BZT Dictionary®

M&A

Stands for "Mergers and Acquisitions" and is an expression which covers purchases, sales and mergers of companies. In connection with large acquisitions of enterprises, the seller and the buyer each engage their own so-called M&A advisor. Examples of these can be an investment bank or an accounting firm which offers M&A services.

Larger corporates often have their own M&A departments which continually look for and analyze possible acquisitions.

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Management fee

There are several possible meanings for the concept "Management fee", but it usually means the compensation which the investor (or the investor's investment company) receives from the investors (unit owners) in a fund to cover costs related to the investment activity. The size of the compensation may be as large as a couple of percent of the fund's total size.

A portfolio company in a Private Equity corporate structure may also pay a fee to cover certain of an investor's day-to-day expenses related to the company. The condition, however, is that the services to which the compensation relates are of use to the company.

Management walk-out

A serious situation for owners and the Board of Directors! The management and key personnel in an enterprise decide to create a new, sometimes a competing, business, resign and start their own company. This may also describe the situation in which large parts of the management go over to a competitor, which is even more serious.

The people who do a management walk-out must see to it that they do not take along trade secrets or client lists, or utilize other intellectual property which belongs to the company they are leaving. It is also a very sensitive matter to try to recruit former colleagues.

MBI, Management Buy-in

When external business management buys a controlling position in a business. The management most often has knowledge about the business, the products and the market before the acquisition. The management which is buying in may even come from a competitor.

Financing of the acquisition may be made together with some financially strong party, for example a Private Equity investor or a Venture Capitalist.

Management Buy-out, MBO

A management buy-out (MBO) is a transaction in which one or more investors, together with the existing management of the business, acquire a company acquire a company (or a business). The investors say that they are backing an ambitious management team in buying out and running "their" business. Examples of situations in which an MBO is possible are:

• When a large company sells one of its non-core businesses in a restructuring.
• If a small, profitable subsidiary in a large group does not receive the priority which it needs from the group's management. The management in the subsidiary which has been side-tracked may then itself take the initiative for a buy-out. In order to finance the buy-out, the management will get in touch with external investors, for example a PE investor (venture capitalist).
• In conjunction with a generation change in a family business.

An MBO situation is an attractive investment opportunity for Private Equity.

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Mezzanine finance

This is a financial instrument with a half-way position (hybrid) in a company's capital structure. Mezzanine stands between equity capital and those bank loans which are secured in some way by the company's assets.

In connection with larger business acquisitions, financing is structured in an optimal way with a variety of different financing forms (instruments) which supplement each other, and in which mezzanine financing plays a major role. The investors (the new owners) want to balance equity capital and loans in order to achieve the best return in relation to risk and financing costs.

Mezzanine financing bridges the gap between the loans which the bank offers and the equity capital which the investors have available. In order to make mezzanine loans attractive, both a higher interest rate than the interest rates which are offered on bank loans, and better priority rights than the shareholders have, are offered. The loan may even, in some situations, be convertible to shares.

The word mezzanine derives from the Italian word "mezzano" (middle) and is used for, among other things, an extra floor in a building.

Momentum

In a transaction, "momentum" means that the parties have the will, the enthusiasm and the tempo which drives a transaction forward towards a conclusion. If momentum disappears, the transaction also disappears!

Monitoring fee

The compensation an investor receives from the companies (portfolio companies) which that investor has invested in. The compensation is to cover the administrative costs which the investor has.

Monopoly

Monopoly is a market situation where a single company or group of companies controls the whole or almost the whole market for a certain type of product or service. Monopoly is characterised by lack of competition, which may result in high prices and lower quality products.

Many companies strive to get a monopoly position in order to determine pricing and supply without having to pay attention to competitors. But it is a short-sighted and narrow view. In a longer perspective the competition is seen as a key driver of innovation in new products, range of services and pricing.

In many countries there are competition laws (antitrust laws) to protect free markets from being dominated by one company. This, for ex., includes rules that an acquiring company, if there is a risk for a dominant position post acquisition, must receive approval from the competition authorities in the countries concerned before a purchase can be completed.

See also "Oligopoly".

MTF

An abbreviation of "Multilateral Trading Facility" which is a term for a trading platform for securities which is not a regulated securities exchange. Read more under "Listing on an exchange".