Secondary Market (Private Shares)

Modifications applied to valuation multiples derived from comparable public companies or precedent transactions to account for differences between the reference companies and the subject being valued. Common adjustments address differences in size, growth rate, profitability, geographic mix, capital structure, and the presence or absence of a control premium.

The total revenue opportunity available for a product or service if it achieved 100% market share. TAM represents the theoretical maximum market size and is used by investors to assess the scale of opportunity and the potential ceiling for a company's growth.

A private equity transaction in which one PE fund sells a portfolio company to another PE fund, rather than to a strategic buyer or through an IPO. Secondary buyouts have become the most common PE exit route, accounting for over 50% of European PE exits in recent years.

A valuation methodology that estimates the value of an asset based on observed prices in actual market transactions involving comparable assets. The market approach is used to value intangible assets when reliable transaction data or licensing royalty rates are available, and is one of the three primary approaches alongside the income and cost approaches.

The price at which an asset would change hands between a willing buyer and a willing seller, neither being under compulsion to transact, and both having reasonable knowledge of the relevant facts. Fair market value is the standard used in most asset valuation contexts.

The portion of the total addressable market that a company can realistically serve given its current product, business model, and geographic reach. SAM is a more practical measure of near-term opportunity than TAM.

A U.S. tax provision allowing investors in qualifying small businesses to exclude a portion of capital gains from federal taxation upon the sale of stock held for more than five years.

A specialist insurance policy used in M&A transactions that covers losses arising from breaches of the seller's warranties and representations in the sale and purchase agreement. W&I insurance shifts the risk of warranty claims from the seller to an insurer, enabling cleaner exits for sellers and reducing the need for escrow holdbacks.

What is a pro-rata right?

A pro-rata (or pro-rata participation) right entitles an investor to maintain their ownership percentage by participating in future funding rounds on the same terms as new investors.

What is a recap (recapitalisation) and why do founders propose them?

A recap allows founders and early investors to sell a portion of their shares to new investors without an exit, providing partial liquidity before the full company exits.

What is a secondary sale and how does it work?

A secondary sale is when existing shareholders (investors, founders, employees) sell their shares in a company to new investors without the company itself raising new capital.