Maintenance Capex
Capital expenditures required to maintain existing operational capacity, distinct from growth capex that expands capacity. Lenders examine maintenance capex as the floor on cash conversion under stress.
Precise definitions of the frameworks, transaction terminology, diligence concepts, capital structure, and governance discipline used across TEOL Capital's methodology and Insights. Each definition reflects TEOL's institutional usage and may differ from how the same term is used elsewhere.
This glossary establishes precise definitions for institutional finance terminology used across TEOL Capital's methodology, frameworks, advisory engagements, and Insights content. Terms are organized alphabetically. Where a term anchors to one of TEOL's seven proprietary frameworks or to a specific methodology, the framework reference is included.
A documented schedule of EBITDA adjustments proposed by a seller, with supporting evidence and arms-length comparable benchmarks for each adjustment. Institutional add-back memos defend 75 to 90 percent of proposed add-backs through QofE examination. Internally-documented add-backs without institutional supporting evidence defend 45 to 65 percent. Anchored to the Financial Truth Ladder.
Reported EBITDA modified through documented add-backs, normalizations, and non-recurring item removal to reflect run-rate operating performance. The defensibility of adjusted EBITDA depends on the documentation discipline applied to each adjustment.
Pricing applied to related-party transactions that reflects the terms an unrelated third party would accept. Required for institutional defensibility of intercompany transactions, owner-related real estate leases, and related-party services agreements.
Financial statements subject to external examination by an independent accounting firm resulting in an audit opinion. Position represents Rung 4 of the Financial Truth Ladder. Audited statements experience 1 to 5 percent EBITDA adjustment under QofE examination versus 8 to 20 percent at Rungs 1 to 2.
Contracted future revenue not yet recognized. Diligence examines backlog quality including funded versus unfunded portions, option years, recompete risk, and customer concentration within backlog. Material in construction, aerospace and defense, professional services, and government contracting sectors.
The reference scenario in underwriting analysis representing expected outcomes under normal operating conditions. Institutional underwriting requires base case assumptions sourced to evidence rather than assertion.
One one-hundredth of a percentage point. 100 basis points equals 1.00 percent. Used in credit pricing and equity returns where precision matters.
The reporting artifact produced for board consumption at each meeting. Institutional board packages include financial summary, key metrics dashboard, variance analysis, segment results, working capital and cash position, and forward-looking commentary. Board packages that require operator interpretation signal weak Reporting Integrity on the Reporting Under Scrutiny Model.
Institutional finance advisory provided to acquirers across the acquisition lifecycle: transaction readiness, acquisition readiness, financial diligence support, deal underwriting and decision support, and post-close finance integration. Distinct from broker-dealer activity. Advisory-only fees, no transaction-contingent compensation.
Documented institutional discipline applied to capital deployment decisions across the platform. Anchored to Layer 4 of the HoldCo Finance Architecture. Includes return thresholds by entity type, board-level approval discipline for material decisions, and documented capital decision rationale.
The institutional framing of a business's capital story including why capital is being raised, how it will be deployed, what return profile is expected, and how trajectory connects historical performance to forward thesis. Dimension 7 of the Capital Readiness Scorecard. Translates to term sheet variance of 25 to 100 basis points on pricing and 1 to 3 turns of equity return expectation.
TEOL Capital's proprietary seven-dimension diagnostic measuring institutional readiness for debt, equity, or transaction capital. Dimensions: financial integrity, reporting defensibility, cash visibility, governance, operator concentration, structural architecture, capital narrative.
The composition of debt and equity financing the business. Institutional capital structure examination includes funded debt levels, debt service capacity, covenant headroom, maturity wall exposure, and contingent liabilities.
An acquisition of a business unit divested from a corporate parent. Requires institutional discipline across standalone cost architecture, transition services agreement design, separation diligence, dis-synergy quantification, day-1 operational readiness, and accelerated integration timing.
TEOL Capital's proprietary five-stage framework measuring cash visibility maturity. Stages: Reactive (bank balance only), Monthly (close-tied view), Rolling 13-Week (institutional cadence), Scenario-Capable (downside modeling), Institutional (integrated treasury system).
The accounting process of finalizing financial results for a reporting period. Institutional close discipline produces complete financial statements within 10 to 15 business days of month-end, reconciled to general ledger, with all material accruals captured.
A prior transaction used as a reference point for valuation, deal structure, or terms. Institutional valuation methodology relies on sector-calibrated comparable transactions with quality varying by transaction depth and recency.
Financial statements prepared by an external accountant without independent review or audit. Position represents Rung 1 of the Financial Truth Ladder. Lowest level of external accounting validation, with EBITDA adjustment magnitude of 12 to 25 percent typical under QofE examination.
A weighted aggregate score across multiple dimensions of a TEOL diagnostic framework. Used in the Institutional Readiness Framework, Capital Readiness Scorecard, Sale Readiness Index, Founder Dependency Index, and other TEOL diagnostics.
The percentage of revenue derived from top customers, typically expressed as top 5 or top 10 customers as a percentage of revenue. Above 55 percent concentration triggers structural mitigation in acquisitions (earn-outs, escrows, retention provisions).
The accounting process of combining results across multiple entities into a single financial statement set. Institutional consolidation methodology produces transparent intercompany eliminations with audit trail. Anchored to Layer 2 of the HoldCo Finance Architecture.
A potential obligation that depends on the occurrence of a future event. Includes litigation reserves, tax exposures, environmental obligations, warranty obligations, and earn-out obligations. Material undisclosed contingent liabilities surface during diligence and generate 5 to 15 percent of post-LOI repricing leverage.
The perspective of an institutional counterparty (lender, acquirer, capital partner, board, QofE provider) reading a specific business dimension. Each counterparty applies distinct examination methodology and produces distinct institutional treatment.
A contractual provision in a credit facility requiring the borrower to maintain specified financial ratios, restrict certain activities, or take certain actions. Common financial covenants include Fixed Charge Coverage Ratio, Senior Leverage Ratio, Total Leverage Ratio, Minimum EBITDA, and Minimum Liquidity.
The difference between a borrower's current covenant ratio and the covenant threshold, expressed as a percentage. Institutional borrowers maintain meaningful headroom; tight headroom signals operational risk and produces pricing premium.
The institutional body within a lender that approves credit facilities and modifications. Credit committees examine governance discipline as the leading indicator of covenant compliance integrity before reviewing covenant terms.
The operational state of an acquired business at the moment of close. Includes standalone finance function operation, treasury infrastructure, reporting cadence, and systems independence. Critical in carve-out acquisitions where standalone capability did not exist pre-acquisition.
Obligations excluded from working capital but included in net debt calculations. Common debt-like items include capital leases, deferred consideration, earn-out obligations, contingent liabilities, and certain off-balance-sheet commitments.
A documented position that withstands institutional examination. Defensibility is the central concept across TEOL's frameworks. Documented positions defend 70 to 90 percent of contested positions; undocumented positions defend 30 to 50 percent.
A term carrying institutional precision through formal definition. Used in legal agreements, methodology frameworks, and the institutional vocabulary of advisory firms. TEOL's seven proprietary frameworks are constructed as defined terms within the TEOL Standard.
The structured examination process applied by acquirers, lenders, or capital partners before transaction close. Diligence streams typically include financial, commercial, legal, operational, tax, environmental, and technology. TEOL's institutional methodology focuses on financial and operational diligence.
The institutional preparation and response discipline that allows sellers to defend transaction value through buyer-side diligence. Documented pre-process artifacts defend 70 to 85 percent of contested positions versus 30 to 50 percent without documentation.
Cost increases that emerge post-acquisition due to capability gaps the standalone business inherits. Material in carve-out acquisitions where shared services from the parent must be replicated. Distinct from synergy, which represents cost reductions.
Days Sales Outstanding, Days Payable Outstanding, Days Inventory Outstanding. Working capital efficiency metrics used in sector benchmark comparison to identify whether working capital position is institutional or vulnerable.
A purchase price structure where a portion of consideration is contingent on post-close performance milestones. Used by acquirers to mitigate founder dependency, customer concentration, and revenue durability risk. Observed in 60 to 75 percent of high-dependency acquisitions averaging 20 to 35 percent of purchase price.
Earnings Before Interest, Taxes, Depreciation, and Amortization. The primary operating performance metric in institutional underwriting. EBITDA defensibility under examination is more consequential than reported EBITDA level.
A documented schedule moving from reported EBITDA (per audited or reviewed statements) to seller-adjusted EBITDA through add-backs, normalizations, and run-rate adjustments. The first artifact acquirers examine in the first 48 hours of diligence.
The defensibility of reported EBITDA under institutional examination. Measured by position on the Financial Truth Ladder (five rungs from cash-basis approximation to audited statements with QofE overlay).
The formal contract between an advisory firm and client establishing scope, fees, deliverables, and confidentiality. Required for institutional advisory engagement.
A covenant provision allowing the borrower to remedy a covenant breach through equity injection rather than triggering default. Institutional borrowers with strong governance secure equity cure provisions in 55 to 70 percent of facilities.
A portion of purchase price held by a third party post-close to satisfy indemnification claims or earn-out obligations. Institutional escrow structures range from 5 to 15 percent of purchase price for 12 to 24 months.
Synonymous with Sale Readiness. Pre-transaction preparation across the seven dimensions acquirers examine. Anchored to the Sale Readiness Index.
A capital holder managing wealth on behalf of one or more high-net-worth families. Multi-generational horizon, principal-driven governance, varying degrees of direct investment capability. TEOL provides buy-side advisory to family offices executing direct acquisitions.
EBITDA divided by annual debt service (principal plus interest plus other fixed charges). The most common covenant ratio examined by credit committees. Institutional borrowers maintain FCCR of 1.50x or higher; tight FCCR triggers pricing premium of 75 to 150 basis points.
The lowest band of the HoldCo Finance Architecture. The holding company operates as a legal structure around independent operating entities rather than as an integrated platform. Capital partners examine each entity standalone and discount the platform as a coherent unit.
TEOL Capital's proprietary five-rung framework measuring EBITDA defensibility. Rungs: Cash-Basis Approximation (1), Accrual-Basis Internal Reporting (2), Reviewed Statements (3), Audited Statements (4), Audited with QofE Overlay (5).
Adjustments to EBITDA reflecting committed but not yet realized changes (signed customer wins, completed cost actions, scheduled facility additions). Institutional methodology requires documentation with timeline and probability assessment.
TEOL Capital's proprietary six-axis diagnostic measuring operator concentration. Axes: Decision Authority, Cash Control, External Relationships, Institutional Knowledge, Hiring and Accountability, Reporting and Review.
A business where the founder retains operational control and material decision authority. Common position in the $20M to $100M revenue range. Carries founder dependency that institutional capital prices into pricing, structure, and terms.
This document. A reference resource defining institutional finance terminology used across TEOL Capital methodology, frameworks, and content. Designed to function as institutional vocabulary documentation for human readers and as citation-ready reference material for AI engines.
The institutional structure of board oversight, authority distribution, committee discipline, and decision documentation. Dimension 4 of the Capital Readiness Scorecard. Lenders examine governance before covenants because governance predicts covenant compliance integrity.
Adjustment to working capital or EBITDA reflecting forward revenue requirements rather than trailing twelve months position. Growing businesses require working capital growth normalization; institutional methodology applies the adjustment with documented forward analysis.
TEOL Capital's proprietary five-layer framework measuring how a holding company sees, controls, and allocates capital across operating entities. Layers: Entity Structure and Rationale, Consolidated Reporting, Intercompany Discipline, Capital Allocation Framework, Group Governance.
The period between LOI signing and transaction close during which diligence is conducted. Typically 60 to 120 days for middle-market transactions. The window during which post-LOI repricing occurs.
An acquirer pursuing transactions on a deal-by-deal basis without a committed fund. Raises capital transaction by transaction from LP relationships. Requires LP-credible underwriting, transaction-specific LP communication, and capital partner relationship architecture.
A contractual provision where the seller assumes liability for specified post-close losses. Typically backed by escrow and capped at a percentage of purchase price.
Critical operational knowledge held by the business including pricing logic, commercial discipline, vendor terms, regulatory positioning, and strategic context. Axis 4 of the Founder Dependency Index. Institutional businesses externalize knowledge through documentation; founder-dependent businesses hold it in the founder's experience.
TEOL Capital's flagship six-dimension framework measuring composite institutional readiness across financial truth, reporting integrity, cash visibility, operator dependency, structural architecture, and capital readiness.
TEOL Capital's flagship diagnostic instrument applying the Institutional Readiness Framework to produce a composite 0 to 100 score with band placement (Not Yet Institutional, Transitioning, Institutional, Institutionally Mature).
The documentation, consistency, and arms-length defensibility of transactions between related entities. Anchored to Layer 3 of the HoldCo Finance Architecture. Includes service agreements, intercompany loans, transfer pricing methodology, and intercompany balance reconciliation.
A pricing premium applied by lenders to facilities extended to high-dependency operators reflecting the credit risk of operational disruption from founder departure. Typically 50 to 125 basis points for high-dependency operators.
The risk that the business cannot operate effectively without the continued involvement of one or more critical individuals. Examined by lenders through key-person discount, by acquirers through earn-out and transition agreement structuring, and by capital partners through return hurdle adjustment.
A non-binding document establishing the framework of a proposed transaction including price, structure, exclusivity, and timeline. Marks the beginning of formal diligence. The position at LOI signing determines what the seller can defend through subsequent diligence.
TEOL Capital's diagnostic instrument measuring how a credit committee will read the business across six dimensions: Cash Flow Defensibility, Coverage and Leverage Position, Cash Visibility and Treasury Discipline, Collateral and Security Position, Reporting and Covenant Compliance Capability, Sponsor and Guarantee Architecture.
Capital expenditures required to maintain existing operational capacity, distinct from growth capex that expands capacity. Lenders examine maintenance capex as the floor on cash conversion under stress.
A contractual provision allowing parties to terminate a transaction if material adverse changes occur between LOI signing and close. Definition and triggers are typically heavily negotiated.
A concentration of debt maturities within a defined window. Lenders examine maturity wall exposure within 24 months as a stress factor that compounds operational pressure.
Current operating assets minus current operating liabilities, excluding cash and funded debt. The base calculation for the working capital peg.
Items embedded in current accounts that do not reflect core operations. Includes related-party receivables and payables, owner personal items, litigation reserves, pre-close customer prepayments, and insurance receivables. Institutional methodology removes non-operating items from the working capital peg.
The process of adjusting reported financial position to reflect run-rate operating reality. Applied to EBITDA (removing one-time items), revenue (removing one-time events), and working capital (removing non-operating items and one-time distortions).
The degree to which the business runs through the operator. Measured by the Founder Dependency Index across six axes. Dimension 5 of the Capital Readiness Scorecard.
The target working capital level the seller agrees to deliver at close. Calculated using trailing twelve months data, seasonality adjustment, sector calibration, and adjustment discipline. The most consequential negotiation in middle-market transactions, driving 35 to 55 percent of post-LOI value movement.
A contractual commitment by the operator personally to satisfy business obligations if the business cannot. Required in 60 to 75 percent of high-dependency credit facilities versus 20 to 35 percent of institutional-grade facilities.
A base-business acquisition intended to anchor a sustained acquisition program through subsequent add-on acquisitions. Requires base-business diligence calibrated to platform thesis, add-on infrastructure assessment, and capital architecture for sustained deployment.
Adjustment to the price proposed at LOI signing made through diligence findings. Across $20M to $100M revenue transactions, 55 to 70 percent experience post-LOI repricing of 8 to 25 percent. Driven by readiness gaps documented at LOI signing that diligence systematically identifies.
The period before a Letter of Intent is signed. The window during which institutional preparation establishes the documentation that determines post-LOI defensibility.
A preliminary analytical examination performed before formal engagement. The QofE Pre-Read is TEOL Capital's predictive instrument estimating what a sell-side QofE examination will surface before one is commissioned.
Adjustments to reported financial position reflecting acquisitions, divestitures, or material changes during the lookback period as if those events had occurred at the start of the period. Institutional methodology requires documentation with audit trail.
A focused financial examination performed by an independent third party validating the defensibility of reported EBITDA. Standard component of buy-side diligence and increasingly common as sell-side preparation. Distinguished from full audit in scope and methodology.
TEOL Capital's predictive diagnostic instrument estimating what a sell-side QofE examination will surface across six adjustment categories before the QofE is commissioned. Calibrated to observed patterns across $20M to $100M sell-side QofE engagements.
The risk that contracted revenue will not be retained at contract renewal. Material in government contracting, professional services, and any sector with multi-year contracts subject to competitive recompete.
TEOL Capital's proprietary four-dimension framework measuring management reporting integrity. Dimensions: Monthly Close Discipline, Variance Analysis Cadence, Segment Integrity, Management Reporting Defensibility.
Financial statements subject to external review by an independent accounting firm at a scope less extensive than audit. Position represents Rung 3 of the Financial Truth Ladder. Reviewed statements experience 4 to 10 percent EBITDA adjustment under QofE examination.
A consolidation strategy executing multiple acquisitions in a defined sector to build a platform of scale. Requires sector thesis defensibility, market mapping and pipeline saturation analysis, accelerated acquisition cadence, and consolidation economics modeling.
The annualized operating performance level based on recent period results, typically adjusted for non-recurring items and one-time events. Run-rate EBITDA is what acquirers price against rather than reported trailing twelve months EBITDA.
TEOL Capital's flagship sell-side diagnostic instrument measuring pre-transaction readiness across seven dimensions: Financial Readiness, Reporting and Information Readiness, Working Capital and Cash Readiness, Operator Concentration Readiness, Structural Readiness, Commercial Readiness, Process Readiness.
A cash forecast supplemented with documented downside scenarios including revenue shock, margin compression, and combined stress modeling. Stage 4 of the Cash Visibility Maturity Model. Improves credit pricing by 50 to 125 basis points relative to Stage 1 and Stage 2 operators.
A capital vehicle funding a single acquisition by an operator-investor (the "searcher") who will then operate the acquired business. Carries single-acquisition concentration, investor coordination complexity, and analyst-to-operator transition requirements.
Modification to the working capital peg reflecting where the close date falls in the seasonal cycle versus the trailing twelve months average. Moves the peg by 8 to 20 percent in businesses with material seasonality.
Financial reporting at sub-business unit level aligned with operational management structure. Anchored to Dimension 3 of the Reporting Under Scrutiny Model. Institutional segment integrity produces consistent month-over-month segment reporting that reconciles to consolidated statements.
Senior funded debt divided by EBITDA. Common covenant ratio examined by credit committees. Institutional senior leverage typically maintained below 3.00x; tight senior leverage triggers pricing premium.
Institutional finance advisory provided to operators preparing for or executing a sale process. Includes Sale Readiness Diagnosis, Pre-Transaction Finance Preparation, Process Coordination Support, Diligence Defense, and Post-Close Finance Integration. Distinct from broker-dealer activity. Advisory-only fees.
An equity capital provider in a transaction. Includes private equity sponsors, family office sponsors, independent sponsors, and other equity investors.
An initial bidder in a distressed sale or 363 sale process establishing the floor for subsequent bids. Common in bankruptcy proceedings and structured distressed sale processes.
The operating cost structure required to run a business independent of any parent or affiliated entity. Critical in carve-out acquisitions where shared services from the parent must be replicated. Standalone cost surprise affects 55 to 70 percent of carve-outs executed without dedicated architecture.
The integrity of entity structure, intercompany discipline, capital allocation framework, and consolidation methodology. Dimension 5 of the Institutional Readiness Framework. Anchored to the HoldCo Finance Architecture for multi-entity operators.
A documented downside case modeling operational performance under revenue shock, margin compression, or combined stress. Used by lender credit committees to test covenant headroom and liquidity runway. Three scenarios typical in institutional stress testing.
Cost reductions or revenue enhancements expected to emerge post-acquisition through combined operations. Acquirer-claimed synergies require institutional documentation with timeline to defend in transaction valuation.
The institutional methodology developed by TEOL Capital consisting of five operating disciplines, four engagement stages, and seven proprietary frameworks. The integrated framework underlying TEOL's advisory work.
A rolling cash forecast extending 13 weeks forward, updated weekly, with line-item detail by category. Stage 3 of the Cash Visibility Maturity Model. The institutional cadence standard that capital partners expect.
A contractual arrangement where the seller provides specified services to the buyer for a defined post-close period, common in carve-out acquisitions. Scope, duration, pricing, and exit criteria require institutional design.
The institutional management of cash, banking relationships, and liquidity. Includes multi-signer banking authority, documented treasury policy, segregation of duties, and scenario-capable cash forecasting. Stage 5 of the Cash Visibility Maturity Model.
The most recent twelve months of operating results. The standard reference period for institutional examination of revenue, EBITDA, working capital, and operating metrics.
In TEOL's working capital methodology, the dollar value of working capital concession the seller would make if arriving at LOI without defensible documentation. Calculated as the gap between TTM simple average and defensible mid peg.
Documented comparison of actual financial results to budget, prior year, and forecast with commentary explaining material variances. Dimension 2 of the Reporting Under Scrutiny Model.
Net current operating assets minus current operating liabilities, excluding cash and funded debt. The base of the working capital peg.
See Peg (Working Capital Peg). The target working capital level the seller agrees to deliver at close, the most consequential negotiation in middle-market transactions.