Resources: Glossary

Don’t be confused or intimidated by any terms or abbreviations in the M&A world. You’ll find answers here.

Home Glossary Generally Accepted Accounting Principles (GAAP)

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APA = Asset purchase agreement

CA = Confidentiality agreement

CIM = Confidential information memorandum

COGS = Cost of goods sold

DBA = Doing business as

DCF = Discounted cash flow

DPA = Definitive purchase agreement

EBITDA = Earnings before interest, taxes, depreciation, and amortization

ESOP = Employee stock ownership plan

FMV = Fair market value

GAAP = Generally accepted accounting principles

IP = Intellectual property

IRR = Internal rate of return

LOI = Letter of intent

MAC = Material adverse change

MBI = Management Buy-In

MBO = Management Buyout

NDA = Non-disclosure agreement

PE = Private equity

PEG = Private equity group

ROI = Return on investment

SDE = Seller’s discretionary earnings

SPA = Stock purchase agreement

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Generally Accepted Accounting Principles (GAAP)

Definition

The common set of principles, standards, and procedures established by the Financial Accounting Standards Board (FASB) that companies use to compile their financial statements.

Tips

Many small businesses do not prepare their financial statements in accordance with GAAP. Many sophisticated buyers include language that presumes the seller is preparing their financial statements in accordance with GAAP. Many sellers miss this language, and the buyer often proposes a reduced purchase price during due diligence when it is discovered that the seller’s financial statements are not prepared in accordance with GAAP.