1. Merger
A merger occurs when two companies combine to form a single new entity. Both companies agree to join forces, pooling resources, assets, and operations to grow the combined entity and increase shareholder value.
- Example: The merger of Disney and Pixar in 2006, where both companies combined to leverage their strengths in entertainment.
- Formula: No direct formula, but the post-merger entity’s value = sum of the pre-merger entities’ market capitalization + expected synergies.
2. Acquisition
An acquisition is when one company takes over another, either by purchasing a majority of its shares or assets. The acquiring company absorbs the acquired company, which ceases to exist as a separate entity.
- Example: Facebook’s acquisition of WhatsApp in 2014 for $19 billion.
- Formula: Acquisition Price = (Number of Shares * Share Price) + Premium Paid.
3. Amalgamation
Amalgamation is a type of merger where two or more companies come together to form a new entity, typically in equal standing, combining assets, liabilities, and operations.
- Example: The amalgamation of Bank of Baroda, Dena Bank, and Vijaya Bank to form a new bank in 2019.
4. ARR (Annual Recurring Revenue)
ARR is the revenue generated annually from subscription-based services, often used in SaaS (Software as a Service) models.
- Formula:
ARR=Total Monthly Recurring Revenue (MRR)×12\text{ARR} = \text{Total Monthly Recurring Revenue (MRR)} \times 12ARR=Total Monthly Recurring Revenue (MRR)×12 - Example: If a SaaS company has an MRR of $10,000, its ARR is $120,000.
5. MRR (Monthly Recurring Revenue)
MRR measures the monthly revenue generated from ongoing subscriptions. It is useful for subscription-based businesses.
- Formula:
MRR=Average Revenue per Customer×Total Number of Customers\text{MRR} = \text{Average Revenue per Customer} \times \text{Total Number of Customers}MRR=Average Revenue per Customer×Total Number of Customers - Example: If a company charges $50 per month for a service and has 200 customers, the MRR is $10,000.
6. GMV (Gross Merchandise Value)
GMV refers to the total sales value of goods and services sold via a marketplace or e-commerce platform over a certain period.
- Formula:
GMV=Total Number of Units Sold×Sales Price per Unit\text{GMV} = \text{Total Number of Units Sold} \times \text{Sales Price per Unit}GMV=Total Number of Units Sold×Sales Price per Unit - Example: If an e-commerce site sells 1,000 units at $50 each, the GMV is $50,000.
7. Net Revenue
Net revenue is the amount of revenue earned by a company after deducting returns, allowances, and discounts.
- Formula:
Net Revenue=Gross Revenue−Returns−Allowances−Discounts\text{Net Revenue} = \text{Gross Revenue} – \text{Returns} – \text{Allowances} – \text{Discounts}Net Revenue=Gross Revenue−Returns−Allowances−Discounts - Example: If a company makes $100,000 in sales, offers $5,000 in discounts, and has $2,000 in returns, the net revenue is $93,000.
8. Gross Margin
Gross margin represents the percentage of revenue that exceeds the cost of goods sold (COGS), indicating the profitability of a company’s core operations.
- Formula:
Gross Margin (%)=(Net Sales−COGSNet Sales)×100\text{Gross Margin (\%)} = \left( \frac{\text{Net Sales} – \text{COGS}}{\text{Net Sales}} \right) \times 100Gross Margin (%)=(Net SalesNet Sales−COGS)×100 - Example: If a company’s net sales are $500,000, and COGS is $300,000, the gross margin is 40%.
9. ACV (Annual Contract Value)
ACV is the average annual revenue generated from a customer contract, primarily used in SaaS and subscription models.
- Formula:
ACV=Total Contract ValueContract Duration in Years\text{ACV} = \frac{\text{Total Contract Value}}{\text{Contract Duration in Years}}ACV=Contract Duration in YearsTotal Contract Value - Example: If a contract worth $120,000 lasts for 3 years, the ACV is $40,000.
10. AOV (Average Order Value)
AOV measures the average amount spent by a customer in a single transaction on an e-commerce platform.
- Formula:
AOV=Total RevenueNumber of Orders\text{AOV} = \frac{\text{Total Revenue}}{\text{Number of Orders}}AOV=Number of OrdersTotal Revenue - Example: If a company generates $50,000 in sales from 500 orders, the AOV is $100.
11. LTV (Lifetime Value)
LTV refers to the projected revenue a business can generate from a customer over the entire relationship lifecycle.
- Formula:
LTV=Average Revenue per Customer×Customer Lifespan\text{LTV} = \text{Average Revenue per Customer} \times \text{Customer Lifespan}LTV=Average Revenue per Customer×Customer Lifespan - Example: If a customer generates $200 annually and stays for 5 years, the LTV is $1,000.
12. CAC (Customer Acquisition Cost)
CAC represents the total cost of acquiring a new customer, including marketing, sales, and other related expenses.
- Formula:
CAC=Total Acquisition CostsNumber of New Customers Acquired\text{CAC} = \frac{\text{Total Acquisition Costs}}{\text{Number of New Customers Acquired}}CAC=Number of New Customers AcquiredTotal Acquisition Costs - Example: If a company spends $50,000 on marketing and gains 500 customers, the CAC is $100.
13. NDA (Non-Disclosure Agreement)
An NDA is a legal contract between parties to protect sensitive information from being disclosed to unauthorized third parties.
14. Pre-Money Valuation
Pre-money valuation is the value of a company before it raises new funds or receives an investment.
- Example: If a startup is valued at $5 million before raising $2 million, its pre-money valuation is $5 million.
15. Post-Money Valuation
Post-money valuation refers to the value of a company after new investment or funding is received.
- Formula:
Post-Money Valuation=Pre-Money Valuation+New Investment\text{Post-Money Valuation} = \text{Pre-Money Valuation} + \text{New Investment}Post-Money Valuation=Pre-Money Valuation+New Investment - Example: If a company’s pre-money valuation is $5 million, and it raises $2 million, the post-money valuation is $7 million.
16. Term Sheet
A term sheet is a non-binding document outlining the terms and conditions of an investment or acquisition.
17. ROFR (Right of First Refusal)
ROFR gives existing investors or shareholders the right to purchase shares before they are offered to external buyers.
18. Anti-Dilution
Anti-dilution provisions protect investors from equity dilution by adjusting their ownership percentage if new shares are issued at a lower price.
19. Liquidation
Liquidation refers to the process of dissolving a company, selling its assets, and distributing the proceeds to creditors and shareholders.
20. Preference Shares
Preference shares are equity shares with priority in dividend payments and liquidation over common shareholders.
21. IRR (Internal Rate of Return)
IRR is the discount rate at which the net present value (NPV) of an investment’s cash flows equals zero.
- Formula:
NPV = 0 when calculating IRR
22. DPI (Distributions to Paid-In)
DPI measures the total amount distributed to investors relative to the capital they have contributed.
- Formula: DPI=Total DistributionsTotal Capital Paid In\text{DPI} = \frac{\text{Total Distributions}}{\text{Total Capital Paid In}}DPI=Total Capital Paid InTotal Distributions
23. TVPI (Total Value to Paid-In)
TVPI measures the total value created for investors, including both realized and unrealized gains.
- Formula: TVPI=Total Distributions + Unrealized ValueTotal Paid-In Capital\text{TVPI} = \frac{\text{Total Distributions + Unrealized Value}}{\text{Total Paid-In Capital}}TVPI=Total Paid-In CapitalTotal Distributions + Unrealized Value
