A B C D E F G H I J K L M N O P Q R S T U V W W X Y Z
Advisory Committee (AC) Limited Partner Advisory Committee (LPAC) created by GP to advice on select issues over the fund life such as; has PE firm achieved investment threshold after which it can launch it’s next Fund; should the fund life be extended etc. American Waterfall A distribution method that does not require a full fund Exit to pay out. It pays out on a deal-by-deal waterfall with GPs being paid carried interest on each portfolio business sold after LPs have been repaid their invested capital plus hurdle rate. However at final fund Exit a correction may be required with money moving from GP to LPs if GPs have been over paid on the deal-by-deal method, as compared to the European Waterfall method. (Also see Waterfall & European Waterfall). Asset A valuable useful thing, quality or resource (physical or intangible) used or consumed through business activity to generate profit and or gain. Asset Purchase Agreement (APA) An APA is an important tool for PE funds. It is a contract for the purchase (by a buyer) of the trading assets from a Company that owns them, where the Company is the legal seller. This is in contrast with a Share Purchase Agreement where the Company (containing the trading assets) is sold by its shareholders. (Also see Share Purchase Agreement - SPA) Asset Value An assigned amount or an estimate that aims to reflect the fair market worth of a tangible and or intangible Asset. Administrator (Regulated) An entity independent of an FCA compliant PE fund, that co-manages the administrative process in line with FCA regulations, actively assisting the fund to remain operationally FCA compliant. Advisory Act of giving relevant information, skilled counsel, professional opinion or a recommendation, of value or worth. Arbitrage An act of making a profit or gain by simultaneously taking advantage of price differences in tradable instruments between two or more market places. This arises where information fails to flow freely to all participants. A term increasingly used for non simultaneous price differences, such as the price difference between when an Company is purchased and much later sold. Arrangement Fee A fee charged by a party advancing monies usually in form of loans. Normally charged as a % of the advance. Bankruptcy An insolvent person and or company (unable to meet their ongoing financial obligations) declared legally ‘Bankrupt’ by a court. Bond A fixed term financial instrument acquired by a party who deposits monies with issuer to acquire Bond rights to receive regular interest income at a rate defined in the Bond document plus return of the full deposit on Bond maturity. Bridging Loan A temporary loan that meets funding needs until long-term funding is put in place. Bullet Repayment A one off full repayment of a loan and any accrued interest, normally at the end of the loan term. Burn Rate The monthly rate a new business spends its capital before achieving positive operational net cash flow, normally measured in £ per month. Business Model A close approximation and representation of reality constructed to study how a business may operate and perform in reality (Also see Business Plan). Business Plan A report setting out a businesses strategic vision, value creation drivers, risks and potential returns over a multi (usually 3) year financial forecast. (Also see Business Model). Business Property Relief An allowance giving 100% tax relief on Inheritance Tax payable at death, on trading business assets. These trading business assets must be held for 2 years and can be held personally, as part of a partnership share or via shares in private companies (ie. companies not quoted on a recognised stock exchange). Business Risk Identifying the ‘chance of failure’ for an actual or planned project of commercial activities with an objective for profit/gain. (Also see Risk). Buy & Build See Consolidator Capital Call Formal request against LPs pledged monies, followed by actual drawdown during a PE Fund Investment Period, to fund investments, fees & expenses. Cash Conversion Rate A rate (£/per period) that measures the proportion of operating profits converted into operating cashflow. Catch Up See Carried Interest Capital A form of wealth employed or capable of being employed in the production of more wealth. In business usually identified as being total assets less total liabilities which equals the net worth or ownership interest in a business. Capital Gains Tax (CGT) UK tax on disposal proceeds after deduction of acquisition costs, related expenses and tax allowances, on sale of assets. Capital Growth The enlargement or rise in the value of a fund or investment (gain) from commercial activity, between two points in time. Capital Structuring Act of using and organising invested funds effectively and efficiently to reduce risk and or increase investor return on capital. Carry See Carried Interest Carried Interest Also known as Catch Up. That part of the PE fund Waterfall paid to GP after LPs have been paid their Capital and Hurdle Rate distribution. Chief Executive Officer (CEO) Commercially skilled and most senior operational executive of a trading business responsible for driving the strategy and operational direction of the business. Sits on and answers to the Board of Directors, and to the Investors at formal meetings. Chief Financial Officer (CFO) Financially skilled executive with overall financial responsibility and final control over all financial information and the operational finances of the business. Answers to the CEO and sits on and answers to the Board of Directors. Closed-End Fund A fund with a pre-fixed term life, not normally open to new investors, with no redemption before the fund Exit. Co-investing A party acquiring a direct stake in the Target Company along side a PE Fund’s stake. Completion Accounts Mechanism A post acquisition price correction method that amends the original SPA deal price to account for the difference between the agreed deal price and the Balance Sheet (net current asset) fair values actually received at completion date. (Also see Locked-Box Completion Mechanism) Compound Interest Year on year cumulative Interest Earned on the aggregate of Capital Invested and past years unpaid Interest. Consolidator A commercial entity that merges numerous smaller business units into one larger business unit creating additional value through economies of scale benefits. The resulting larger business unit is worth more than the sum total of smaller businesses units it merged. Corporation Tax Tax payable to HMRC on Chargeable Profits of an Company incorporated under the UK Companies Acts. Includes private limited companies and public limited companies (whose shares are quoted on a public stock exchange). Deal Flow The expected Investment opportunities available to a PE fund over it Investment Period, usually categorised as ‘proprietary’ (directly sourced) and ‘intermediated’ (sourced via a third party). Debt Something that is owed that the borrower is bound to give or return to the lender. A liability of being under an obligation. (Also See Loan). Debt Structuring Organising and using borrowed monies efficiently and effectively to increase the return on investor capital. Depositor A person who places monies with an organisation in the expectation of receiving interest income until those monies are withdrawn. Director A senior officer of a Company or other legal entity who is registered with Companies House thereby establishing their legal authority over the Company. However, this term is increasingly being used for senior executives who may not be registered at Companies House, and whose authority sources from registered Directors. Distribution Act of allocating and transferring value (capital, income and or gain) amongst entitled stakeholders and or legitimate interested parties. (Also See Dividend). Diversification Varying and enlarging a businesses range of trading activities (in product, services and or geography) to reduce risk and increase the chance of successfully delivering performance returns to investors. Dividend Taxable distribution of income out of built up profit paid to shareholders of a Company. Dry Powder LPs contractually pledged monies remaining uninvested by PE funds. And PE industry’s total LP pledged monies remaining uninvested. Due Diligence A comprehensive coordinated investigation by skilled persons into the affairs and activities (past & present) of an organisation together with an assessment of it future potential,to obtain comfort and confidence that what is discovered matches what is expected. EBITDA EARNINGS BEFORE INTEREST TAX DEPRECIATION & AMORTISATION as defined by the Companies Acts is further adjusted for non cash provisions, off Balance Sheet Asset finance charges, one off & unusual costs and expenses. This is the most important performance metric of Investee Companies. EBITDA Multiplier An industry sector specific factor which is multiplied by the EBITDA to arrive at the fair value of a businesses goodwill or premium, and that represents an approximation of its trade-able market value. Economies Of Scale Combining global strength, capacity and reach of the aggregated whole to obtain size and efficiency gains for the benefit of and to improve the commercial performance of the individual units that make up that whole (See Buy & Build). Entrepreneur A person with foresight, vision and the dynamism to create, launch and or develop business(es) in the expectation of making a profit or gain. Enterprise A Company, a Business, a Project and or a collection if activities undertaken to make a profit or gain. Enterprise Architecture An infrastructure or platform developing out of a technology strategy consistently aligned to a businesses operational strategy, enabling current and future operations and projects to be delivered in a cost effective, efficient and sustainable way. Enterprise Value (EV) Equity Value plus Net Debt which represent the overall operational value of the business. Equity Assets less liabilities is the equity of an business. For a company is it typically made up of shares, loan notes and built up reserves. For a non incorporated business it is normally owner capital and owner advances. Ethics The practice of conducting oneself to a very high moral and professional standard having greater regard to the good of others even at a cost to oneself. European Waterfall This distribution method only pays out at final PE fund Exit with the investor capital paid out first, in full. From the growth LPs are then paid their Hurdle Rate after which GPs are entitled to their Catch Up. Any remaining growth is then paid out in full on a GP:LP pre-agreed ratio typically 20:80. (Also see Waterfall & American Waterfall) Exit (PE fund) PE fund Exit is the date the PE fund liquidates all its Investment holdings and begins process of distributing the Waterfall. Thereafter the fund begins a process of legal winding up. Fair Value This is the price that a willing buyer and a willing seller will agree at in an arm’s length transaction assuming both parties are equally knowledgeable and act freely (Also see Market Value). Family Office High net worth individuals or families possesing portfolio of available investable wealth which is normally managed by specialist wealth advisors. FCA Umbrella A commercial entity regulated by the FCA that provide a service to its clients of regulating and approving their financial activities so the client remains compliant with FCA regulations. In effect the FCA umbrella monitors and regulates its clients and is in turn monitored and regulated by the FCA. Financial Any activity involving the exchange of monies or monies worth for something of value or usefulness. Financial Conduct Authority (FCA) UK authority regulating financial activities and organisations seeking to raise and deploy (for commercial purposes) a pool of funds obtained from members of the general public or any identifiable class there from. Its primary purpose is to enforce regulations that ensure the raised funds are used legally and as originally declared to those from whom they have been raised. Financial Debt The use of borrowed money as a tool to fund both the acquisition and or working capital of a business plus improve the return on investment rate for investors. First Closing PE firms secure contractually binding fund pledges from investors through one or more fund closings, where First Closing is when a minimum threshold of pledges are reached to enable the fund to begin investing. (Also see Vintage). Fund A pool or collection of money from a number of investors assembled for a specific purpose with the objective of mitigating risk and sharing rewards.(Also see PE Fund). Gain/Growth Surplus arising from Increase in value between what something of value is worth at an earlier point in time compared to a later point in time. Usually applied to Business Assets and Investments. General Partner (GP) GP holds legal control over investment decisions and day to day operational management of the PE fund. They also appoint the operational management of PE fund Investee Companies. GPs are expected to invest their own capital in the PE fund to align their interests with LPs. A PE fund GP is typically structured as a Limited Partnership. (Also see Investment Manager, LP and Limited Partnership). Goodwill Fair Market premium which when aggregated with the trading assets and liabilities, represents the fair market value of a business or company. This premium is a product of the expected underlying future profit potential of the business or company. Heads of Terms (HOTs) This document sets out in writing the primary or headline terms up on which an agreement has been reached, such that all parties and their advisors are fully informed. Hub & Spoke A business model becoming popular within medicine supply, where several business units (spokes) pool resources by sending their repeat medical supply work to a dedicated central factory (hub) to improve efficiencies in time and cost for all spokes. Act of working together to create beneficial Economies of Scale gains that all can share. Heads of Terms (HOTs) This document sets out in writing the primary or headline terms up on which an agreement has been reached, such that all parties and their advisors are fully informed. Hub & Spoke A business model becoming popular within medicine supply, where several business units (spokes) pool resources by sending their repeat medical supply work to a dedicated central factory (hub) to improve efficiencies in time and cost for all spokes. Act of working together to create beneficial Economies of Scale gains that all can share. Hurdle Rate: The minimum guaranteed rate (typically 8% compounded) payable to LPs of a PE fund at exit before GPs are entitled to their ‘Catch Up’ share of the Waterfall distribution. Illiquidity Premium The additional return Investors expect for locking up their monies for a longer period of time. Liquid investments can be cashed at fair value rapidly. Illiquid investments cannot be cashed rapidly, may take time to convert to cash and may not realise their fair value. Illiquidity premium measures investors price for investing in Illiquid investments, such as a PE fund. Income Tax Direct Taxation payable on Earned Income (ie. Wages, Salaries and Related Benefits) by a UK taxpayer. Income Tax rates range from 20% to 45% based on the amount of annual income, after adjusting for an annual tax free allowance. Information Memorandum (IM) A package of (legal & regulatory compliant) official documents issued to vetted interested Investors providing a Business Plan with projected KPIs, together with a thorough review of the proposed PE fund and its investment opportunities, to motivate them to Pledge investment capital. (Also see Teaser Doc, Pitch Deck, PPM and LPA) Infrastructure The underlying framework or architecture of a system or organisation being the fundamental facilities utilised towards achieving the objectives of an enterprise. Inheritance Tax Direct Taxation due at 40% on total assets owned (above a tax free annual exemption band) and payable by UK taxpayers, upon death. Transfer of assets between UK resident married couples is exempt from Inheritance Tax. Innovate To create something new or unique by changing what is established. To assemble what is, in a new and dynamic way to attain greater value or benefit. Institutional Investor An commercial organisation with substantial members pooled funds actively seeking (risk/reward) profiled investments to achieve a spread of returns on those funds. Examples include Pension Funds, Insurance Companies, Unit and Investment Trusts etc. Interest Alignment A fundamental strategy PE funds deploy that ensures all stakeholders key to the success of the fund objectives have their personal involvement and their income and benefits paid in a way that actively encourages them to maximise the investment returns of LPs. Simply, GP and other key stakeholders interests must be aligned with the interests of LPs. Interest Coverage Ratio A ratio that assesses a businesses ability to meet its loan interest costs on outstanding debt. Calculated as EBITDA/Interest Expense. Internal Rate of Return (IRR) IRR is a very important Private Equity industry metric for measuring the annualised investment growth achieved by the PE fund from launch to distribution and exit. Invest Act of putting money or monies worth to use into a commercial activity with the aim of obtaining returns in the form income and or growth in value. Investee Company The Company which has been acquired using PE funds or into which PE money has been placed for commercial returns. Also known as the Investee Business. (Also see Portfolio Companies and Target Companies). Investors Someone who Invests for income or growth. (Also see Family Office LP, Institutional Investor and Pension Fund) Information Technology (IT) To deploy efficient technical systems and mechanisms for data creation, collection and management within an organisation. Investment Committee (IC) Appointed by the GP with delegated responsibility for making all buy or sell investment decisions for the fund. Investment Manager Appointed by GP with delegated responsibility for day to day operational and administrative control of the fund including executing capital calls, advising Investee Companies, evaluating investment opportunities, implementing instructions from IC, liaising with auditors, reporting to GP and LPs etc. Investment Period A fixed period of time during which GPs can draw against LP Pledges, through a series of Capital Calls, to make active investments in Target Busineses. Defined in LPA and begins at First Closing and normally last 3 to 5 years, but can be longer if agreed between GP & LPs. Key Performance Indicators (KPI) A limited collection of the most important business activity metrics published at fixed regular intervals to keep operational management & GPs informed and able to respond effectively. Critical to keeping a business on track with its Business Plan. Lead (Project Leader) Person in day to day operational charge (Lead) of a business or project and supported by the PillboxCapital multidisciplinary team. Lenders Banks and others in business who advance monies at an interest cost for a period of time, to fund commercial activity. Leverage The amount of cash debt funding in a business. A strategy of utilising borrowed funds to obtain a higher return on the investment plus achieve control over larger pool of Business Assets. Limited Company An artificial incorporated person created under the Companies Act, to own Business Assets used for commercial activities to make a profit/gain. A Limited Company has Shareholders who own it and who appoint Directors to legally control and manage it. Limited Liability Partnership (LLP) A partnership registered at Companies House and in which all partners are Limited Liability Partners. This means they can have control and authority to bind the partnership, but all partners liability is limited to their capital invested in the partnership. Limited Partnership A partnership that must have at least one General Partner (GP) and one Limited Partner (LP). Unlike LPs, GPs have control and authority to bind the partnership and are personally exposed to joint and several liability on the debts of the partnership. LPs liability is limited to their capital invested in the partnership. Limited Partners (LPs) LPs are non active Investors who invest their capital for a pre-determined period (typically 10 years) into the PE fund in the expectation of achieving material growth on fund exit, as measured by IRR. Unlike GPs, LPs liability is limited to their capital invested in the partnership. (Also see Limited Partnership) Limited Partnership Agreement (LPA) This is a legal contract that documents the terms and conditions by which all parties (particularly the GP & LPs) are bound together, and details their rights and responsibilities to the PE fund. The LPA sets out how key events in a funds life must occur, including First Closing, fundraising, subsequent closings, Capital Calls, fees, charges, expenses, fund management & governance, reporting, interim Distribution, fund liquidation, Waterfall, fund termination etc. Loan Cash advanced by a lender that the borrower is bound pay back on terms agreed between them. Loan Notes Cash advanced as an unsecured loan to a company typically by investors who also own shares in the company. Locked-Box Completion Mechanism A pre-completion method that fixes the SPA completion deal price inadvance. On a specific date before completion (the Locked-Box date), Balance Sheet (net current asset) fair values are determined and fixed to derive SPA final deal price prior to sign off. This mechanism removes the need for Post-Completion Accounts Mechanism. (Also see Completion Accounts Mechanism). Letter of Intent (LOI) This Letter can be a expression of interest and or an offer to a Vendor. It seeks to set out the primary terms of any proposal made with the aim of giving the Vendor comfort and enough information to respond favourably to the Letter. If a deal is then struck based on this letter (or an upgraded iteration of it), this will give all parties comfort in what is agreed so NDAs can change hands and costly due diligence begin. Management Fee (Charges) An annual fixed percentage fee (typically 2% of LP pledged funds) charged by the PE investment manager to the PE fund to cover the PE firm’s day to day operating salaries, costs and expenses including securing deal flow and portfolio monitoring. Market Value This is the price that an asset will trade at in a competitive auction assuming a willing buyer and a willing seller act freely in an arm’s length transaction. The parties are not assumed to be equally knowledgeable (Also see Fair Value). Maximise To seek to achieve the highest and/or greatest possible amount (Profit/Gain) usually to the exclusion of any other objective. See also definition of Optimise. Mergers & Acquisitions (M+A) M+A began as something specific, where a merger was two or more businesses of similar size and activity joining together as one larger business, to create economies of scale opportunities and gains. And an Acquisition was one business buying another in a takeover to create economies of scale opportunities and gains. Nowadays it can also encompass company and business consolidation, tenders to buy a Company or it business assets, MBO & MBI. The term is also used to refer to the M+A departments of advisors to business. Mezzanine Financing More expensive Debt raised from secondary debt markets such as private institutions as well as banks with Mezzanine departments. A debt Junior to Senior Debt, which can also be completely unsecured. Mezzanine loans term can also allow ‘convertible options’ or warrants that if triggered converts this junior debt into ownership Equity. Money A Store of Value dependent on Community Trust & Faith. A Medium of Exchange and a Unit of Account based on a Mathematical Concept of Proportions, as in how many of X equal how many of Y. Multiple of Money Invested (MoM) An important metric measuring global investor returns against the original sum invested and is calculated as a ratio of the (realised and unrealised) fund value divided by the capital invested in the fund and or the (realised and unrealised) equity value divided by the capital invested in the investee company. It is expressed as an investment multiple. Net Asset Value (NAV) Fair Value of the funds total assets minus total liabilities. NAV is most often used by funds. Net Debt The cash value of financial liabilities after offsetting all cash holdings. Non-Disclosure Agreement (NDA) A legally binding agreement placing a duty of confidentiality on proprietary and non-public information enabling a structured flow of this information between the signatories for potential mutual benefit. NDAs effectively deny unauthorised third parties access to the shared information. Non-Exec Director Is a non operational officer who sits on the board of directors alongside the operational Directors and whose duties can range from advising the board in general or specialist areas, to monitoring and Oversight on behalf of owners and stakeholders invested in the business. Non-execs can be full time or part time and usually have a considerable amount of past experience as operational Directors. Optimise To seek to achieve the best possible outcome (profit/gain) subject to important constraints (ethics, regulations etc.). Oversight In a PE fund the GP role is to, invest in and acquire Target Companies for rapid growth, then appoint, oversee, support and assist each Investee Company board of directors to deliver the objectives set by the GP (which benefit LPs). The Investee Company board of directors (and not the GP or LPs) are solely responsible for the operational management of the Investee Company. Partners/Partnership Two or more persons who contribute into a business enterprise usually sharing its ownership, risks and returns. Two or more persons owning and involved in a Business Enterprise for profit/gain. PE Fund A Private Equity investment structure or ‘PE Fund’ is made up of LPs who are inactive investors into the Fund and GPs who operate the Fund by investing for growth in and developing companies and businesses for a pre-determined length of time (typically 10 years). LPs expect significant financial returns from the commercial activities carried out by the GPs. GPs are rewarded through annual Management Charges (around 2% of PE Fund size) and Carried Interest at Fund exit. At Fund exit capital and growth are distributed between LPs and GP through a mechanism known as the Waterfall. Pension Fund See Institutional Investor. Person A natural human being, a group of human beings (partnership), a legal entity such as a corporation or a limited company (artificial person recognised by law). Pitch Deck A brief presentation (in person or on line) reviewing the Business Plan of the proposed PE fund and its investment opportunity to potential investors, stakeholders and others. (Also see Teaser, IM and PPM) Placement Agent A third party who actively assists GPs to source investors for the PE fund in return for a fee, typically a percentage of the funds invested. Pledge An act of legally committing funds into the PE fund, executed by LPs through their signing the LPA. Once pledged these funds can be drawn by Capital Calls. Portfolio Company The investee companies (or businesses) a PE fund has already invested within. A PE funds actual investments are called its portfolio of companies (or businesses). (Also see Target Company & Investee Company). Preference Shares A senior class of equity giving shareholders preferential distribution rights on a winding up, relative to ordinary shareholders equity rights. Principal A person primarily liable or obligated with vested authority to direct or instruct others. For a professional principal (dentist, pharmacist etc.,) the authority comes from their professional body. Private Capital (Investor) Personal funds from individuals or others used to invest in commercial business activities for financial reward objectives. Private Equity Originally Investors and funds that directly invest in Companies not listed on any public exchange. This could mean takeover of public listed Company, which is then taken off the public exchange. The vast majority operate through a PE fund structure where the investors are inactive and investment managers make all the fund investment decisions. Private Equity originally meant non-publicly quoted shares, however private equity firms do now invest in public listed shares. (Also see PE Fund). Private Placement Memorandum (PPM) A regulated legal document providing interested known potential investors comprehensive information on the PE fund and its aims and objectives together with detailed plans, to enable them to make fully informed decisions about investing. Also known as an Offering Memorandum. (Also see LPA). Privatisation Transfer of a business from public ownership (ie a state owned business) into private ownership. Probity Honesty, integrity and uprightness. Professional An trained expert applying specialist skill & knowledge to the highest standard, ethically and honestly for the primary benefit of the client. Profit Surplus arising between total income (or Sales Turnover) less total costs and expenses, for a determined period of time, of a Commercial Organisation. Redemption To return back. To repay Investors their Capital. Regulator Legally recognised authority or agency responsible for controlling, approving, monitoring, inspecting, and penalising misbehaviour of parties who are operationally active in the area under Regulator’s authority. Regulatory To control or direct by a rule or principle or method (legal or professional). To adjust or adapt or operate to a required standard. To ensure correct controlled action. Return on Investment A metric measuring the overall growth or gain achieved that directly arises from the Capital outlaid, and usually calculated as ‘gain divided by capital’ and expressed in percentage form. Risk i Identifying the ‘chance of failure’ of one‘s own intentions and activities.
ii Exposure to the ‘chance of failure’ where the higher the chance of failure means the bigger the potential reward and the lower the chance of failure means, the smaller the potential reward, from a successful outcome.
iii To survey, analyse, assess the ‘chance of failure’ against alternatives, comparatives and expectations.
iv To divide and share the ‘chance of failure’ across many individual projects (all being very unlikely to fail at same time) and thus diminish the chance of any one project failing. Sale Purchase Agreement A contract that creates a legal obligation between buyer and seller for a legal transaction typically of goods and of services for value (normally money). The vast majority of commercial transactions are Sale Purchase Agreements, however the term is predominantly used in freehold property related transactions. Security A right in the form of a ‘Legal Charge’ taken by a lender over assets of the borrower as collateral until the loan is repaid. If the borrower defaults on the loan the lender can force a sale of the collateral asset and use the proceeds to recover any unpaid loan. Senior Debt A legally registered Debt (typically a bank loan) with priority for payment over all other debts, in a liquidation and winding up process. Shareholder Agreement (SA) A confidential agreement between the share owners of a Company that defines and regulates rights and responsibilities between them as a group as well as between them and the Company. It usually overlaps the role of a Company’s Articles of Association and extends to define further confidential matters agreed between the share owners and the Company. Share Purchase Agreement (SPA) An SPA is an important tool for PE funds. It is a contract for the purchase of a Company (together with the trading assets and liabilities within it) between its shareholders as sellers and the buyer. This is in contrast with an Asset Purchase Agreement where the trading assets are sold by the Company that owns them, where the Company is the seller. (Also see Asset Purchase Agreement - APA) Speak Plainly To purposely use words and language that enable the majority to understand easily what is communicated. To intentionally avoid complicating what is communicated. Special Interest Primary or exceptional or extraordinary involvement and participation in something resulting in unique skill or knowledge. Stakeholder A person or group that has an interest or share or investment in something, normally a business activity. Step Growth Significant change in business performance in a short period of time that deliver materially positive benefits or returns. Creating Step Growth is an objective of PE. Strategy A considered plan or method or series of predetermined steps for obtaining a specific goal or result. Sweet Equity Share option (Equity) rights issued at a discount to Investee company key operational officers to incentivise them plus align their interests with LP interests. Sweet Spot A desirable position to be in. A point, place or position that if achieved or reached, results in optimal benefit. Target Company The name given to an Investee Company before it is acquired by a PE fund. An enterprise expected to be acquired by a buyer after appropriate NDAs & Due Diligence have been completed. Tax Administration Bureaucratic operations managing the functions of the taxation system for reporting, calculating, filing and paying taxes. A function performed by HMRC, Tax Agents & Tax Advisors. Teaser Initial Outline Executive Summary of an investment proposition created by potential GPs of a potential PE fund for circulation among potential investors, stakeholders and others to assess market appetite. Term Sheet A short form easy to read document issued to LPs that sets out the key commercial and legal information contained within the LPA. Trust A condition of a person who holds the confidence of others. Someone (Trustee) who holds the authority, and in whom an obligation or responsibility is placed by others (Beneficiaries) for protection and management of their benefits & rights. A Deed or similar document creating a Trust is governed by Trust Law. Value Added Tax (VAT) A sales tax on goods and services in the UK. The primary VAT rate is 20%. Value Creation The concept of identifying opportunities and developing specific strategies for maximising EBITDA and EBITDA Multiplier in the Investee Companies plus maximising the IRR in the PE fund just before Exit. Successful execution of Value Creation activity should deliver the best performance returns to LPs. This is one of the two most important strategies every PE fund must deploy. The other is ‘Interest Alignment’. Vendor Someone offering something for sale. In PE a Vendor is typically the party offering to sell their business to the Investee Company. Venture A business project or opportunity or some other commercial Enterprise in which something is risked in expectation of profit/gain. Venture Capital (VC) Investor funds provided to start up projects with potential to become rapid growth businesses. VC is high risk for Investors who mitigate risk by investing in a large variety of start ups in the expectation that while most could fail to grow, a few will deliver significant and rapid growth. VC funds are usually specialist investors who also provide skilled guidance and advise to their investee start up businesses, to improve the chances of project success. Vintage The Year of a PE fund’s First Closing, when it can begin investing. Waterfall - Distribution The pre-agreed order of priority for how PE funds distribute their pay outs to LPs and GP. (Also see European Waterfall & American Waterfall)