Glossary

Backstop facility

A backstop facility or backup facility is a loan granted by a bank only when a borrower cannot otherwise meet his financing needs.

Bad Leaver

A bad leaver is a manager who is a shareholder and leaves the company due to his own misconduct or at his own request. The opposite is called a good leaver.

Bank Consortium

A banking consortium is a grouping of several credit institutions for the purpose of carrying out certain banking transactions. The coordination is usually carried out by a consortium leader.

Basel II

Basel II is an international agreement that came into force on 1 January 2007. It regulates the minimum capital backing for loans granted by banks by making the capital requirements for banks dependent on the risk of the loans issued.

Basel III

Basel III has further tightened the capital adequacy requirements compared to Basel II (see also Basel II). The aim is to improve banks' capital adequacy in order to prevent new financial crises.

Baselining

Baselining is the process of creating a baseline for results, which is used as a basis for assessing the success of a corporate merger and for initiating appropriate measures.

Basis Point

A basis point or basis point is the specification of an interest rate. It corresponds to 1/100 of a percentage (0.01 percent).

Basket

A basket is the provision in a company purchase agreement according to which a buyer may only assert warranty claims if the total sum of all claims exceeds a defined threshold value.

Beauty Contest

A beauty contest refers to the solicitation of a company planning an initial public offering (IPO) by investment banks, law firms, transaction houses and other consultants with the aim of accompanying the IPO as consortium leader.

Benchmark

A benchmark or milestone refers to a particular point in the company's development at which certain measures are taken (e.g. new capital injection). Furthermore, the term "benchmarking" can also mean the comparison of important key figures with other industry participants.

Best Efforts

The term Best Effort comes from Anglo-American contract practice and is unknown in German law. It refers to a contractual clause which stipulates that the contracting party concerned must make every effort (in a reasonable manner) to fulfil its contractual obligation (depending on the type of contract). Conversely, this means that the obligated contractual party does not owe a certain success of its performance.

Best Efforts Underwriting

Best Efforts Underwriting means that when a company goes public or issues bonds, a consortium of banks undertakes to make only the best efforts to place the bonds. This means that - unlike with hard underwriting - the syndicate does not provide a placement guarantee. 

Best Knowledge

The seller describes in company purchase agreements that the company has certain characteristics to the best of his knowledge (best knowledge). It is therefore a limited warranty.

Beta

The beta or beta factor is an important element in the valuation of companies. It is based on an orientation towards the capital market and is intended to reflect the risk measure for the fluctuation margin of a share price in comparison to the market as a whole.

Bid

A bid is an offer to acquire a company. The offer can be binding (binding bid) or non-binding (indicative bid).

Bid Letter

In a bid letter, the prospective buyer submits an initial purchase price offer (see also Bid) for the acquisition of a company. In most cases, a Bid Letter is not legally binding.

Bidding process

A bidding process is a structured bidding procedure initiated by an M&A consultancy or an investment bank to sell a company (see also Auction).

BIMBO

In a buy-in management buyout (BIMBO for short), internal managers acquire the company together with external managers.

Binding Bid

In a bidding process (auction, bidding process), a binding bid (sometimes called a binding offer) is a binding bid for a company by a prospective buyer. However, a Binding Bid is usually only binding from a moral point of view, as the legal formal requirements are often still missing.

Binding Offer

A binding offer (sometimes called a binding bid) is a binding offer made by a prospective buyer in a bidding process (auction, bidding process). As soon as the seller accepts the offer in due time and form, the contract is concluded.

BINGO

BINGO is a short form for buy-in growth-opportunity. This is a management buy-in (MBI) in which a significant portion of the financing does not have to be spent on the purchase price, but is invested in the expansion of the acquired company.

Black-out period

A black-out period is the period during which banks accompanying a securities issue do not publish any information about the issuer beyond the content of the sales prospectus.

Blue chip

A blue chip is a designation for high-turnover shares of internationally known and important companies. The prices of such companies are often used in the calculation of the central stock exchange index (e.g. for the DAX).

Board

A board is the abbreviation for the Board of Directors and designates a body or authority. (See Board of Directors for more detailed information)

Board of directors

The board of directors (often referred to as the board in its abbreviated form) is the highest administrative body of a company in the Anglo-Saxon legal system. The Board of Directors (in Germany divided between the executive board and the supervisory board) is elected by the shareholders and appoints the management, monitors its management and decides on fundamental issues.

Boiler Plate Clause

The Boiler Plate Clause is a standard clause in contracts that is routinely agreed upon and therefore usually not subject to negotiation.

Bond

A bond is a security, which is usually characterised by fixed interest payments).

Bookbuilding

The bookbuilding process determines the price at which a newly issued bond or share is first listed on the stock exchange.

Bookrunner

In the course of a securities issue, the managing underwriter is referred to as the bookrunner, who maintains the electronic order book as part of the bookbuilding process.

Borrower

A borrower is a person or a company that borrows money from a bank or some other kind of lender

BOT

A BOT is the short form for Build-Operate-Transfer and describes an operator model in international project management. Operator models are project forms within which the actual investor transfers the construction, operation and maintenance of a plant to another company for a limited period of time and thus acts as a customer to the operating company. 

Bottom line

The bottom line is the lowest line of the Profit and Loss Statement (income statement). This line usually contains the net income (annual net profit or loss), i.e. it shows the profit or loss of the company.

Break-up Fee

The break-up fee refers to the pre-defined penalty payment to which a contracting party commits itself if it unilaterally breaks off the contract negotiations or if the party is solely responsible for the failure to conclude the contract.

Breakage Costs

Breakage costs refer to the amount that a borrower must pay to the bank if he wishes to repay his loan before the agreed maturity date. A synonym for this is "broken funding costs".

Bridge financing

Bridge financing or also bridge financing, interim financing or bridge financing, describes the short-term and temporary procurement of financial resources.

Bridge loan

A bridge loan is the loan amount that is made available to a company as interim financing until the final financing is completed.

Bring-down

A bring-down means that previous contractual declarations are confirmed (possibly in an updated form). In the case of a company purchase, this means that the representations and warranties given by the seller in the purchase contract are still correct when the contract is closed.

Bring-down certificate

The bring-down certificate is a certificate in which the management of the target company confirms that the representations and warranties given by the seller in the purchase contract are still correct when the contract is closed (see also bring-down and bring-down letter).

Bring-down Letter

A bring-down letter is a letter in which the authors formally confirm that the content of the document prepared earlier, for example a due diligence report, is still factually correct (see also Bring-down and Bring-down Certificate). In the case of a company acquisition, the presentation of the bring-down letter is often related to warranty commitments.

Broken Funding Costs

Broken funding costs are the amount that a borrower must pay to the bank if he wishes to repay his loan before the agreed maturity date. A synonym for this is "Breakage Costs".

Build-Operate-Transfer

A Build-Operate-Transfer (short BOT) describes an operator model in international project management. Operator models are project forms within which the actual investor transfers the construction, operation and maintenance of a plant to another company for a limited period of time, thus acting as a customer to the operating company. 

Bullet Repayment

A bullet repayment is the English term for a bullet loan.

Burn rate

The burn rate describes the speed (for example, expressed in months) that a young company (start-up) needs to consume its equity and loans in a given period of time. Start-ups with a high burn rate take less time to use up their capital than start-ups with a low burn rate.

Business angel

A business angel (also called angel investor) is a wealthy private individual who invests parts of his own assets in newly founded companies (start-ups). Due to his own professional activities, a business angel often has a high level of professional expertise and a large network. The start-up can profit from this in addition to the pure financial contribution. However, a business angel must be distinguished from a venture capitalist.

Business cooperation

One speaks of a business cooperation if two or more companies cooperate voluntarily but remain legally independent. Companies enter into a business cooperation in order to generate synergies and increase their market share.

Business Judgment Rule

The Business Judgment Rule is a provision of Anglo-American law according to which the board of directors of a stock corporation is entitled to extensive discretion within the framework of the management of the company. This content of the rule corresponds to German jurisdictional practice and was codified in § 93 (1) sentence 2 of the German Stock Corporation Act (AktG). According to this provision, members of the Management Board have room for manoeuvre when making business decisions. If it can be assumed that a member of the Management Board acted in the best interests of the Company when making a business decision based on appropriate information, no breach of duty on the part of the Management Board can be assumed.

Business Plan

A business plan is a document that summarizes the goals, strategies and essential characteristics of a company. In many cases, it is one of the first documents sent to potentially interested investors by companies seeking capital.

Business unit

A business unit (also called strategic business unit or BU for short) is the strategic business unit as an element in the portfolio of a company.

Buy-and-build

A buy and build is the strategy of a private equity or venture capital fund to acquire further investments from the same industry on the basis of a company acquired as a platform and to merge them into a larger group of companies and to exploit synergies.

Buy-In Management Buyout

In a buy-in management buyout (also known as a BIMBO), internal managers acquire the company together with external managers who join the company.

Buy-out

A buy-out is the takeover of a company by the existing management or an external management (see also Management Buy-in or Management Buy-out).

Buy-side

The buy-side is the buyer's side in a company purchase or the purchaser of securities in a capital market transaction.

BWA (business assessment)

A business assessment (BWA for short) is an actual determination of business management key figures.