Glossary of M&A terms

Owner expenses and one-time costs added back to reported earnings to show the earnings a buyer will receive, such as the owner’s compensation above market or a non-recurring legal cost.

The tax cost of a property, generally its purchase price plus acquisition costs. The capital gain on a sale is the proceeds less the adjusted cost base and selling costs.

EBITDA restated for owner-related, non-recurring and non-market items, so that it reflects the earnings of the business under a new owner.

A parallel federal and provincial tax calculation with a broader income base and fewer credits. Where it exceeds regular tax, the excess is payable and may be recovered against regular tax in the following seven years.

A sale in which the company sells its assets, such as equipment, inventory and goodwill, and keeps its liabilities unless the buyer assumes them. The proceeds are taxed in the company first.

A notional account of a private corporation that tracks the untaxed half of its capital gains, among other amounts. Balances can be paid to shareholders as capital dividends free of tax.

A deferral that allows part of a capital gain to be reported in later years where part of the price is received after the year of sale, usually over five years at most.

A provision in a lease, loan or commercial contract that gives the other party rights, such as consent or termination, when ownership of the company changes.

The completion of a transaction, at which the purchase agreement takes effect, ownership transfers and the price, less any holdback, is paid.

A secure online repository in which the seller’s documents are made available to the selected buyer and its advisors during due diligence.

The buyer’s financial, legal, tax and operational review of the company after the letter of intent, used to confirm the price and the terms of the purchase agreement.

Part of the price paid after closing, contingent on the business reaching agreed targets, typically revenue or earnings, over a defined period.

Earnings before interest, taxes, depreciation and amortization. The usual earnings measure for valuing companies with professional management.

A trust that acquires and holds a company’s shares for the benefit of its employees. Qualifying sales to an EOT may benefit from a capital gains exemption of up to $10 million.

The value of the business as a whole, before debt and cash. Equity value, the amount the shareholders receive, is enterprise value less debt plus cash.

An arrangement in which a third party holds part of the price after closing, released to the seller when agreed conditions are met.

A period, usually set in the letter of intent, during which the seller agrees not to negotiate with other buyers while the selected buyer completes due diligence.

The highest price a property would bring in an open and unrestricted market between informed, prudent parties acting at arm’s length. The CRA applies it to sales between related parties.

An acquirer, such as a private equity fund, family office or search fund, that buys for the return on its investment rather than for synergies with an existing business.

Part of the price retained by the buyer after closing to secure the seller’s obligations, such as working capital adjustments or claims under the warranties.

The seller’s obligation under the purchase agreement to compensate the buyer for losses arising from breaches of the representations and warranties, within agreed limits.

The detailed description of the business, its operations and its financial results, released to qualified buyers after they execute an NDA.

A sliding fee scale for intermediaries: 5% of the first $1 million, 4% of the second, 3% of the third, 2% of the fourth and 1% above. The Double Lehman doubles each rate.

A document in which a buyer sets out the proposed price, structure, conditions and timetable. It is largely non-binding, apart from terms such as exclusivity and confidentiality of the discussions.

An exemption that shelters up to $1,275,000 of capital gain per individual in 2026 on the sale of qualified small business corporation shares.

The acquisition of a company by its existing managers, usually financed by lenders, the seller through a vendor take-back, or a financial sponsor.

The ratio of price to an earnings measure, such as SDE or adjusted EBITDA, used to express and compare the value of businesses.

The seller’s undertaking not to compete with the business for a defined period and area after closing, enforceable when reasonable in scope.

An agreement under which a prospective buyer undertakes to keep the seller’s information private and to use it only to evaluate the acquisition.

The definitive agreement for the transaction, a share purchase agreement or an asset purchase agreement, setting out the price, the representations and warranties, indemnities and closing conditions.

In an asset sale, the division of the price among the assets acquired, which determines the tax consequences for both seller and buyer.

The removal of passive assets, such as surplus cash or investments, from a company so that its shares meet the tests for the lifetime capital gains exemption.

Shares of a Canadian-controlled private corporation that meet the asset and holding period tests, including a 24-month look-back, required for the lifetime capital gains exemption.

An accounting review, usually commissioned by the buyer, that tests reported earnings and each adjustment against the company’s records.

In an asset sale, the portion of the price for depreciable property that exceeds its undepreciated capital cost, up to original cost, included in the company’s income.

Statements of fact by the seller in the purchase agreement about the company, its finances, contracts and liabilities, on which the buyer relies.

A fee paid to an advisor at the start of an engagement, regardless of outcome, often credited against the success fee.

A vehicle through which an individual, backed by investors, searches for and acquires a single private company to operate.

An election under the Income Tax Act to transfer property to a taxable Canadian corporation for shares at an agreed amount, deferring tax on the gain.

Pre-tax earnings before one owner’s compensation, interest, depreciation, amortization and non-recurring items. The usual earnings measure for owner-operated businesses.

A sale in which the shareholders sell their shares, so the buyer acquires the company with its assets and liabilities. The gain is taxed in the hands of the shareholders.

A company that buys a business in its own sector or value chain, often valuing synergies with its existing operations.

An advisor’s fee payable only on the closing of a transaction, usually a percentage of transaction value.

A period after an advisory engagement ends during which a fee remains payable if the business is sold to a buyer introduced during the engagement.

Financing provided by the seller, under which part of the price is paid by the buyer in instalments after closing, with interest.

The normalized level of working capital the seller agrees to deliver at closing. The price is adjusted for any difference between the actual and the agreed level.