This glossary covers the core terms used in mid-market business growth, exit planning, and mergers and acquisitions. Each definition reflects how the term is used in practice by buyers, sellers, advisors, and business owners preparing for or navigating a business sale. Terms are tied to the Exit Ratio 360™ framework where applicable.
A
Add-Back — A financial adjustment made to EBITDA to remove non-recurring, owner-specific, or discretionary expenses that would not continue under new ownership. Common add-backs include the owner’s above-market compensation, one-time legal fees, and personal expenses run through the business. Excessive or poorly documented add-backs are a common due diligence problem.
Asset Sale — A transaction structure in which the buyer purchases specific assets of the business — equipment, customer lists, intellectual property, contracts — rather than the legal entity itself. Asset sales are generally preferred by buyers because they allow selective liability assumption. Sellers typically prefer stock sales for tax efficiency.
Acqui-Hire — An acquisition motivated primarily by the desire to hire the target company’s team rather than to acquire its products, revenue, or technology. Acqui-hires are most common in technology sectors and startup environments.
B
BENCH Framework — One of the nine scored components of the Exit Ratio 360™ system, worth 40 points. The BENCH framework evaluates whether a business has documented systems, a defined organizational structure, and operational processes that can function without the founder. It scores the transferability of institutional knowledge and the depth of the management bench.
Bolt-On Acquisition — A smaller company purchased to add to an existing platform business. The bolt-on is integrated into the platform’s operations, systems, and management structure. Bolt-on acquisitions are typically priced at lower multiples than platform acquisitions because the buyer is purchasing revenue and customers, not operational infrastructure.
Business Valuation — The process of determining the market value of a business. In mid-market M&A, valuation is typically expressed as a multiple of EBITDA. The multiple reflects buyer-perceived risk, revenue quality, management depth, and the transferability of the business.
Buy-Side Advisor — An advisor retained by the buyer to identify acquisition targets, conduct analysis, and manage the transaction process on the buyer’s behalf. The counterpart to the sell-side advisor retained by the seller.
C
CIM (Confidential Information Memorandum) — The primary document used to present a business to prospective buyers during a sale process. It covers the business model, financial history, market position, management team, and investment thesis. Provided to qualified buyers after NDA execution.
Customer Concentration Risk — The degree to which a business’s revenue depends on a small number of customers. Most buyers flag concentration when any single customer exceeds 15 to 20 percent of total revenue. High concentration compresses valuation multiples and introduces earnout and seller financing requirements.
Capital Stack — The structure of financing used to complete an acquisition, including senior debt, mezzanine financing, seller financing, and equity. The composition of the capital stack affects the buyer’s required returns and the seller’s net proceeds.
Closing — The final step in a business sale transaction, during which the purchase agreement is executed, consideration is transferred, and ownership changes hands.
D
Data Room — A secure digital repository of documents buyers review during due diligence. Typically includes financial statements, tax returns, customer contracts, employee agreements, and operational documentation. An organized data room accelerates due diligence and reduces re-trade opportunities.
Deal Fatigue — The physical and psychological exhaustion that accumulates during a long or difficult transaction process. Deal fatigue is one of the leading causes of concessions made by sellers in the final stages of a negotiation. Proper preparation reduces deal fatigue by shortening the due diligence process.
DRIVER Framework — One of the nine scored components of the Exit Ratio 360™ system, worth 60 points. The DRIVER framework evaluates owner and founder dependency across relationship, decision, knowledge, brand, and network dimensions. It is the most commonly underscored framework in mid-market businesses and the most important to address before going to market.
Due Diligence — The buyer’s process of verifying all material representations made by the seller during the sale process. Covers financial, legal, operational, customer, and HR dimensions. The quality of a seller’s preparation determines whether due diligence accelerates or slows the closing process.
E
Earnout — A contingent payment structure in which a portion of the purchase price is tied to post-close business performance. Earnouts are used by buyers to manage transition risk, particularly in businesses with high owner dependency or inconsistent historical performance. Sellers should treat earnout requirements as a signal about what the buyer perceives as unresolved risk.
EBITDA — Earnings before interest, taxes, depreciation, and amortization. The standard profitability metric used in mid-market business valuations. Enterprise value is calculated by multiplying EBITDA by the applicable industry multiple.
EBITDA Multiple — The ratio of enterprise value to EBITDA. The multiple reflects the risk profile and quality of the business. Mid-market multiples typically range from 3x to 10x depending on industry, business quality, and market conditions.
Enterprise Value — The total value of a business, including equity and debt, representing what a buyer pays to acquire the entire company. Calculated as EBITDA multiplied by the applicable multiple.
Exit Ratio 360™ — A nine-framework, 360-point business scoring system developed by Scott Sylvan Bell for evaluating mid-market companies against the criteria buyers use to determine valuation multiples. The nine frameworks are LAUNCH, SCORE, SELL, SCALE, DRIVER, EXIT, BENCH, the LEAD Model, and the THREATS Framework. All businesses enter through the READY Gateway before scoring begins.
Exit Strategy — A business owner’s plan for eventually transitioning ownership of their company. A well-developed exit strategy includes a target timeline, target buyer type, valuation expectations, and a preparation roadmap for building the business toward those outcomes.
EXIT Framework — One of the nine scored components of the Exit Ratio 360™ system, worth 40 points. It evaluates the owner’s personal readiness and strategic preparation for the transition of ownership.
F
Founder Dependency — A condition in which a business cannot fully function without the active involvement of its founder or owner. The five forms are relationship dependency, decision dependency, knowledge dependency, brand dependency, and network dependency. It is the single most common valuation suppressor in mid-market companies.
Financial Recast — The process of adjusting a business’s historical financial statements to show normalized earnings by removing non-recurring expenses, owner-specific costs, and other items that would not continue under new ownership. Also called a quality of earnings recast.
G
Growth Equity — A form of private equity investment that provides capital to established, profitable businesses for growth initiatives without requiring a full ownership transfer. Growth equity investors typically take a minority stake.
H
HEAT Framework — A transaction process framework developed by Scott Sylvan Bell covering four phases: Harden, Engineer, Attract, and Transfer. A companion system to Exit Ratio 360™ focused on the deal mechanics and transition process.
Hold Period — The length of time a private equity firm plans to own an acquired business before exiting through a sale or recapitalization. Typical hold periods are three to seven years. The hold period affects how buyers model returns and how they structure the acquisition.
I
IOI (Indication of Interest) — A non-binding document submitted by a buyer expressing preliminary interest in acquiring a business at a stated valuation range. An IOI precedes the LOI and is based on limited information.
Integration Risk — The risk that the acquiring company will not successfully combine the acquired business with its existing operations. High integration risk compresses the multiple buyers are willing to pay and increases the likelihood of earnout requirements.
L
LAUNCH Framework — One of the nine scored components of the Exit Ratio 360™ system, worth 30 points. It evaluates the foundational business infrastructure — the baseline systems, legal structure, and operational readiness that precede growth and scale.
LEAD Model — One of the nine scored components of the Exit Ratio 360™ system, worth 40 points. It evaluates the business’s leadership development and management succession infrastructure.
LOI (Letter of Intent) — A non-binding document that outlines the principal terms of a proposed acquisition, including price, structure, and key conditions. The LOI precedes the definitive purchase agreement and typically includes an exclusivity period during which the seller agrees not to negotiate with other buyers.
M
Management Buyout (MBO) — A transaction in which the existing management team purchases the business from the current owner, typically with the assistance of private equity financing. MBOs are an exit option for owners who want to transition to a team that already understands the business.
Mid-Market — A classification typically applied to businesses generating between $10 million and $250 million in annual revenue, or EBITDA between $1 million and $25 million. The mid-market is the most active segment of the M&A market by deal volume.
Multiple Expansion — An increase in the valuation multiple applied to a business’s EBITDA. Multiple expansion results from reducing buyer-perceived risk — through lower owner dependency, improved revenue quality, management depth, and systems transferability.
N
NDA (Non-Disclosure Agreement) — A confidentiality agreement signed by prospective buyers before receiving detailed information about a business for sale. Standard in all professional M&A processes.
Net Working Capital — Current assets minus current liabilities. In most mid-market acquisitions, a normalized level of working capital is included in the transaction price. Working capital adjustments at close are a common source of post-close disputes and should be negotiated carefully in the purchase agreement.
O
Owner Dependency — See Founder Dependency. The degree to which a business’s operations, relationships, and performance depend on the active involvement of its current owner. The primary risk factor evaluated by buyers in mid-market transactions.
Owner’s Discretionary Earnings (ODE) — See Seller’s Discretionary Earnings. The adjusted earnings of a business including the owner’s compensation, benefits, and discretionary expenses. Used as the valuation basis for smaller businesses.
P
Platform Acquisition — The purchase of a business intended to serve as the foundation of a private equity consolidation strategy. Platform companies have the management infrastructure, systems, and market position to absorb add-on acquisitions. They command higher multiples than bolt-on acquisitions.
Private Equity (PE) — Investment firms that acquire, improve, and sell businesses over a defined hold period. Private equity buyers are among the most active acquirers in the mid-market and typically use leverage to enhance returns. Understanding how PE firms model returns is essential for sellers negotiating with PE buyers.
Purchase Price Adjustment — A contractual mechanism that adjusts the final purchase price based on the actual state of the business at close, typically related to working capital, debt, or cash. Purchase price adjustments are a common source of post-close disputes.
Q
Quality of Earnings (QoE) — An analysis performed by the buyer’s advisors to assess the accuracy and sustainability of the seller’s reported earnings. A QoE examines add-backs, revenue quality, customer concentration, and accounting practices. Businesses with clean financials and defensible add-backs move through QoE analysis faster and with fewer re-trade opportunities.
R
READY Gateway — The entry point of the Exit Ratio 360™ evaluation system. Before a business is scored across the nine frameworks, it passes through the READY Gateway — a diagnostic that assesses whether the business is at the development stage where structured scoring will produce actionable results.
Recapitalization — A transaction in which a business owner sells a majority stake to a private equity firm while retaining a minority ownership position. Recapitalizations allow owners to take significant liquidity off the table while maintaining an equity position in the company’s continued growth — often called “a second bite of the apple.”
Recurring Revenue — Revenue that a business reliably receives in future periods based on existing customer commitments — contracts, subscriptions, maintenance agreements, or retainers. Recurring revenue is the highest-quality revenue type in business valuations because it can be modeled forward with confidence.
Re-Trade — A buyer’s renegotiation of the purchase price after the initial offer has been accepted, typically triggered by issues discovered during due diligence. Re-trades are most common in businesses that were not adequately prepared before going to market.
Roll-Up — A private equity strategy of acquiring multiple businesses in the same industry and consolidating them under a single platform to achieve scale, cost savings, and a higher exit multiple than any individual business would command alone.
S
SCALE Framework — One of the nine scored components of the Exit Ratio 360™ system, worth 50 points. It evaluates whether the business’s growth decisions are building enterprise value or creating structural problems — customer concentration, owner dependency, margin degradation — that will suppress valuation at exit.
SCORE Framework — The largest of the nine components of the Exit Ratio 360™ system, worth 100 points. It evaluates revenue quality, revenue predictability, and customer concentration — the factors buyers use most heavily to model forward cash flow and determine the valuation multiple.
SELL Framework — One of the nine scored components of the Exit Ratio 360™ system, worth 40 points. It evaluates the business’s market positioning, brand differentiation, and the defensibility of its competitive position — factors that determine whether buyers will pay a premium or a discount for the business relative to industry peers.
Seller Financing — A deal structure in which the seller accepts a portion of the purchase price as a promissory note from the buyer, paid out over time with interest. Seller financing is often required when buyers identify unresolved risk factors — owner dependency, customer concentration — that they are not willing to absorb fully in the purchase price.
Seller’s Discretionary Earnings (SDE) — A profitability metric used primarily for smaller businesses that adds the owner’s compensation and benefits back to EBITDA. SDE assumes the buyer will replace the owner with their own management and is the standard basis for valuing businesses under approximately $2 million in annual profit.
Strategic Buyer — A buyer who acquires a business because it complements or extends their existing operations — adding customers, geographic presence, technology, or talent. Strategic buyers often pay higher multiples than financial buyers because the acquisition creates synergies that justify paying above the standalone value of the business.
T
THREATS Framework — One of the nine scored components of the Exit Ratio 360™ system. It evaluates the external and internal risk factors that could affect the business’s value or transferability — competitive threats, regulatory exposure, key person risk, and market dynamics.
Transaction Multiple — See EBITDA Multiple. The ratio of enterprise value to EBITDA at which a business transacts in the M&A market.
Transition Services Agreement (TSA) — A post-close agreement in which the seller provides services to support the business’s operations during the transition to new ownership. The length and scope of the TSA is directly related to how dependent the business was on the seller at the time of closing.
V
Valuation Gap — The difference between what an owner expects their business is worth and what buyers are actually willing to pay. The valuation gap is most commonly explained by unresolved risk factors — owner dependency, customer concentration, undocumented systems — that the owner discounts but buyers price heavily.
Valuation Multiple — See EBITDA Multiple. The number applied to EBITDA to determine enterprise value. The multiple expands with lower buyer-perceived risk and contracts with higher risk.
W
Working Capital — Current assets minus current liabilities. The operating liquidity of the business required to fund day-to-day operations. In M&A transactions, working capital is a negotiated component of the deal structure and is typically the subject of post-close adjustment mechanisms.