The deal-room vocabulary, in plain language.

A threshold below which the buyer cannot seek indemnification from the seller. Typically expressed as a percentage of purchase price, commonly 0.5% to 1.0% in lower-middle-market deals. Two structures exist: a 'deductible' basket (claims below the threshold are not recoverable at all) and a 'tipping' basket (once the threshold is exceeded, all claims become recoverable from dollar one).

The detailed document prepared by the seller's banker that describes the business to prospective buyers. Typically 40 to 80 pages, covering business history, products and services, markets and customers, operations, management team, financial performance, growth opportunities, and the rationale for the transaction. The CIM is the seller's primary marketing document and the buyer's first detailed read of the business.

A secure online repository where the seller posts diligence documents for the buyer's diligence team. In lower-middle-market deals, the data room typically holds 500 to 5,000 documents organized by category (financial, legal, operational, customer, employee, intellectual property, real property, environmental, insurance, tax).

A portion of the purchase price paid to the seller contingent on the business hitting specified financial or operational targets in the period after close. Common in lower-middle-market transactions where the buyer and seller cannot agree on the headline price; the earnout bridges the gap by tying a portion of payment to outcomes.

A portion of the purchase price withheld at close, held by a third-party escrow agent, to secure the seller's indemnification obligations. Typical lower-middle-market escrow is 5% to 10% of purchase price, held for 12 to 24 months, released to the seller minus any indemnification claims at the end of the survival period.

The maximum dollar amount the seller agrees to pay the buyer for breaches of representations and warranties or other indemnified matters. Typically expressed as a percentage of purchase price, commonly 10% to 20% in lower-middle-market deals, though structure varies meaningfully by sector and by deal type.

A non-binding document outlining the headline terms of a proposed transaction. Typically includes the purchase price, the deal structure (cash, stock, earnout components), the working capital target, the exclusivity period, and the diligence timeline. The LOI is the starting point of a serious conversation, not the end of one; almost every term in an LOI is renegotiated before close.

A provision that, for purposes of calculating indemnification damages (and sometimes for determining whether a rep was breached at all), the buyer can ignore materiality qualifiers in the seller's reps. The effect is to broaden the seller's exposure to indemnification claims.

Current operating assets minus current operating liabilities, typically excluding cash and debt. In a transaction context, the buyer expects a target level of NWC to be delivered at close, ensuring the business has the working capital required to operate normally in the period immediately after change of ownership.

The specific dollar amount of Net Working Capital the seller agrees to deliver at close. If actual NWC at close exceeds the target, the seller is paid the excess; if it is below, the seller pays the buyer the shortfall. Negotiated separately from the headline purchase price and often the single most-contested non-price term in lower-middle-market deals.

An independent financial analysis commissioned by the buyer (and increasingly by the seller, in advance, as a defensive measure) that adjusts reported EBITDA for non-recurring items, owner add-backs, accounting irregularities, and other distortions, producing a normalized EBITDA number that the buyer uses to apply their multiple.

Statements of fact about the business that the seller makes to the buyer in the definitive agreement. If a rep is breached (the statement turns out to be untrue), the buyer can seek indemnification from the seller, subject to the indemnification cap, basket, and survival period. The reps section is typically the longest section of the definitive agreement.

The partial financial period between the seller's most recent fiscal year-end and the closing date. Buyers require the seller to deliver a closing balance sheet and stub-period income statement, used to calculate the post-close NWC settlement and to confirm that nothing material has changed since the most recent audited or reviewed financials.

The length of time after close during which the seller's representations and warranties remain enforceable. Standard reps survive 12 to 24 months; specific reps (tax, environmental, capitalization, employee benefits) typically survive longer, sometimes for the statute of limitations on the underlying matter.

A short, blind summary of the business prepared by the seller's banker for initial buyer outreach. Typically two to three pages, identifies the sector, the geography, the rough financial profile, and the strategic rationale, without naming the company. Buyers who are interested sign an NDA to receive the full CIM.