsidiary of the company without incurring taxes, provided that the statutory requirements are met. The technique allows companies to dispose of non-core assets and emerge…
What is the ECM Deals Committee? The Equity Capital Markets (ECM) Deals Committee assesses the financial and business merits of any proposed New Equity Issue to determine whether a bank will become involved in the New Equity Issue. Most banks will not commit to any New Equity Issue without obtaining approval from the ECM Deals Committee….
