FINRA Series 79 (Investment Banking Representative) Glossary
30 essential terms and definitions for FINRA Series 79 (Investment Banking Representative). Each definition is written for exam preparation, covering the concepts as they are tested on the 2026 syllabus.
A
- Accretion/Dilution Analysis
- A test of whether a proposed acquisition raises (accretive) or lowers (dilutive) the acquirer's pro forma earnings per share versus its standalone EPS. It combines the two companies' net incomes, adjusts for financing and synergies, and divides by the pro forma share count.
B
- Break-Up Fee
- A negotiated payment the target owes the buyer if a signed merger agreement is terminated under specified conditions, such as the target accepting a competing bid. It compensates the jilted buyer for time and expense and deters interlopers.
C
- Comfort Letter
- A letter from the issuer's independent accountants to the underwriters providing limited assurance on unaudited financial data in a registration statement. It supports the underwriters' due diligence defense against liability under the Securities Act.
- Comparable Company Analysis
- A relative valuation method that applies trading multiples (such as EV/EBITDA or P/E) from a set of similar publicly traded companies to the target's metrics to estimate its value. It reflects current market sentiment rather than a change-of-control price.
- Cost of Equity (CAPM)
- The return equity investors require, estimated under the Capital Asset Pricing Model as the risk-free rate plus a risk premium scaled by the stock's beta. It is a key input to the weighted average cost of capital.
E
- EBITDA
- Earnings before interest, taxes, depreciation, and amortization, used as a proxy for operating cash flow that is capital-structure and tax neutral. It is the denominator in the widely used EV/EBITDA valuation multiple.
- Enterprise Value
- The total value of a company's operating business available to all capital providers, independent of capital structure. It equals equity (market capitalization) plus total debt and minority interest, less cash and cash equivalents.
- Exchange Ratio
- In a stock-for-stock merger, the number of acquirer shares issued for each target share. A fixed exchange ratio holds the share count constant while a floating exchange ratio adjusts to deliver a set dollar value per target share.
F
- Fairness Opinion
- A written statement from an investment bank that the financial terms of a transaction are fair, from a financial point of view, to a specified party such as target shareholders. It supports the board's fiduciary duty but is not a recommendation to vote for the deal.
- Free Writing Prospectus (FWP)
- A written offer to sell securities used after a registration statement is filed that falls outside the statutory prospectus, permitted under Securities Act Rules 164 and 433. It must generally be filed with the SEC and not conflict with the registered prospectus.
G
- Go-Shop Provision
- A clause in a merger agreement that permits the target company to actively solicit competing acquisition proposals for a defined period after signing, often paired with a lower break-up fee for a deal reached during that window.
- Greenshoe (Over-Allotment) Option
- A provision letting underwriters sell up to 15% additional shares beyond the base offering to cover over-allotments. Exercising it lets the syndicate meet excess demand, while declining it supports the price by buying shares in a weak aftermarket.
- Gross Spread
- The underwriting discount, or difference between the price the public pays and the amount the issuer receives per share. It is split among the manager (management fee), the syndicate (underwriting fee), and the sellers (selling concession).
H
- Hart-Scott-Rodino (HSR) Act
- A statute requiring parties to certain large mergers and acquisitions to file premerger notifications with the FTC and DOJ and observe a waiting period (typically 30 days) before closing. It gives antitrust regulators time to review the deal for competitive concerns.
L
- Leveraged Buyout (LBO)
- An acquisition of a company financed largely with borrowed money, where the target's assets and cash flows service the debt and equity returns are driven by debt paydown, operational improvement, and multiple expansion. LBO analysis solves for the internal rate of return a financial sponsor can achieve at a given purchase and exit price.
- Levered Beta (Hamada Equation)
- A beta adjusted to reflect a company's financial leverage, converting an unlevered (asset) beta into a levered (equity) beta using its debt-to-equity ratio and tax rate. It lets analysts relever a peer-derived beta to the target's own capital structure.
M
- Material Adverse Change (MAC) Clause
- A merger agreement provision that lets the buyer walk away without penalty if the target suffers a significant negative event before closing. Carve-outs typically exclude economy-wide or industry-wide conditions from triggering the clause.
N
- Net Debt
- Total interest-bearing debt reduced by cash and cash equivalents, representing the debt that would remain after using available cash to pay it down. It bridges equity value and enterprise value in a valuation.
P
- A takeover defense that lets existing shareholders other than the hostile bidder buy additional shares at a discount once an acquirer crosses an ownership threshold, sharply diluting the bidder. It pressures a hostile acquirer to negotiate with the board rather than proceed unilaterally.
- Precedent Transactions Analysis
- A relative valuation method that derives implied value from multiples paid in prior comparable M&A deals, capturing control premiums actually paid by acquirers. It tends to yield higher values than trading comparables because it includes acquisition premiums.
Q
- Quiet Period
- The interval around a securities offering during which an issuer and its underwriters restrict public statements to avoid conditioning the market or making offers outside the prospectus. It runs from the decision to proceed until the registration statement is effective and the prospectus delivery period ends.
R
- Regulation M
- SEC rules that restrict issuers, underwriters, and other distribution participants from bidding for or buying the offered security during a restricted period, to prevent manipulation of its market price. It defines when stabilizing bids and passive market making are permitted.
- Rule 144
- The safe harbor allowing resale of restricted and control securities without registration if conditions are met, including a holding period (six months for reporting issuers), volume limits, current public information, and Form 144 filing for affiliates.
S
- Schedule 13D
- A beneficial ownership report that an investor must file with the SEC within five business days of acquiring more than 5% of a voting class of equity (shortened from ten calendar days by the SEC effective February 2024), disclosing identity, source of funds, and purpose. It signals potential activist or control intent, unlike the passive Schedule 13G.
T
- Tender Offer
- A public offer made directly to a company's shareholders to buy their shares at a specified price, often at a premium, within a set period. Under the Williams Act it must stay open at least 20 business days and treat all tendering holders equally.
- Terminal Value (Gordon Growth)
- The value of a business beyond the explicit DCF forecast period, assuming free cash flow grows at a constant perpetual rate. It often represents the majority of total DCF value, so the assumed growth rate is heavily scrutinized.
- Total Debt-to-EBITDA Ratio
- A leverage metric that measures how many years of current earnings before interest, taxes, depreciation, and amortization would be needed to repay all debt, widely used to size and stress-test LBO financing capacity.
U
- Unlevered Free Cash Flow
- The cash flow generated by a company's operations available to all capital providers before financing effects, used as the numerator in an enterprise DCF. It starts from EBIT, applies taxes, adds back depreciation and amortization, and subtracts capital expenditures and increases in working capital.
W
- Weighted Average Cost of Capital (WACC)
- The blended required return on a firm's capital, weighting the after-tax cost of debt and the cost of equity by their proportions of total capitalization. It is the standard discount rate applied to unlevered free cash flows in a DCF valuation.
- Williams Act
- A 1968 amendment to the Securities Exchange Act governing tender offers and large stake accumulations, requiring disclosure (Schedule 13D and Schedule TO) and setting procedural protections for target shareholders. It aims to give investors time and information to evaluate a takeover bid.