Acquisition
An acquisition is the purchase of one company by another, often to gain control of its assets, operations, or market share. It can be friendly or hostile, depending on the target company's agreement to the deal.
Activist investing is an investment strategy where shareholders purchase significant stakes in a company to influence its management or strategic decisions. Activists often push for changes like cost-cutting, divestitures, or leadership shifts to boost shareholder value.
Advisory services are professional guidance provided by financial advisors or consultants to help clients manage investments, plan finances, or navigate complex transactions. These services often include tailored strategies for wealth management, tax planning, or corporate restructuring.
Antitrust
Antitrust refers to laws and regulations designed to prevent monopolies and promote competition by restricting anti-competitive practices like price-fixing or mergers that reduce market rivalry. In the U.S., key laws include the Sherman Act and the Clayton Act.
Arbitrage is the simultaneous purchase and sale of an asset in different markets to profit from price differences. It exploits inefficiencies and typically involves low risk when executed quickly.
Arbitrage Opportunity
An arbitrage opportunity is a situation where an asset’s price discrepancy across markets allows traders to buy low and sell high for a profit. These opportunities are often short-lived due to market corrections.
Asset-backed securities are financial instruments backed by a pool of underlying assets, such as mortgages, auto loans, or credit card receivables. They generate cash flows for investors but carry risks tied to the quality of the underlying assets.
Bank mergers are the consolidation of two or more banks into a single entity, often to increase market share, reduce costs, or expand geographic reach. These deals require regulatory approval to ensure compliance with antitrust and financial stability rules.
Bidding Strategy
A bidding strategy is a plan used by investors or companies to place offers in auctions, mergers, or acquisitions to secure a target at the best possible price. It involves tactics like incremental bids, aggressive offers, or waiting to outmaneuver competitors.
Blank-Check Company
A blank-check company is a special purpose acquisition company (SPAC) formed to raise funds through an IPO and acquire an existing private company. It has no operations and exists solely to merge with a target, taking it public.
Bond Issuance
A bond issuance is the process of a company or government offering bonds to investors to raise capital, promising periodic interest payments and principal repayment at maturity. It’s a common way to finance projects or operations with fixed-income securities.
Bonus shares are additional shares given to existing shareholders at no cost, typically issued from a company’s reserves or profits. They increase the number of shares outstanding but don’t change the overall value of an investor’s holdings.
Bottom-up investing is an investment approach that focuses on analyzing individual companies’ fundamentals, like earnings and management, rather than macroeconomic trends. It prioritizes strong businesses regardless of industry or market conditions.
A buyout is the acquisition of a controlling stake in a company, often taking it private, typically financed through a combination of debt and equity. Leveraged buyouts (LBOs) are common, where borrowed funds play a significant role.
Capital Raise
A capital raise is the act of obtaining funds for a business through issuing equity, debt, or other financial instruments. Companies use these funds for expansion, operations, or debt repayment.
A carve-out is a partial divestiture where a parent company sells a minority stake in a subsidiary, often through an IPO, while retaining control. It allows the parent to raise capital while maintaining strategic oversight.
Cash Flow Tranching
Cash flow tranching is the division of cash flows from a pool of assets, like mortgages, into separate securities with varying risk and return profiles. Senior tranches are paid first, reducing risk, while junior tranches bear higher risk for potentially greater returns.
Cash-Out Merger
A cash-out merger is a transaction where shareholders of the target company receive cash for their shares, effectively eliminating their ownership in the merged entity. It’s often used to take a company private or consolidate control.
A catalyst is an event or development that triggers a significant change in a company’s stock price or operations, such as a merger, earnings report, or product launch. It can create investment opportunities by shifting market perceptions or fundamentals.
CEO Transition
A CEO transition is the process of replacing a company’s chief executive officer, often involving a planned succession or an abrupt change due to performance or external factors. It can impact company strategy, stock performance, and investor confidence.
Collateralized debt is a loan or bond secured by specific assets, which the lender can seize if the borrower defaults. It reduces lender risk but ties repayment to the value of the collateral.
A conglomerate discount is the lower market valuation of a diversified company compared to the sum of its individual business units, due to perceived inefficiencies. Investors often favor focused firms, believing standalone units are worth more.
Convertible Securities
Convertible securities are bonds or preferred stocks that can be converted into common shares at the holder’s option. They combine fixed-income stability with potential equity upside.
Corporate Governance
Corporate governance is the framework of rules and practices guiding a company’s operations, ensuring accountability to shareholders and stakeholders. It covers board oversight, executive pay, and transparency.
A corporate liquidation is the process of selling a company’s assets to pay off debts and distribute remaining proceeds to shareholders, typically during bankruptcy or closure. It marks the end of the company’s operations.
Corporate restructuring is the reorganization of a company’s operations, finances, or structure to enhance efficiency or profitability. It may involve mergers, divestitures, or debt refinancing.
Creditor Hierarchy
Creditor hierarchy is the order in which creditors are paid during a company’s bankruptcy or liquidation, with secured creditors prioritized over unsecured ones. Senior debt ranks above junior debt, and equity holders are paid last.
Deal Premium
A deal premium is the extra amount a buyer pays above the target company’s market price in an acquisition. It reflects the value of control, synergies, or growth potential.
Deal Size
Deal size is the total financial value of a transaction, such as a merger or acquisition, including cash, stock, or debt assumed. It influences complexity, regulatory scrutiny, and market impact.
Deal Spread
A deal spread is the gap between a target company’s current stock price and the acquisition offer price. It reflects market confidence in the deal’s completion and associated risks.
Deal Structuring
Deal structuring is the design of financial and legal terms in transactions like mergers to optimize tax, accounting, or strategic outcomes. It includes choices on payment methods and covenants.
A debt offering is the issuance of bonds or other debt securities to raise capital, with investors receiving interest payments and principal at maturity. It’s a key financing tool for companies and governments.
Debt Restructuring
Debt restructuring is the modification of debt terms, like extending maturities or lowering rates, to ease financial distress. It helps borrowers avoid default while preserving creditor value.
Debt Servicing
Debt servicing is the act of making regular interest and principal payments on debt. It tests a borrower’s cash flow and ability to meet obligations without defaulting.
Deep value is an investing strategy targeting stocks trading far below their intrinsic value, often in distressed or overlooked companies. It seeks high returns but requires patience and risk tolerance.
Dilution
Dilution is the reduction in shareholders’ ownership percentage or earnings per share when new shares are issued. It often occurs during capital raises or stock option grants.
Director Liability
Director liability is the legal responsibility of corporate directors for breaches of fiduciary duty or negligence in decision-making. They may face lawsuits or financial penalties for failing to act in shareholders’ best interests.
Director Removal
Director removal is the process of ousting a board member, typically through shareholder votes or legal action, due to poor performance or misconduct. It’s governed by corporate bylaws and state laws.
Disclosure Document
A disclosure document is a formal report, like a prospectus or SEC filing, detailing a company’s financials, risks, and operations for investors. It ensures transparency in securities offerings or corporate actions.
Dysfunctional Board
A dysfunctional board is a corporate board hampered by conflicts, poor communication, or ineffective leadership, leading to weak governance. It can harm company performance and shareholder value.
Engagement Strategy
An engagement strategy is an activist investor’s plan to influence a company’s management or board through dialogue, proposals, or proxy battles. It aims to drive changes that enhance shareholder value.
An equity carve-out is the sale of a minority stake in a subsidiary via an IPO, with the parent retaining control. It raises capital while keeping strategic oversight.
Equity Infusion
An equity infusion is the injection of new capital into a company through equity sales, often to fund growth or stabilize finances. It can come from existing or new investors.
An event-driven strategy is an investment approach capitalizing on corporate events like mergers, bankruptcies, or restructurings to generate returns. It relies on predicting event outcomes and their market impact.
Exit Strategy
An exit strategy is a plan for investors or owners to sell their stake or liquidate an investment, often via IPOs or acquisitions. It aims to maximize returns and minimize risks.
Fiduciary Duty
Fiduciary duty is the legal obligation of directors, officers, or advisors to act in the best interests of shareholders or clients. Breaches can lead to liability or lawsuits.
Financial Flexibility
Financial flexibility is a company’s capacity to adapt its capital structure to seize opportunities or navigate challenges. It stems from strong cash flows, low debt, and market access.
Going private is when a public company is bought out, often by management or private equity, and delisted from stock exchanges. It allows greater control and reduced regulatory scrutiny.
Growth equity is investment in established, high-growth companies needing capital to expand operations or markets. It bridges venture capital and buyouts, often taking minority stakes.
A hard catalyst is a specific, identifiable event with a clear timeline, like a regulatory approval or acquisition announcement, that is expected to directly impact a company’s value.
Hedging strategies are techniques to reduce investment risk by taking offsetting positions, such as using derivatives like options or futures. They aim to protect against adverse price movements.
Hidden Gem
A hidden gem is an undervalued or overlooked company or subsidiary with strong fundamentals and growth potential, not yet recognized by the market. Investors seek these for outsized returns.
A hostile takeover is an acquisition opposed by the target company’s management, often executed via tender offers or proxy fights. It targets undervalued or strategically valuable firms.
Hybrid Financing
Hybrid financing is funding that blends debt and equity features, like convertible bonds, offering fixed returns with potential equity upside. It provides flexibility for issuers and investors.
Industry Consolidation
Industry consolidation is the reduction of competitors in a sector through mergers, acquisitions, or exits, leading to fewer, larger players. It often aims for economies of scale and market dominance.
Intrinsic Value
Intrinsic value is the true worth of an asset based on fundamentals like cash flows or earnings, independent of market price. It guides investors in spotting undervalued securities.
Investment Horizon
An investment horizon is the time period an investor plans to hold an investment before selling or needing returns. It shapes asset selection, with longer horizons favoring riskier investments.
Leverage
Leverage is the use of borrowed funds to amplify investment returns or finance operations. While it boosts potential gains, it also increases risk of losses.
A leveraged buyout is the acquisition of a company using significant borrowed funds, with the target’s assets often securing the debt. It aims for high returns but carries substantial financial risk.
Liquidating Distributions
Liquidating distributions are payments made to shareholders from the sale of a company’s assets during liquidation, after settling debts. They represent the final return to equity holders.
Liquidation Timeline
A liquidation timeline is the schedule for winding down a company, selling assets, paying creditors, and distributing proceeds. It varies based on complexity and legal requirements.
Liquidity
Liquidity is the ease of converting an asset into cash without significant price loss. High liquidity, like cash or stocks, supports quick transactions; low liquidity increases risk.
Liquidity Premium
A liquidity premium is the extra return investors demand for holding less liquid assets, like private equity or real estate. It compensates for the difficulty of quick sales.
M&A fees are charges paid to investment banks, lawyers, or advisors for facilitating mergers and acquisitions. They typically include advisory, legal, and due diligence costs, often tied to deal size.
An M&A firm is a specialized company, often an investment bank, that advises on or executes mergers, acquisitions, or divestitures. It provides expertise in valuation, negotiation, and deal structuring.
A mandatory tender offer is a required bid to purchase shares from all shareholders when an acquirer crosses a certain ownership threshold, per securities laws. It ensures fair treatment of minority investors.
Margin Call
A margin call is a broker’s demand for additional funds or securities when an investor’s margin account falls below the required level due to price drops. Failure to meet it may trigger asset sales.
A margin of safety is the difference between an asset’s intrinsic value and its market price, used by value investors to reduce risk. It cushions against errors in valuation or market declines.
Market Focus
Market focus is an investment strategy emphasizing specific sectors, regions, or asset classes based on growth or value potential. It guides portfolio allocation to capitalize on trends.
Market Manipulation
Market manipulation is the illegal act of artificially inflating or deflating asset prices through actions like pump-and-dump schemes or false information. It distorts fair trading and harms investors.
Market-Neutral Investing
Market-neutral investing is a strategy aiming to profit from mispriced securities while minimizing exposure to overall market movements. It uses paired long and short positions to balance risk.
A merger is the combination of two companies into one, typically to enhance market share, reduce costs, or achieve synergies. It can be friendly or contested, depending on management’s stance.
A merger arb strategy is an investment approach profiting from price discrepancies in announced mergers by buying the target’s stock and shorting the acquirer’s. It bets on deal completion, carrying risks if deals fail.
Merger arbitrage is a trading strategy that exploits price gaps between a target company’s stock and the acquisition offer price. Investors aim for profits if the deal closes, but face losses if it collapses.
Mergers and acquisitions are transactions where companies combine (mergers) or one buys another (acquisitions) to grow, cut costs, or gain strategic advantages. They involve complex negotiations, valuations, and regulatory approvals.
Minority shareholders
Minority shareholders are investors holding less than 50% of a company’s shares, lacking control over corporate decisions. They depend on majority shareholders or management to safeguard their interests.
Minority stake
A minority stake is an ownership position in a company, typically under 50%, that does not grant control. It allows limited influence without decision-making power.
A modified Dutch auction is a bidding process where the price starts high and lowers until bidders accept or a reserve price is met. It’s used in IPOs or buybacks to set fair market prices.
An offering memorandum is a legal document outlining a private securities offering, detailing financials, risks, and terms. It’s used to attract investors in private placements.
Options strategy
An options strategy is a plan using options contracts, such as calls or puts, to achieve goals like hedging or speculation. Common strategies include straddles, spreads, or covered calls.
A paper LBO is a simplified leveraged buyout analysis done without software, testing a candidate’s ability to estimate returns manually. It’s a common exercise in private equity interviews.
Parent company
A parent company is a firm owning enough voting stock in another company (subsidiary) to control its operations and policies. It may manage multiple subsidiaries across industries.
Preemptive rights
Preemptive rights are privileges allowing existing shareholders to purchase new shares before public offerings to maintain their ownership proportion. They protect against dilution in equity raises.
Preferred stock
Preferred stock is a class of equity with fixed dividends and priority over common stock in payouts or liquidation. It typically lacks voting rights but offers income stability.
Private equity is investment in private firms or public companies taken private, aiming for high returns through operational or strategic improvements. It involves illiquid, long-term commitments.
A prospectus is a regulatory document detailing a company’s financials, risks, and operations for a public securities offering. It informs investors before they purchase shares or bonds.
A proxy battle is a contest where shareholders vote by proxy to influence corporate decisions, such as board elections, often in activist campaigns. It’s a mechanism to drive management or strategy changes.
A proxy fight is a shareholder campaign to gather proxy votes to influence or replace a company’s board or policies. It’s often initiated by activists pushing for strategic shifts.
Public listing
A public listing is the process of a company offering its shares on a stock exchange for public trading. It increases liquidity but subjects the firm to regulatory oversight.
Redemption Restrictions
Redemption restrictions are limits on investors’ ability to withdraw funds from vehicles like hedge funds, often through lock-up periods. They ensure fund stability during volatile markets.
Refinancing
Refinancing is replacing existing debt with new debt to secure lower rates or better terms. It can reduce costs or extend repayment schedules.
Regulatory Approval
Regulatory approval is the authorization from government bodies required for corporate actions like mergers or securities offerings. It ensures compliance with laws protecting markets and consumers.
Regulatory Compliance
Regulatory compliance is a company’s adherence to laws, regulations, and guidelines governing its industry and operations. Non-compliance risks fines, legal action, or reputational harm.
A reverse merger is when a private company acquires a public shell company to gain a public listing without an IPO. It’s faster but involves regulatory and due diligence risks.
Right shares are new shares offered to existing shareholders at a discount, proportional to their holdings. They facilitate capital raises while prioritizing current investors.
A rights issue is a method of raising capital by offering existing shareholders new shares at a discount, proportional to ownership. It funds growth while minimizing dilution.
A rights issue calculation determines the number of new shares shareholders can buy based on their holdings and the subscription ratio. It also estimates the theoretical ex-rights price to assess the impact.
Risk arbitrage is a strategy profiting from price gaps in mergers by buying the target’s stock and shorting the acquirer’s. It bets on deal completion but risks losses if deals fail.
Risk Management
Risk management is the process of identifying, assessing, and mitigating financial, operational, or market risks. It employs tools like hedging or diversification to protect assets.
Risk Mitigation
Risk mitigation is the use of strategies to reduce the likelihood or impact of adverse events, like market losses. Techniques include insurance, hedging, or operational safeguards.
Risk-Return Profile
A risk-return profile is the tradeoff between an investment’s potential reward and its associated risks. Higher returns typically involve greater volatility or uncertainty.
Selling Puts
Selling puts is an options strategy where the seller collects premiums by agreeing to buy an asset at a set price if exercised. It profits in stable or rising markets but risks losses if prices drop.
Share Buyback
A share buyback is when a company repurchases its own shares, reducing outstanding shares to boost earnings per share or signal confidence. It can lift stock value but depletes cash reserves.
Share Exchange
A share exchange is a transaction where shareholders swap shares of one company for shares in another, often during mergers. It aligns ownership in the combined entity.
Share Repurchase
A share repurchase is a company’s program to buy back its shares from the market, reducing shares outstanding. It can enhance shareholder value but risks overpaying or cash depletion.
Shareholder Activism
Shareholder activism is when investors leverage their equity stakes to influence a company’s policies, management, or strategy. It uses proxy fights, proposals, or public campaigns.
Shareholder Value
Shareholder value is the financial worth delivered to shareholders through stock price growth and dividends. Companies prioritize it via profitability, growth, or efficient capital allocation.
Shareholder Vote
A shareholder vote is the process where investors cast ballots on corporate matters like board elections or mergers, often at annual meetings. It reflects their influence on company's direction.
A short squeeze is a rapid stock price surge when short sellers buy shares to cover positions, triggered by rising demand or positive news. It amplifies price spikes, hurting short sellers.
A SPAC (Special Purpose Acquisition Company) is a publicly traded shell company raising funds to acquire a private firm, taking it public. It’s a faster alternative to traditional IPOs.
A SPARC (Special Purpose Acquisition and Rights Company) is a SPAC variant where investors receive rights to future acquisitions instead of immediate equity. It’s less common but offers flexibility.
Special Situations
Special situations are corporate events like spin-offs or restructurings, creating investment opportunities due to market mispricing. Investors exploit these for short-term gains.
A special situations fund is a hedge fund targeting investments in corporate events like mergers or bankruptcies. It seeks high returns from temporary market inefficiencies.
A spin-off is when a parent company creates a new independent entity by distributing subsidiary shares to shareholders. It unlocks value through focused operations.
A split-off is a restructuring where shareholders exchange parent company shares for shares in a subsidiary, creating a separate entity. Unlike spin-offs, it requires share surrender.
Stock Borrow
A stock borrow is borrowing shares from a broker to sell short, expecting to repurchase them cheaper. It’s key for short selling but involves borrowing costs.
Stock Liquidation
Stock liquidation is the sale of a company’s shares, often during bankruptcy or closure, to convert holdings into cash. It typically occurs at distressed prices, reducing returns.
Structured equity is a hybrid investment blending equity with debt-like features, used in private equity to balance risk and upside. It may include convertible notes or warrants.
Structured finance is the creation of complex financial instruments, like asset-backed securities, to meet specific funding or risk needs. It’s used for large projects or tailored investments.
Structured financing is the use of customized financial arrangements, like securitization, to fund projects or manage risks. It aligns capital needs with investor preferences.
Subscription Price
The subscription price is the cost per share in a rights issue or private placement, often discounted to encourage participation. It facilitates capital raises for the company.
Subsidiary
A subsidiary is a company controlled by a parent company through majority ownership of its voting stock. It operates independently but aligns with the parent’s strategic goals.
Synergies
Synergies are financial benefits, like cost savings or revenue growth, realized when companies merge or collaborate. They justify mergers by creating greater combined value.
Takeover Bid
A takeover bid is an offer to buy a company’s shares, often at a premium, to gain control. It can be friendly or hostile, depending on management’s stance.
Tax Efficiency
Tax efficiency is structuring investments or transactions to minimize tax liabilities, maximizing after-tax returns. Strategies include tax-deferred accounts or timing capital gains.
Tax-Free Distribution
A tax-free distribution is a payment, like a spin-off’s stock dividend, received by shareholders without immediate tax liability. It qualifies under IRS rules, deferring taxes until sale.
A tender offer is a public bid to purchase a company’s shares at a specified price, often at a premium, to gain control. Shareholders individually decide whether to sell.
Top-down investing is a strategy starting with macro factors, like economic or sector trends, to select investments. It contrasts with a bottom-up focus on individual companies.
Tranches are segments of a pooled asset, like a mortgage-backed security, divided by risk, return, or maturity. They cater to diverse investor preferences in structured finance.
Transaction advisory services are professional support for mergers, acquisitions, or financings, including due diligence and deal structuring. They optimize outcomes for clients.
Valuation analysis is estimating an asset’s worth using methods like discounted cash flow or comparables. It guides investment, acquisition, or divestiture decisions.
Value creation is increasing a company’s worth through strategies like operational improvements or acquisitions. It benefits shareholders via higher stock prices or dividends.
Yield to Maturity
Yield to maturity is the total return expected on a bond if held until maturity, factoring in interest and price changes. It’s a key metric for bond investors.
