Five M&A Terms Every Seller Should Know

Anyone thinking about a company sale for the first time quickly encounters a series of technical terms — often English, often abbreviated. Knowing them creates a level footing in the talks and protects against misunderstandings. Five terms appear in practically every process.

The five terms at a glance

Five terms appear in practically every sale process: multiple, due diligence, letter of intent, SPA and earn-out. They structure valuation, review, intent, contract and purchase price — knowing them lets you negotiate on equal terms.

Term	Meaning in one sentence
Multiple	a factor of a metric (usually EBITDA) at which comparable companies are traded
Due diligence (DD)	the careful examination of the company by the buyer
Letter of intent (LOI)	a statement of intent with the key points before the deeper review
SPA (share purchase agreement)	the actual purchase agreement for the shares
Earn-out	a success-dependent part of the purchase price tied to future performance

1. Multiple (valuation multiple)

A multiple is a factor of a metric — often EBITDA (earnings before interest, taxes, depreciation and amortisation) — at which comparable companies are traded. "4× EBITDA" means the purchase price equals four times EBITDA.

The multiple is a useful market check, but not a price tag. Which factor is appropriate depends on industry, size, growth and risk. In the DACH region, EBITDA multiples range, according to the KPMG multiples, roughly between four and eight times depending on industry.

2. Due diligence (DD)

Due diligence is the careful examination of the company by the buyer — finance, law, tax, contracts, personnel, sometimes technology and market. It usually takes place after the letter of intent.

For sellers: those who present clean, comprehensible documents here create trust and avoid subsequent price discounts. More in „What is a Due Diligence?".

3. Letter of Intent (LOI)

The LOI is a statement of intent: buyer and seller record the key points of a possible transaction — price expectation, structure, timetable and often exclusivity — before the deeper review begins. The LOI is usually not yet binding but sets the framework. Details in „Letter of Intent".

4. SPA (share purchase agreement)

The SPA is the actual purchase agreement for the shares. It governs not only the price but also warranties, liability, conditions for completion and the structure of payment. The SPA is the central legal document of the transaction.

5. Earn-out

In an earn-out, part of the purchase price is paid subject to success — tied to the company''s future development, e.g. revenue or earnings in the years after the sale. An earn-out bridges differing price expectations but requires clear, measurable criteria — otherwise dispute and disappointment loom. How it is made fair is shown in „What is an Earn-out?".

Why this matters

These terms are not a formality but levers that decide the price, security and course of a transaction. Those who understand them negotiate more confidently — and recognise early what matters.

Before you enter sale talks: talk confidentially with IGCP Capital Partners — independent and discreet. → igcp.at

Frequently asked questions

Which M&A terms should a seller know?

The most important are the valuation multiple, due diligence, the letter of intent, the SPA (purchase agreement) and the earn-out — plus the distinction between asset and share deal. Those who understand them negotiate on equal terms.

Do I have to master these terms myself?

Not in detail — that is what advisers are for. But a basic understanding helps to place decisions and ask the right questions.

What does due diligence mean?

The careful examination of the company by the buyer before the purchase. More on this: „What is a Due Diligence?".

Is an earn-out good or bad?

Neither — it depends on the design. Clearly defined, influenceable metrics are decisive. Details in „What is an Earn-out?".