Lexicon

Accretion is a finance term taht refers the ongoing increase in the earnings and assets of a business, following an expansion of its activities or a merger-acquisition operation.

Buyout of a company by another entity.

Form of ownership corresponding to a portion of the capital of the company that issued it. The share entitles the holder to a dividend and voting rights at general meetings. Usually, but not necessarily, listed on the stock exchange, shares can be traded at the price set by the market.

Rating agencies assess the credit risk of specific debt securities and the borrowing entities. Each rating agency has its own rating scale, which influences the conditions of access to financing for issuers (interest rates). The best-known agencies are Standard & Poor's (S&P), Moody's and Fitch.

(Source: EURONEXT - www.boursedeparis.fr)

As an independent public authority, the AMF regulates the financial market, its operators, and financial products. It ensures that investors are properly informed and works to promote regulatory change in Europe and internationally. (Source: AMF - www.amf-france.org)

Announcement of the acquisition to the competition authorities.

The back office in investment banking includes all behind-the-scenes functions, such as the processing of securities transfer transactions.

Backtesting is the process, usually automated, of evaluating a trading strategy based on the historical performance of a financial asset.

The ECB is the central bank of the European Union countries which use the euro. Our main task is to maintain price stability.

(Source: ECB - www.ecb.europa.eu/ecb)

A measure of risk which indicates the sensitivity of an investment, such as an investment fund, to fluctuations in the market, as represented by the relevant benchmark. For example, a beta of 1.2 tells us that the value of an investment fund can be expected to change by 12% if the market is forecast to move by 10%. The relation is based on historical data and is only an approximation.

(Source: UBS – www.ubs.com)

EPS is equal to net income devided by number of shares.

A management approach, also known as "stock-picking", which favors investment in companies whose share price is believed to be undervalued, and therefore with high return potential.

A centralized market is a financial market structure that consists of having all orders routed to one central exchange with no other competing market.

A cash-on-cash return is a rate of return often used in real estate transactions that calculates the cash income earned on the cash invested in a property.

These are acquisition audits commissioned by the buyer as part of an M&A operation. The purpose of these audits is to provide the future buyer with information about the target.

The "buyer list" in M&A is the list of potential buyers.

Buy-side analysis. In finance, buy-side analysts focus on identifying investment opportunities for the companies they work for.

Main stock market index listed on Euronext Paris, comprising the 40 largest French companies. Its composition varies regularly.

Cash burn, also known as capital erosion, corresponds to a company's estimated cash outflow over a given period.

A cash-on-cash return is a rate of return often used in real estate transactions that calculates the cash income earned on the cash invested in a property.

Valuation of a company's capital at a given point in time. It is calculated by multiplying the number of shares outstanding by the share price.

Term used to describe a category of assets with similar characteristics: equities, bonds, money market instruments, commodities, private equity, etc.

Closing refers to the final stage of the sale or acquisition process, once the conditions precedent and suspensive conditions stipulated in the sales agreement have been fulfilled.

This is a valuation method used to determine the financial value of a company at a given point in time, compared with other companies in the same sector.

A coupon is interest received by the holder of a bond.

The cost of capital represents the rate of return required by a company's capital providers (shareholders and lenders) in relation to the return they could obtain from an investment with the same risk profile on the market.

Constant Proportion Portfolio Insurance (CPPI) is a type of portfolio insurance in which the investor sets a floor on the dollar value of their portfolio, then structures asset allocation around that decision.

Brokers are intermediaries who carry out transactions on the financial markets on behalf of their customers. These clients may be companies, business units or private individuals.

Hedging of a financial asset.

A covered bond is a type of derivative instrument. It is a set of loans issued by banks and sold to a financial institution for resale.

These are extra-financial criteria: E for "environmental", S for "social" and G for "governance". They are considered by investors when assessing the risks and opportunities associated with a financial asset.

Data rooms, a classic in the language of M&A, are today an essential element of both buy-side and sell-side M&A processes. They allow to store in the same space a lot of information and documents, often confidential, useful to the different parties of the deal.

The continuous flow of potential M&A transactions to which a bank or boutique is exposed.

Mezzanine debt in an LBO (Leverage Buy Out) is a leveraged transaction that complements senior debt.

Classic 7-year debt.

When raising capital, any increase in a company's capital leads to dilution. The company's founders see their percentage holding in the company's share capital diminish.

Property income, or share of profits, that a company decides to pay out to its shareholders. The amount of dividends is voted at the Annual General Meeting and varies considerably from one company to another. Some companies do not pay dividends at all.

Fully diluted shares correspond to the total number of shares that will be outstanding and available on the open market after the exercise of all possible sources of conversion, such as convertible bonds and employee stock options.

EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) is a key concept in Corporate Finance. Widely used by investment bankers, it is calculated from sales (revenues) minus various operating costs (OPEX).

Another method, known as the "additive method", consists of adding net income, corporate income tax, financial income, exceptional income, and D&A (depreciation and amortization).

Corresponds to the average of overnight rates in the Euro zone.

Excess return on a stock market investment over a risk-free rate.

Equity Value is the amount at which investors value a company's equity at a given point in time.

ETFs (or trackers) are baskets of shares that replicate the performance of an index. The aim is to generate the same return as the index.

Euribor is an acronym for Euro Interbank Offered Rate. Euribor is short for Euro Interbank Offered Rate. The Euribor rates are based on the average interest rates at which a large panel of European banks borrow funds from one another. There are different maturities, ranging from one week to one year.

EV corresponds to the market value of an asset.

AIF is a fund of funds. Fund invested for more than 10% in shares or units of other French or foreign undertakings for collective investment in transferable securities.

Front Office (FO) represents the customer-facing function or department of a firm, typically composed of administrative and sales personnel.

Transactions in which two companies merge to form a single entity.

Difference between closing price and opening price.

Alternative investment is an asset class whose main objective is to generate performance independently of the general trend of the financial markets, by intervening in all existing asset classes: equities, bonds, currencies, commodities, etc. Alternative investment represents a portfolio diversification tool.

Investment management approach characterized by marked plays based on fund managers' strong convictions, which can lead to sharp differences between the fund and its benchmark, in terms of both the composition of the portfolio and performances.

(Source: Ostrum Asset Management)

Goodwill is the difference between the market value and the shareholders' equity of the acquired company.

A management approach that involves investing in stocks with high potential for future returns. The companies targeted by the growth management style are often linked to the new technology sectors.

Speculative investment funds with a high degree of management freedom.  They are open to a very limited number of investors who demand high returns.

Read definition Track record.

An asset that offers a high yield in return for a high level of risk. They carry a higher risk of default than Investment Grade bonds (rating above BB+).

A business entity that exists to own other companies.

The IRR is an indicator worth knowing. It is used to measure the average annual return on an investment or a private equity fund.

Evolution of a portfolio's value over a given period.

In a bank, trading refers to buying and selling of securities, currencies, and derivatives.

In an IPO, a privately owned company lists its shares on a stock exchange, making them available for purchase by the public.

Bonds offering a high yield in return for a high level of risk. They carry a higher risk of default than Investment Grade bonds (rating above BB+).

Capital requirements for banks.  Banks must hold capital equivalent to at least 8% of risk-weighted assets.

A UCITS is a portfolio of transferable securities (shares, bonds, etc.) managed by professionals (management company) and held collectively by individual or institutional investors. There are two types of UCITS: SICAVs (open-ended investment companies) and FCPs (mutual funds).

A mutual fund is a financial instrument that pools shareholders' assets and invests them in financial securities, such as: stocks, bonds, money market instruments and other assets.

Bonds issued by borrowers rated AAA to BBB- by the rating agencies on the Standard & Poor's scale.

Cooperation between two companies pursuing a common strategy (pooling of costs and risks), for a limited period.

Bonds issued by non-investment grade issuers offering a high yield in return for a high level of risk.

Interbank Offered Rates (IBORs), such as the London Interbank Offered Rate (LIBOR) or Euro Interbank Offered Rate (EURIBOR), have been used to set interest rates on a global basis for a wide variety of financial products, including derivatives, loans, bonds and structured products.

Company with a market capitalization more than $10 billion.

Company with a market capitalization of less than $1 billion.

Companies with a market capitalization of between $1 and $10 billion.

The term refers to the consolidation of companies or their major assets through financial transactions between companies.

Ratio between the portion of the price financed with equity (entry equity value) and the exit price (exit equity value).

A binding agreement that outlines the rights and obligations of both parties in an M&A deal.

Bonds are issued by governments and companies when they wish to raise funds. Their price fluctuates, but less than shares.

An option is a type of derivative that gives the right (but not the obligation) to buy or sell an underlying asset at a specific price. There are two main categories of options: calls and puts.

Earnings per share (EPS) is the portion of a company's profit allocated to each outstanding share of common stock, serving as a profitability indicator.

The price/earnings to growth ratio (PEG ratio) is a stock's price-to-earnings (P/E) ratio divided by the growth rate of its earnings for a specified time.

The principle behind an LBO, or Leverage Buy Out, is to acquire a company ("target") through a significant recourse to debt. This is a leveraged operation, involving the creation of a parent company called a holding company, whose mission is to take on debt in order to buy out the target company.

Long-term loans (3 years) granted by the ECB to banks.

Leverage is a general term used to describe the use of debt to acquire an asset far in excess of what is actually owned. In other words, it's a technique that increases a company's investment capacity through the use of debt.

Fraudulent technique that consists of spreading false information to make a profit.

Securities issue market.

Market on which previously issued financial securities are traded.

Sell-side analysts provide their clients with research, analysis and recommendations (buy, hold, sell) on various securities, and help raise capital for companies.

The Sharpe ratio compares the return of an investment with its risk.

Difference between the actuarial rate of return on a bond and that on a "risk-free" loan of the same duration.

Sum Of The Parts (SOTP) valuation is an approach that involves valuing each of a company's business segments separately. These are then added together to arrive at the company's total value.

Standard & Poor's is one of the three largest rating agencies (along with Moody's and Fitch). Its business is to assign ratings to debt issued by companies or governments. The highest rating is AAA. The letter D is reserved for payment defaults.

Read definition Bottom-up.

In M&A, synergies correspond to the creation of additional value resulting from the merger of two or more economic entities.

Interest rate used on the money market for very short-term loans.

The effective federal funds rate (EFFR) is calculated as a volume-weighted median of overnight federal funds transactions reported in the FR 2420 Report of Selected Money Market Rates.

(Source: www.newyorkfed.org)

Securitization was initially used to finance simple, self- liquidating assets such as mortgages.

A funnel-shaped management approach that focuses on the macroeconomic scenario to invest in high-growth sectors. Once this analysis is complete, the investor then selects the most attractive companies in each category.

TSM is an approach used by companies to calculate the number of new shares that can be generated by warrants and options.

Financial securities with strong earnings growth potential.

Effective value of an asset determined by financial analysis.

The book value equals the difference between a company's total assets and total liabilities.

Market value ratios are used to evaluate the share price of a company's stock.

The "Value" management style, which involves buying assets at a discount to their intrinsic value, betting on a recovery in their fundamentals (sales growth, improved margins and profitability), is struggling.

(Source: Morningstar - www.morningstar.fr)

In-depth third-party diagnosis of financial statements in preparation for a sale. VDD plays a "preventive" role, enabling shareholders to communicate consistent and secure financial information to potential buyers and investors.

Venture Capital (VC) is a capital contribution made by a venture capitalist to startups.

Asset Price Volatility is a measure of the extent to which the price of a financial asset can rise or fall.

WACC represents a company's overall cost of financing. For a company, the WACC is the rate at which it can obtain financing from investors. This concept is used in the DCF (Discounted Cash-Flow) method to discount the future cash flows generated by a company.

Derivative financial product that works like an option, allowing you to bet on the rise or fall of an underlying asset.

Stocks in these sectors fluctuate in line with economic cycles. Some examples of cyclical sectors: automotive, airlines, media, luxury, or leisure.

Ratio of net income to shareholders' equity. ROE is considered return on net assets. ROE is equal to: Net Income divided by its Shareholders' Equity.

The term return on assets (ROA) refers to a financial ratio that indicates how profitable a company is in relation to its total assets.