Net Working Capital Adjustment

11

Feb

0 Comments

Net Working Capital Adjustment, Net Working Capital Target, Transaction Terms

The Working Capital Adjustment, Part III

The Working Capital Adjustment, Part III This week we wrap our net working capital (NWC) series with a discussion of a common pitfall that sellers should guard against when negotiating a working capital adjustment. A deferred revenue liability, if improperly considered in NWC adjustment negotiations, can be used to dip into a seller’s pocket post-closing. In Parts I and II of the series, we defined net working capital and identified the fundamental reason that it is important (Part I). We also introduced the philosophical rationale for including…

The Working Capital Adjustment, Part II

The Working Capital Adjustment, Part II This week we pick back up Part II of our net working capital discussion with a question: is it possible for a seller to drain his company of cash just before transaction close? If so, when and how can he do it? Last week I began this Agility Growth series with an analysis of the net working capital adjustment. In Part I of the discussion, we defined net working capital and identified the fundamental reason that it is important in a…

The Working Capital Adjustment, Part I

After months of negotiations have resulted in an agreement on purchase price, it’s easy to think that everything important has been decided in an M&A transaction. But that’s not the case. In my career, I have routinely found that many key terms involved in a deal between buyer and seller often come as a surprise to bootstrapping entrepreneurs. As a deal gets into serious due diligence, bankers and lawyers begin to circulate drafts of definitive deal documents. The documents are dense. So it’s easy to miss that…