Glossary
M&A and Data Room Glossary
Plain definitions of the terms used in M&A deals and virtual data rooms. Each term has its own link, so you can share it.
By DiligensHub team · Last updated
A
- Access expiry
- A date after which a person or group can no longer open the data room. It closes access when a bidder drops out or a phase ends, without anyone having to remember.In DiligensHub: Set per member and per permission set.
- AI document review
- Using AI models to read deal documents and flag issues. Examples are missing signatures, totals that don't add up, and risky clauses. A person still confirms each finding against its source.In DiligensHub: Eleven checks run on every document as it is uploaded.
- Asset purchase agreement (APA)
- A contract to buy chosen assets and liabilities of a business, rather than the company itself. The buyer picks what it takes, so diligence focuses on those assets and the contracts behind them.
- Audit trail
- A record of who did what in a system, and when. In a data room, it lists who viewed, downloaded or uploaded each document. It shows later what each party was shown.In DiligensHub: Views, downloads and uploads are logged, and reports export to CSV.
B
- Bidder
- A party competing to buy a company or asset in a sale process. Each bidder usually has its own group in the data room, so bidders can't see each other.In DiligensHub: Bidders are kept apart in the user list, activity, Q&A and notifications.
- Bring-down
- Confirming at closing that the representations made at signing are still true. Where signing and closing are apart, the seller "brings down" its statements to the closing date, often by certificate.
- Buy-side
- The acquiring side of a deal, and the advisors working for it. Buy-side due diligence tests the target's documents and claims before the buyer commits to a price and terms.
C
- Cap table
- Short for capitalization table: a list of who owns a company's shares, options, warrants and convertible instruments. Buyers and investors use it to see exactly who must agree to a deal.
- Carve-out
- The sale of one part of a company, such as a division or product line, rather than the whole. Diligence must separate that part's contracts, staff, systems and costs from the parent's.
- Change of control
- A clause that gives a party rights when ownership of the other party changes. A sale can let a customer, supplier or lender end the contract, or require its consent first.
- Closing
- The point at which a deal completes: ownership passes and the price is paid. It can happen on the day of signing, or later once conditions such as approvals are met.
- Closing conditions
- Events that must happen before a signed deal can complete. Common examples are regulatory approvals, third-party consents, and the seller's statements still being true at closing.
- Confidential information memorandum (CIM)
- A document describing a business for sale: its operations, market, management and financial results. Bidders receive it after signing an NDA. Diligence then tests its claims against the records.
- Confirmatory due diligence
- A narrower review after the main terms are agreed, often after a letter of intent. The buyer confirms specific points it priced in, rather than reviewing the whole business again.
D
- Data room index
- The numbered table of contents of a data room. Every folder and file has a number, such as 3.2.1, so all parties can cite the same document.In DiligensHub: Every folder and file is numbered automatically, and moves keep their numbers.
- Definitive agreement
- The final, binding contract for a deal, such as a share or asset purchase agreement. It replaces the non-binding letter of intent and sets out the price, terms and protections.
- Digital rights management (DRM)
- Technology that controls what a reader can do with a file after it leaves the room. It can limit opening, printing or copying. Access can be withdrawn even from downloaded copies.In DiligensHub: Off by default; switched on per deal.
- Disclosure schedule
- A document attached to the purchase agreement that lists exceptions to the seller's representations. A matter properly disclosed there usually can't later found a claim against the seller.
- Due diligence
- The investigation a buyer, investor or lender carries out before a deal. It checks the business's finances, contracts, legal position and operations, to confirm the price and find risks.
- Due diligence checklist
- A list of the documents and information needed for due diligence, grouped by area. Sellers use it to prepare, and buyers to plan their review. See our free checklist.
- Dynamic watermark
- A mark added to each page as a person views or downloads it, showing who they are and when. A leaked copy shows whose copy it was.In DiligensHub: Shows the viewer's name, email and the time.
E
- Earn-out
- Part of the price paid later, only if the business hits agreed targets after closing. It bridges a gap between what the seller expects and what the buyer will pay up front.
- EBITDA
- Earnings before interest, taxes, depreciation and amortization. It is a common measure of operating profit. "Adjusted EBITDA" removes items the seller argues are one-off, which diligence then tests.
- Enterprise value
- The value of a business's operations, regardless of how it is financed. The price paid for the shares is usually enterprise value minus net debt, adjusted for working capital.
- Escrow
- Money held by a third party after closing, released to the seller later if no claims arise. It gives the buyer a fund to recover from if the seller's statements prove wrong.
- Exclusivity
- An agreement that the seller will negotiate only with one buyer for a set period. Buyers usually ask for it before spending heavily on detailed due diligence. A contract term that limits trading can also be called exclusivity.
F
- Financial due diligence
- The review of a company's financial records: results, cash flow, working capital, debt and forecasts. It tests whether the earnings the price is based on are real and will continue.
I
- Indemnification
- A promise by one party to cover the other's losses from specified events. Examples are a breach of contract or a known tax issue. Its limits are negotiated in the purchase agreement.
- Indemnity cap
- The maximum amount a seller must pay under its indemnities. It is set in the purchase agreement as a fixed sum or a share of the price. Some claims are often excluded from it.
- Indication of interest (IOI)
- A short, non-binding letter from a bidder giving a price range and key terms. Sellers use IOIs to choose which bidders go through to the next round.
L
- Legal due diligence
- The review of a company's legal position: corporate records, contracts, disputes, intellectual property, employment and regulatory compliance. It finds risks to price, protect against, or fix before closing.
- Letter of intent (LOI)
- A document setting out the main terms of a proposed deal before the final contract. Most of it is non-binding, but terms like exclusivity and confidentiality usually bind.
M
- Management presentation
- A meeting where the company's leaders present the business to bidders and answer questions. It usually follows the first round, before detailed due diligence begins.
- Material adverse change (MAC)
- A serious negative change in the business between signing and closing. A MAC clause can let the buyer walk away. What counts as "material" is defined and argued over in the agreement.
- Material contracts
- The contracts most important to a business, such as those with its largest customers and suppliers. Buyers review them closely for terms a sale could trigger.
- Most favored nation (MFN) clause
- A promise to give a customer terms at least as good as any other customer receives. Buyers check MFN clauses because they can limit future pricing across the whole customer base.
N
- Net debt
- A company's borrowings minus its cash. It is deducted from enterprise value to reach the price for the shares. So what counts as debt is often negotiated.
- Non-disclosure agreement (NDA)
- A contract in which a party agrees to keep shared information confidential and use it only for the deal. Bidders usually sign one before they receive the CIM or data room access.
O
- Optical character recognition (OCR)
- Technology that turns the image of a scanned page into searchable text. Without it, a scanned contract in a data room is a picture that search can't read.In DiligensHub: Scans are read in English and Spanish, and searchable.
P
- Process letter
- A letter from the seller's advisor setting the rules and timetable of a sale. It says what bids must include, when they are due, and how to ask questions.
- Purchase price adjustment
- A change to the price after closing, based on the business's actual figures at closing. It usually compares working capital, cash and debt against the amounts agreed in the contract.
Q
- Q&A log
- The record of every question asked in due diligence and its answer. Running it in the data room keeps answers consistent, links them to documents, and records who was told what.In DiligensHub: Questions carry categories and assignment, link to documents, and export.
- Quality of earnings (QoE)
- A report, usually by accountants, that tests whether reported earnings are accurate and likely to continue. It adjusts for one-off items, accounting choices and unusual transactions.
R
- Red flag
- An issue found in due diligence that could affect the price, the terms or the decision to proceed. Examples include undisclosed litigation, a lapsed licence, or a key contract a sale would end.In DiligensHub: AI review flags litigation, defaults and deadlines coming due.
- Redline
- A version of a document that shows the changes from an earlier draft, with additions and deletions marked. Lawyers exchange redlines while negotiating the purchase agreement.
- Representations and warranties
- Statements of fact the seller makes in the purchase agreement, about the business, its finances and its liabilities. If one proves untrue, the buyer may have a claim.
- Representations and warranties insurance
- Insurance that pays the buyer for losses caused by a breach of the seller's representations. It can reduce what the seller must hold back to cover claims.
- Request list
- The list of documents and information a buyer asks the seller for during due diligence. It is often built from a standard checklist, then tailored to the deal.In DiligensHub: AI splits a pasted request list into numbered items and proposes checklist matches.
S
- Sell-side
- The side of a deal selling a company or asset, and the advisors working for it. The sell-side usually builds the data room and runs the process.
- Signing
- The point at which the parties sign the definitive agreement. Closing may happen at the same time, or later once the closing conditions are met.
- Single sign-on (SSO)
- Signing in to several systems with one company account, managed by the company's identity provider. It lets IT control and remove access in one place.
T
- Tax due diligence
- The review of a company's tax filings, payments, audits and positions. It finds tax that could still be owed and shapes how the deal is structured.
- Term sheet
- A short, mostly non-binding summary of a proposed deal's key terms. It is common in investments and financings, where it plays the role a letter of intent plays in M&A.
- Third-party consent
- Permission needed from someone outside the deal before a contract can transfer or continue. It may come from a landlord, customer or lender. Missing consents can delay or block closing.
- Two-factor authentication (2FA)
- Signing in with a second proof of identity, such as a code from an app, as well as a password. A stolen password alone then can't open the account.In DiligensHub: A deal can require two-step sign-in for everyone in it. It is off until switched on.
U
- User group
- A set of data room users who share the same access, such as one bidder's team. Setting rights by group, not person by person, keeps access consistent and easy to change.In DiligensHub: Called a permission set; each one holds the access for every folder.
V
- Vendor due diligence
- A due diligence report commissioned by the seller, usually from accountants or lawyers, and shared with bidders. It gives every bidder the same starting point and can shorten the process.
- Version history
- The record of each version of a document, with when it was replaced. It lets reviewers see that a file changed, and download the earlier copy.In DiligensHub: Every upload keeps its earlier versions, numbered and downloadable.
- View-only access
- Permission to read a document in the browser without downloading or printing it. It suits the most sensitive files, such as customer pricing or salaries.In DiligensHub: One of six viewing levels, set per folder.
- Virtual data room (VDR)
- A secure website for sharing confidential documents during a deal, with access set per party and every view logged. See What Is a Virtual Data Room?
W
- Watermark
- Text or an image printed across a document's pages, often faint. A static watermark is the same for everyone, such as "Confidential". A dynamic one names each reader.
- Working capital
- The cash tied up in running a business day to day: receivables and inventory, less payables. Deals usually set a working capital target, and adjust the price if the actual figure differs.
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