Financial Glossary


M

Management Buy-in or MBI. This is the purchase of a business by an outside team of managers who have found financial backers and plan to manage the business actively themselves.

Management Buy-out or MBO. This is the term used for the funds provided to enable operating management to acquire a product line or business, which may be at any stage of development, from either a public or private company.

Management Fee. The sum paid to the investment company's adviser or manager for supervising its portfolio and administering its operations.

Managing Underwriter. The investment banking firm that leads and the underwriting syndicate for a public offering. The managing underwriter is listed on the left side of the prospectus or private placement memorandum.

Margin. Buying on margin means that the investor borrows money from a broker to buy a security. Investors usually do this when they are confident that the price of a security will go up. For example, suppose you want to buy 200 shares of a stock that costs $20 per share. Normally, you would need $4,000 (plus commission) to purchase this security. But if you buy the security on margin, you can borrow up to $2,000 (50%) of the purchase price and pay the other $2,000 yourself. If the value of the stock goes up, you earn all the gains on the$4,000 investment, even though you borrowed half of the initial investment. At some point, of course, you need to pay back the borrowed amount to the brokerage, which charges interest for the amount you have borrowed. If the value of the stock falls, however, you will owe the brokerage for the losses. If the value of the stock falls too far, the brokerage may give you a margin call.

Margin Account. A special type of brokerage account which allows the client to pay a portion of the price of the securities and borrow the balance from the broker. The word "margin" refers to the difference between the market value of the stock and the loan which the broker makes against it.

Margin Call. When an investor has bought stocks on margin and the value of that stock falls too low,the broker may issue a margin call to the investor to obtain money to cover the losses. To prevent catastrophic losses by investors, stock exchanges, the National Association of Securities Dealers (NASD), and individual brokerages have established rules governing the percentage of a purchase that can be bought on margin.

Market. A public place where the buying and selling of all types of bonds, stocks and other securities takes place. A stock exchange is a market.

Market Capitalization. Refers to the dollar value of a company. To put it another way, market capitalization is the amount of money someone would have to pay to buy the company. To calculate market capitalization, multiply the total number of accompany's shares by the current price per share. For example, if a company has 10 million shares,and the current price is $20 per share, then the company's market capitalization is $200 million ($20 x 10 million). When investors refer to small cap, mid cap, or large cap stocks, they're referring to the amount of the stocks' market capitalization. Large cap is a company with over $1 billion in market capitalization, a mid cap has between $500 million and $1 billion and a small cap has less than $500 million.

Market Index. A vehicle used to denote trends in securities markets.

Market Order. An order to buy or sell securities immediately at the best possible price.

Market Price. In the case of a security, market price is usually considered the last reported price at which the stock or bond is sold.

Market Value. For a public company, it is generally the company's price per share times the number of shares issued and outstanding, or the Enterprise Value minus the company's debt. For a private company see Fair Market Value.

Marketable Debt. Debt instruments for which there exists a secondary market where the instrument can be bought and sold by investors after it is issued. Almost all of this debt is initially sold by auction to primary dealers (chartered banks and investment dealers), who then resell the bonds to individual investors.

Marketed Deal. An arrangement in a public share distribution whereby the price at which the shares are sold is determined after a period of marketing activities. During the marketing period, the underwriters are able to contact potential purchasers to assess potential demand and price sensitivity. Shares continue to be publicly traded, if they had been previously listed. The underwriters minimize the price risk on resale (thereby lowering the discount to market), but the seller bears a risk of a price decline over the marketing period. The marketing activities commonly take the form of a "road show" during which company executives make a series of presentations on the company's merits to members of the investment community.

Maturity Date. The date at which a loan or bond or debenture comes due and must be redeemed or paid off. Simply put, the maturity date is the date when a financial instrument is due. 

Memorandum. An information document prepared by a company and its advisors to present information about its business for the sale of the company's assets or the sale of a portion or all of the company's securities. See Offering Document.

Merger. The unification of two or more companies.

Merger Premium. The portion of a buy-out offer in excess of the Fair Market Value of the target company immediately prior to the offer.

Mezzanine Debt. Described as debts that incorporates equity-based options, such as warrants, with a lower-priority debt. Mezzanine debt is actually closer to equity than debt, in that the debt is usually only of importance in the event of bankruptcy. Mezzanine debt is often used to finance acquisitions and buyouts, where it can be used to prioritize new owners ahead of existing owners in the event that a bankruptcy occurs. See Mezzanine Securities.

Mezzanine Securities. Generally refers to securities that have the characteristics of both debt and equity securities and have a liquidation preference ahead of common stock. Examples of mezzanine securities include subordinated debt with warrants or various forms of convertible preferred stock. See Preferred Stock.

Mid-Cap Stock. Stocks of a company with between$500 million and $1 billion in market capitalization.

Middle-Market. The term "middle market" is widely used in the corporate finance community, but its definition differs greatly among market constituents. In the leveraged loan market, Standard & Poor's Leveraged Commentary & Data (LCD) classifies middle market deals as those involving borrowers with less than $50 million of EBITDA. The Middle market or mid-market typically refers to companies of between $10 and $500 million in sales as referenced by Barlow Research.  Others use deal sizes of less than $500 million as the cut-off, but further characterizes deals sized at $250 million or less as lower-middle market, and those between $250 and $500 million as upper-middle market. At Lexington, we reference the Barlow Research definition, and as such, our lower-middle market focus falls in the $20 to $250 million range in sales.

Mini/Maxi Offering. A best efforts offering in which a company will raise no more than a maximum amount of funds or number of securities will be sold and the funds from investors will not accepted by the company unless a minimum specified dollar amount or number of securities is sold.

Monetary Policy. The process of managing the supply of money and credit in the economy. The primary objective of monetary policy is to contribute to the performance of the US economy. This goal is best realized in practice by achieving and maintaining price stability. Put another way, the actions of a central bank, currency board or other regulatory committee, that determine the size and rate of growth of the money supply, which in turn affects interest rates. In the United States, the Federal Reserve is in charge of monetary policy.

Modern Portfolio Theory (MPT). A process of selecting a mix of asset classes and the best allocation of those assets. The method is determined by matching the rates of return to a specified risk tolerance. MPT was a Nobel Prize winning theory in 1952.

Money Market. Part of the capital market established for short-term borrowing and lending of funds. Money market dealers conduct business over the telephone and trade securities such as short-term (three years or less) government bonds, government treasury bills, and commercial paper.

Mortgage. A legal instrument given by a borrower to the lender entitling the lender to take over pledged property if conditions of the loan are not met.

Mortgage Agreement. A contractual loan agreement collateralized by real estate.

Mortgage-Backed Securities (MBS). Certificates that represent ownership in a pool of mortgages. The holders of these securities receive regular payments of principal and interest.

Mortgage Debts. Includes first mortgages, home equity loans, and any other loans secured by your real estate. Include investment properties and second homes

Mortgage Fund. A mutual fund that invests in mortgages.

Mortgage Loan. A short-term or long-term use of property or money with the consent of the owner of the property or money. Usually the loan of money has an agreed-to repayment schedule and an interest charge.

Mortgage Term. The period of time over which the current conditions of the mortgage will apply.

Moving Average. In security charts, the moving average is a curve that averages price fluctuations of the security over a 50-day or 200-day interval. Each point on the moving average curve is calculated by averaging the closing prices from the previous 50 (or 200) days of trading. The moving average is a way to compare long-term price trends with recent price changes.