Business Valuation Terms Glossary: 40+ M&A Terms Defined (2026)

Key Takeaways

• Match the valuation method to the buyer universe — financial buyers use DCF and market multiples; strategic buyers add synergy calculations.
• The three valuation approaches recognized by the IGBVT are: income approach, market approach, and asset (cost) approach.
• Enterprise value (EV) covers the operating business; equity value nets out debt — don’t confuse them when negotiating price.
• Normalized / adjusted EBITDA is the foundation of most middle market valuations — without it, multiples are meaningless.
• Discount for lack of marketability (DLOM) can move private-company valuations 15–40% below their public-comparable equivalents.
• Terms have specific legal and tax meanings — using them loosely in contracts or financial statements creates downstream problems.
• When in doubt, cite the IGBVT definition in your documents — it’s the recognized authority.

Cash flow and earnings terms

Valuation approach terms

Value definitions

Discount and premium terms

Deal structure terms

Risk and return terms

Process and document terms

Other M&A-specific terms

Conclusion

Most valuation disagreements come from two people using the same word with different definitions. SDE vs EBITDA. Enterprise value vs equity value. Fair market value vs investment value. Reps vs warranties. The professionals who close deals fastest are the ones who clarify definitions in writing upfront — they cite IGBVT, they specify which discount and which premium, they define earnout metrics with multiple decimals of precision. This glossary is the dictionary to make those conversations work.

For deeper dives into specific concepts, see our business valuation methods guide and the EBITDA multiple by industry benchmarks.

Frequently Asked Questions

What is the IGBVT and why does it matter?

The International Glossary of Business Valuation Terms is the standard reference glossary published jointly by ASA, AICPA, CICBV, CFA Institute, NACVA, and IBA. It’s the recognized authoritative source for business valuation definitions used by professional appraisers, courts, and regulatory bodies. When you cite an IGBVT definition in a valuation report or contract, you’re using the recognized industry standard — which carries weight in disputes.

What’s the difference between SDE and EBITDA?

SDE (Seller’s Discretionary Earnings) includes the owner’s salary and benefits — used for owner-operated small businesses where the buyer takes the owner’s role. EBITDA excludes owner compensation, assuming a replacement-cost manager at market salary — used for businesses where the owner is replaceable and the business runs largely independently. Applying an EBITDA multiple to SDE numbers inflates valuations 30–50%.

What’s the difference between enterprise value and equity value?

Enterprise value (EV) is the total value of the operating business — equity + debt − cash. Equity value is what shareholders receive after debt is paid off. The bridge: Equity Value = Enterprise Value − Total Debt + Cash. When negotiating a sale price, make sure you and the buyer are talking about the same number — confusion here is a common deal-breaker.

What does ‘normalized’ or ‘adjusted’ EBITDA mean?

Normalized (or adjusted) EBITDA is reported EBITDA after removing one-time items, owner perks above market salary, discontinued operations, and other non-recurring adjustments. It represents the sustainable, run-rate earnings of the business under normal ownership. It’s the foundation of most middle-market valuations because comparing ‘unnormalized’ EBITDA across companies is meaningless.

What is DLOM and why does it matter?

Discount for Lack of Marketability (DLOM) is the reduction applied to private-company values to reflect the absence of a public trading market. Typically 15–40% depending on size and risk. It’s the single largest discount in private company valuation, and it’s why $1 of private earnings is worth meaningfully less than $1 of public earnings at the same multiple.

What’s the difference between fair market value and investment value?

Fair market value (FMV) is the price between a hypothetical willing buyer and willing seller, neither under compulsion — the IRS standard used for tax and gift purposes. Investment value is the price to a specific buyer based on their unique synergies, financing, and circumstances. For a strategic buyer with real synergies, investment value can be 25–50% higher than FMV.

What is a ‘multiple’ in business valuation?

A multiple is a factor applied to a financial metric to derive value. Common ones: EV/EBITDA (most common in M&A), EV/Revenue (used for high-growth or unprofitable businesses), EV/SDE (used for small owner-operated businesses), P/E (price-to-earnings, common in public markets). The multiple itself is derived from comparable transactions or the income approach.

What’s the difference between an asset sale and stock sale?

In an asset sale, the buyer purchases specific assets and assumes specific liabilities; the legal entity remains with the seller. In a stock sale, the buyer purchases the equity of the entity, inheriting all assets and liabilities. Buyers usually prefer asset sales (tax basis step-up, cherry-pick liabilities); sellers usually prefer stock sales (capital gains tax treatment). The structure can move 10–25% of net proceeds.

What is an earnout?

An earnout is a portion of the purchase price contingent on post-close performance metrics — typically revenue or EBITDA milestones over 1–3 years. Used when buyer and seller disagree on future projections; the buyer pays for performance only if it materializes. Earnouts typically represent 10–30% of total deal value and are a source of post-close disputes if metrics aren’t carefully defined.

What is QoE (Quality of Earnings)?

A Quality of Earnings analysis is a detailed financial diligence report validating the seller’s reported earnings. Performed by a CPA firm (typical cost $20K–$60K for sub-$10M deals), it confirms revenue recognition, normalized EBITDA, working capital normalization, and identifies one-time or non-recurring items. 30–40% of deals show meaningful EBITDA adjustments from QoE that change the price.