Fairness Opinion

A formal written assessment, typically prepared by an independent investment bank or valuation firm, evaluating whether the financial terms of a proposed transaction are fair to a company's shareholders from a financial point of view. Fairness opinions are standard practice in M&A transactions and are relied upon by boards of directors to discharge their fiduciary duties.

The ratio of a company's market value to the replacement cost of its assets, proposed by economist James Tobin. A Tobin's Q greater than one suggests that the market values the firm above its tangible asset base, with the excess often attributable to intangible assets such as brand, technology, and human capital.

A measure of a company's financial performance that calculates the value created above the required return of investors, defined as net operating profit after tax minus the cost of capital employed. EVA highlights whether a firm's intangible and tangible assets are generating returns that exceed their cost of capital.

A reasonableness check performed in purchase price allocations to verify that the weighted average rate of return across all identified assets (tangible, intangible, and goodwill) is consistent with the overall weighted average cost of capital (WACC) used in the transaction. If WARA materially deviates from WACC, it indicates that the individual asset returns or relative values require adjustment.

A comprehensive measure of investment performance that combines share price appreciation and dividends over a given period. TSR is a key metric for assessing whether management's investment in both tangible and intangible assets is translating into value creation for shareholders.

The investor who takes the primary role in a financing round, typically investing the largest amount, setting the terms, negotiating the term sheet, and conducting due diligence. The lead investor often takes a board seat and serves as the main point of contact for the company.

The practice of valuing assets at their current market price rather than their historical cost. Mark-to-market accounting provides a more timely view of portfolio value but can introduce volatility, particularly for intangible-heavy investments where market prices may fluctuate significantly in response to sentiment and information flow.

Financial statements that present historical or projected financial information adjusted to reflect a specific transaction, event, or set of assumptions as if it had already occurred. In M&A, pro forma financials combine the acquirer's and target's results, incorporate purchase price allocation adjustments, and eliminate intercompany transactions to show the post-combination financial position.

Return on Equity (ROE)

Net income divided by shareholders' equity, measuring the return generated on owners' invested capital.

What are drag-along rights and when are they exercised?

Drag-along rights allow majority shareholders (often preferred investors) to force minority shareholders (usually founders) to sell their shares in an acquisition, preventing holdouts from blocking deals.

What is a co-sale right (tag-along right for shareholders)?

Co-sale rights allow shareholders to participate in a sale of the company on the same terms negotiated by majority shareholders, preventing discrimination against minorities.