The secret language of City dealmaking

Dealmaking on the public markets can be a dense and confusing world. Firms court each other in the public domain; cryptic, flirtatious barbs are fired across the market, and bosses on either side try to size each other up.

But what do their messages really mean? What is the hidden meaning behind the jargon?

From Pac-Man defences to Ninja DD, head of UK public M&A at White & Case, Patrick Sarch , unpicks the knotty world of dealmaking and takes us inside the lingo of the deal.

The Valuation lexicon

• “fundamentally undervalues” – the price is >15 per cent below what we would accept,
• “significantly undervalues” – the price is 10-15 per cent below,
• “materially undervalues” – closer but still around five per cent below an acceptable price

Pac-Man defence

A defensive strategy by a target company in receipt of a hostile offer, which tries to turn the tables by launching its own offer for the unwelcome bidder.

Starburst

Breaking up a company when under pressure from investors, activist investors or a hostile bidder

Long pole

An issue that needs to be resolved (comes from ‘long pole in the tent’)

Ninja DD

Cut to the chase diligence – the opposite of “boil the ocean diligence” where no stone is left unturned. “Drains-up diligence” is somewhere in between where everything is looked at but not to an excessive extent.

Bumpers & grinders

Investors or activists who seek to “bump” up the price of a deal by refusing to support it or actively blocking it, known generally as “bumpitrage”, or in the case of “grinders”, seeking to stop it altogether

Bear hug

Used in the context of a public takeover, where a bidder unilaterally announces that they are considering making an offer for a target company. If there is limited engagement from the target, a ‘Bear Hug’ allows the bidder to inform target shareholders and the broader market of its intentions and puts pressure on the target’s board to negotiate.

Swarm

When a group of investors/activists all buy into a stock and engage with the company – a “wolf pack” being a coordinated version of the same thing

Ideas hopper

The list of possible solutions we have thought of and should test when we can.

Golden Parachute

A severance package guaranteed to a company executive in the event of a takeover, merger, or acquisition resulting in job loss.

Sandbagging

Provisions that determine whether the buyer can seek indemnification for breaches of representations and warranties, even if they knew about the breach before closing.

Poison Pill

A strategy used by a target company to make itself less attractive to a hostile bidder by issuing new shares to existing shareholders, thereby diluting the bidder’s stake.

White Knight

A friendly acquirer who steps in with a more acceptable offer to save the target company from a hostile bidder.

Green Shoe Option

An over-allotment option in an IPO that allows underwriters to buy additional shares at the offering price to stabilise the share price post-IPO.

Fishing Expedition

An overly broad due diligence request aimed at uncovering any possible issues, often seen as a tactic to delay or complicate the process.

Macaroni Defence

Issuing a large number of bonds that must be repaid at a premium if the company is taken over, making a takeover more expensive.

TTW or “test the waters”

An earlier-than-early look or “gold member”, meaning a round of ever more preliminary testing of market appetite ahead of an IPO

PUSU

‘Put Up or Shut Up’ under the Takeover Code – but becoming used in other contexts