The London Stock Exchange’s Alternative Investment Market which provides an alternative route for smaller companies seeking a listing.

A wealthy individual who invests in entrepreneurial firms or a successful entrepreneur, who has built up a business, sold it and now brings not just money but experience to a young developing business.

Beauty parades
A way of providing companies with a choice of providers of financial and professional services. It normally involves a short-list of potential suppliers being drawn up and invited to pitch for business usually by presentation and interview.

A combination of management buy-out and buy-in where the team buying the business includes both existing management and new managers.

Business plan
A detailed description of the plans of an existing business and its expansion plans or a new business, with financial projections.

Buy and build
An investment made in a business with the intention of acquiring further businesses in order to build the value of the original investment.

British Venture Capital Association


The moment when legal documents are signed and a corporate finance transaction is concluded.

Deal flow
The rate at which investment propositions come to venture capitalists or other investors.

Debt is borrowed money from a bank or other institution, where interest has to be paid at a specified rate and the total borrowed must be repaid either on a specified date or (as in bank overdrafts) on demand.

Development capital
Also known as growth capital and often provided by venture capital solutions. It is the long-term equity capital raised to allow a company to grow without relying wholly on short-term bank debt.

Due diligence
The detailed analysis and appraisal of a business, which takes place after an investment, loan or sale, has been agreed in principle. The aim is to ensure that there is nothing which contradicts the financier’s or buyers understanding of the current state and potential of the business. The individual elements of due diligence may include commercial due diligence (markets, product and customers), a market report (marketing study), an accountants report (trading record, net asset and taxation position) and legal due diligence (implications of litigation, title to assets and intellectual property issues).

Earnings per share
Profit after tax divided by the number of ordinary shares in issue.

Earnings before interest and tax.

Earnings before interest, tax, depreciation and amortisation. EBITDA is measure of cash flow. By excluding interest, taxes, depreciation and amortisation the amount of money a company is bringing in can be clearly seen.

A word to describe an enterprising businessman or woman. Normally an owner of an independent business.

Equity investors share ownership of an enterprise. Consequently, they share both the rewards, if the business prospers, and the risk of losing their investment if things go wrong.

The opportunity for investors to sell their investment. Normally, the exit from investment in a private company occurs either through a trade sale of the company or through its flotation on the stock market. When raising finance, the opportunity to exit will be a key part of the investors’ assessment.

When a company trades its shares on the stock market – either the London Stock Exchange or one of the other markets, such as AIM.

The ratio of debt to equity capital. If a balance sheet shows £10 million of total assets and a debt of £6 million, the gearing is 60%. The higher the gearing, the greater the exposure to changes in circumstances although in secure times high gearing can fuel growth.

Going private
Ambitious businesses sometimes aspire to going public – becoming a quoted company. However, there are directors of quoted companies who feel that the advantages of listing are outweighed by the disadvantages and turn themselves back into a private company.

The value of a business over and above its tangible assets. It includes the business’s reputation, contacts and intellectual property.

Growth capital or development capital
The long-term equity capital raised to allow a company to grow ambitiously without relying wholly on short-term bank debt.

IBO (Institutional buy-out)
Where a financial institution acquires a business and installs its own management. Slightly different from a bought deal, where an institution negotiates the acquisition of a business with a view to handing it over to an MBO or MBI team.

Sometimes used to describe a particular type of loan or share capital.

Advisers that bring together the principals in a deal or prospective deal.  They are usually accountants, other corporate advisers and merchant bankers.

Investment capital
Long-term equity capital provided by institutions to facilitate growth in private companies. To some extent the term is interchangeable with venture capital.

Providers of capital for the long-term, as distinct from lenders of short-term capital. Investors have rights which lenders don’t enjoy – and accept risks which lenders aren’t exposed to.

Initial public offering. Once called a flotation this is the initial offering of the company’s shares on a public market.

LBO (leveraged buy-out)
This is an MBO in which the equity capital is supported by a very large amount of debt i.e. highly geared.

This is a measure of the ease with which the assets of a business can be transformed into cash. Also, where companies are publicly quoted, on the stock market or on AIM, their shares are said to be liquid if they are readily bought and sold. Smaller, or less fashionable, quoted companies may find their shares lack liquidity.

Mergers and acquisitions – a phrase that covers the process of buying, selling and merging businesses.

MBI (management buy-in)
MBIs developed as a variation of the MBO as a means of acquiring a business. An incoming management team acquires the business with backing from institutional investors (as opposed to incumbent managers who acquire it in the case of an MBO). See also BIMBO.

MBO (management buy-out)
An MBO involves the management team of a business, usually with the backing of external financing, taking over ownership of the business where they are employed. MBOs are a common way of changing ownership. Often, a large company hives off one of its subsidiaries by selling to its management team. Another source of MBOs is family businesses where the owner wishes to retire.

MEBO (management and employee buy-out)
An MBO where a substantial number of employees as well as managers hold shares in the company.

Types of high risk debt which have some attributes of debt and some of equity.  It ranks and is repaid after Senior/Junior Debt but before institutional loan stock. Generally carries an option/warrant or redemption fee which tends to distinguish it from Junior Debt.

The National Association of Security Dealers Automated Quotation is the largest US stock market in terms of companies listed and number of shared traded. Launched in 1971, NASDAQ is home to more than 82% of all the technology listings in the US. It is operated by the NASDAQ Stock Markets Inc, a wholly owned subsidiary of the National Association of Security Dealers.

Non-executive director
They are part-timers but still share all the legal responsibilities of their executive directors on the board of a company.

The OFEX market is a prescribed market under Section 118 of the Financial Services and Markets Act 2000. It provides a secondary market for the trading of unlisted and unquoted securities in the UK off exchange. It can provide a stepping stone for young companies to Aim or Full Listing.

Owner-managers of substantial businesses, many of whom became owners as a result of a management buy-out or buy-in.

P/E (price/earnings) ratio
The market price per share of a business divided by the earnings per share (See earnings per share). The P/E multiple is sometimes applied to a business’s profits to calculate the value of the business.

Private equity
Equity Capital and other risk money which doesn’t come via the public market. The term is used to describe venture capital investments in general but is mainly used to describe to finance for MBOs and MBIs.

Private placing
The sale of a block of shares in a private company to an investment institution. Private Placings normally do not involve any change in control of the business. They can occur when shareholders wish to retire or, for some other reason, wish to realise all or part of their holdings.

The state of affairs when a receiver is appointed to recover debts of a company which has failed. In the case of a large company, with subsidiaries, the receiver may seek a buyer for a subsidiary. This often leads to a MBO, an MBI or a trade sale.

Bringing about fairly major changes in the organisation of a company by changing the management and/or the share ownership structure.

When a business in trouble is turned round and made viable by outside intervention.

Reverse takeover
When a small company takes over a large one, or when the company being taken over is likely to be the major element in the combined business.

Secondary buy-out
Also known as a “buy-out of a buy-out”. Where the original MBO managers will sell the company to the next generation of managers.

Secondary purchase
Another name for private placing.

Seed capital
Early funding which enables a project or idea to develop into a business.

Share placing
The sale of shares to a number of investors but not to the general public.

A new business which can be on any scale – but most start-ups are small. Their critical phase often comes later when they may need significant amounts of capital to enter their chosen market.

A target is a company suitable for takeover.

Trade sale
Sale of a company to another company. As a form of exit, a trade sale is a more common alternative to a flotation.

When an underperforming business is made profitable. This can be achieved by existing management or through a rescue involving new management.

Valuation of shares
The shares of publicly quoted companies are valued daily, according to demand and supply on the stock market. Valuation of private companies is more difficult because there is no market in their shares – unless the whole company is being sold. In other cases, valuation of private company shares is often done by reference to P/E ratios in similar quoted companies, or by discounting the projected future cashflow of the business.

VCTs (venture capital trusts)
A recent appearance on the financial markets. VCTs are specialist investment trusts, which offer tax advantages to investors willing to provide money for investment in unquoted companies.

The seller of a business.

Vendor finance
Can either be in the form of deferred loans from, or shares subscribed by, the vendor. The vendor may well take shares alongside the management in the new entity. This category of finance is generally used where the vendor’s expectation of the value of the business is higher than that of management and the institutions backing them.

Venture capital
Risk capital in the form of equity and/or loan capital that is provided by an investment institution to back a business venture which is expected to grow in value.

A security which gives the holder the right to purchase shares in a company at a pre-determined price. A warrant is a long term option, usually valid for several years or indefinitely.

Warranties and indemnities
The legal undertakings often required by the purchaser of a business or asset from the previous owners to confirm there will be no nasty surprises.

Working capital
Capital that is required to finance the trading activities of a company.