Acquisition – an M&A deal in which one company buys another; the acquired company becomes a subsidiary of the acquiring company
Acquisition premium – the extra amount that is paid by a bidder for a public company in order to convince the majority of shareholders to sell their stock
Alternative asset classes – asset classes different than traditional asset clasess (stocks and bonds). Examples of alternative asset classes are private equity, hedge funds, art, etc.
Asset Backed Securities – bonds that are offered by a project vehicle, that has the right to a particular category of assets ‘backing up’ the emission
Asset management – managing clients’ investments and providing strategies and expertise that would help clients achieve their goals
Banking syndicate – several banks join forces in order to underwrite or lend a large loan Bankruptcy procedure – formal liquidation procedure, in which the government appoints a
liquidator who sells the assets of the distressed company
Bid-ask spread – the difference between the price at which a financial security can be acquired and the price at which it can be sold
Board of Directors – an elected body by the owners of a company (consisting of several members) who oversee the company’s governance and financial results
Bond – a financial instrument of indebtedness in which an investor lends money to an entity (a corporation or a government); commonly referred to as fixed income
Book building – the process of collecting investor feedback regarding the amount of shares they are willing to buy at different price points
Book runner – an investment bank that underwrites the issuance of new securities Brokerage – when an entity trades on behalf of a third party and earns a commission
Buy-side – Bankers who work for the buying company in an M&A deal are referred to as “Buy-side” bankers
Capital adequacy ratio – a bank’s risk-weighted capital with respect to its liabilities needs to cover a certain threshold and if it doesn’t a bank is considered as undercapitalized and problematic
Chinese walls – impede the interaction and communication between certain departments within an investment bank or an advisory firm. Client information is considered confidential and cannot be shared with people from the same firm who do not have authorized access
Commercial bank – a banking entity that concentrates mainly on “deposit taking and credit giving” services
Conflict of interest – a situation in which an individual or an entity is influenced by multiple interests, and may make a decision that does not represent the optimal solution for one of its clients
Consideration – The technical name of the amount that is paid in an M&A transaction
Cost of Debt – the interest rate that a company pays on its financial liabilities
Cost of Equity – the expected return that a company should pay investors for holding its shares
Covenant – rules of conduct that need to be respected by a borrower
Credit rating – an opinion about the creditworthiness of a borrower that is expressed by independent credit agencies
Credit rating agencies – well-reputed independent firms analyzing borrowers and providing their view regarding the likelihood that the borrower will be able to meet its obligations
Debt – the amount of indebtedness on a company’s Balance Sheet
Debt Capital Markets – an Investment bank’s division responsible for Bond issuances
Debt write-off – an agreement with creditors that reduces the amount of debt owed by a company (or a government)
Debt-Like Items – items that are not financial liabilities, but have debt characteristics (a specific amount is owed to a third party)
Default – failure to meet loan obligations
Defensive M&A – This is when a company buys another company to ensure that one of its
competitors won’t buy the Target
Deposit – an amount of money that is deposited in a bank and can be withdrawn if needed
Derivatives – financial contracts that involve payments contingent upon the verification of a future event
Discounted Cash Flow – a valuation technique that estimates the present value of the future cash flows that a company is expected to produce
Distressed company – a company that does not have sufficient money to carry out its operating activities
Diversification – a technique that allows the optimization of the risk-return ratio of an investment portfolio; the less correlated are the assets in a portfolio, the less risky it is
Due diligence – The Target firm provides access (limited or full) to its financial, tax and legal documentation. Then the Bidder examines these documents closely and adjusts the offer for the company based on findings that occur during the due diligence process
Earnings – a synonym of Net Income
Earn-out – used in M&A transactions; These are additional payments taking place upon the verification of certain conditions
EBITDA – Earnings Before Interest Taxes Depreciation and Amortization; a rough measure of operating profitability
Enterprise value – how much a business is worth Equity – the amount of stock that a company has issued
Equity Capital Markets – an Investment bank’s division responsible for Initial Public Offerings and Seasoned Equity Offerings
Equity value – how much a business is worth after we subtract net debt Financial security – a tradable financial asset
Fixed income – an income that is set at a particular figure and does not change (bonds are a type of fixed income)
Forwards – a non-standardized agreement between two parties to buy and sell a given asset at a future point in time at a price that is agreed today
Futures – a standardized agreement between two parties to buy and sell a given asset at a future point in time at a price that is agreed today
Glass-Steagall Act – a legislation from 1933 that prohibited offering Commercial and Investment Banking services under the same roof
Global coordinator – an investment bank that oversees the entire IPO process and coordinates various work streams; provides leadership
Go public – the process when a company’s shares are listed on a Stock Exchange
Hedge funds – investment vehicles that use capital collected from investors in order to take
advantage of market pricing errors
Hedging – minimize the risk of an investment by taking an offsetting position
High Net Worth Individual (HNWI) – an individual with an investible income of more than $5 million
Initial Public Offering (IPO) – the listing of a company’s shares on a Stock Exchange
Institutional investor – an organization that has the necessary know-how to trade financial instruments and invests at its own account and/or on behalf of clients
International Financial Reporting Standards (IFRS) – A set of accounting and reporting rules issued by the International Accounting Standards Board (IASB).
Investment bank – a banking entity that does not engage in traditional commercial banking activities (does not engage in “deposit taking, credit giving”)
Investment horizon – the period of time that an investor plans to hold a security
IPO prospectus – An extensive document that describes operating, financial, regulatory, legal, and technical aspects of the company that is about to be listed
Lead manager – an investment bank that helps with marketing efforts in an IPO transaction and contributes with its networking
Leveraged Buyout – a type of M&A deals, in which the acquirer of a firm uses a high portion of debt in order to finance the deal
Liquidity – the ability to buy and sell a financial security when needed and without incurring excessive transaction costs
Loan Syndications – loans that are granted by a pool of banks
Market making – brokerage services in which the bank sells securities to a client and profits from a
bid/ask spread
Merger – an M&A deal in which two companies are combined in a new entity
Mergers & Acquisitions – an expression that describes the combination of companies. We talk about a merger when the two companies form a new entity, and instead we talk about an acquisition if one of the companies buys the other and a new entity is not formed by the two
Mutual funds – an investment vehicle that collects money from its shareholders and invests it in a diversified portfolio
Net debt – the difference between financial liabilities and excess cash
Net Income – The bottom-line figure that is attributed to a company’s shareholders
Perpetuity – a financial security (for ex. a bond) that lasts forever
Private equity – investment vehicles collecting money from investors with the purpose of acquiring companies and reselling them at a profit
Private placement – selling shares of a company to a single investor (or a group of investors) without a formal IPO procedure
Private workout – a restructuring that does not include a formal liquidation procedure Proprietary trading – when an entity trades on its own behalf (using its own money) Pure Investment Bank – a bank that offers only Investment Banking services
Rate of return – the amount of money that an investor made with respect to his initial investment. If I buy a security for 100 today and resell it for 150 on year from now. I would have a rate of return equal to 150/100 – 1 = 50%.
Real Estate funds – an investment vehicle that collects money from its shareholders and invests it in commercial or residential real estate
Recovery ratio – the proportion of money recovered by creditors in a restructuring or liquidation scenario
Restructuring – a series of operations intended to reorganize the operations of a company that operates under the conditions of financial distress
Retail investor – an individual that is not part of an organization and invests on his own
Retainer – a small fee that covers fixed cost for advisors
Road show – a series of presentations to potential investors
Seasoned Equity Offering (SEO) – a company that is already listed issues new equity and receives fresh financing
Secondary market – once the shares of a company become listed, they start trading on a secondary market
Sell-side – Bankers who work for the Target company in an M&A deal are referred to as “Sell-side” bankers
Special Purpose Vehicle (SPV) – an entity that is specifically created for a given project Stock – a financial instrument that indicates ownership claims of an entity
Stock Exchange – a venue where traders can buy and sell the shares of listed companies Success fee – a fee that is contingent upon the successful completion of a deal
Surplus assets – assets that are not essential for the company’s core business
Swaps – an agreement between two parties to exchange a set of variable and fixed cash flows
Synergy – the positive effect of combining two businesses together
Target company – the firm that is being acquired in an M&A process
Terminal Growth Rate – a constant growth rate of cash flows in the Terminal Value period
Terminal value – the value of the cash flows that will be produced by a company after the explicit forecast period
Transaction costs – the cost of participating in a market
Underwriting – assuming the risk that a certain security (e.g. company shares) would be sold to the
market
Universal banks – banks offering both Commercial and Investment Banking services
US Generally Accepted Accounting Principles (US GAAP) – A set of accounting and reporting rules that are applied in the United States
Venture capital – investment vehicles that specialize in start-up investments
Weighted average cost of capital – the opportunity cost of a company that has debt and equity financing.
Investment banking:
Investment banks deal with a more complex set of operations: listing of firms on stock exchanges (IPOs), advisory in M&A deals and corporate restructurings, trading, and asset management.
Services: Capital Markets (IPOs, SEOs, Private Placements), M&A, Restructurings, Trading and Brokerage, Asset Management.
Clients: HNWI, Medium and Large Corporations, Institutional Investors, Hedge Funds, Private Equity Funds
Commercial banking
Refered to as deposit taking, credit taking activity. Main business is collecting money from families/ corporations and lending to the borrowers.
Services: accepting deposits, lending money, issuing bank cheques, cash management, treasury management
Clients: retail, small corporate clients, medium and large clients.
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