Net Working Capital Adjustment

The amount by which a company's net working capital exceeds the level required to sustain its normal business operations. In M&A transactions, excess working capital increases enterprise value (and therefore equity value) because it represents surplus cash or near-cash resources available to the buyer beyond what is needed to run the business.

The process of modifying an observed equity beta to better reflect the risk characteristics of the subject company being valued. Common adjustments include unlevering betas from comparable public companies to remove the effect of different capital structures, relevering to the subject company's target capital structure, and applying the Blume or Vasicek adjustment to account for beta's tendency to regress toward 1.0 over time.

Funds spent to acquire, upgrade, or maintain physical assets such as property, plant, and equipment. CapEx is capitalised on the balance sheet and depreciated over time, in contrast to operating expenditure which is expensed immediately.

A common M&A pricing convention in which the enterprise value is expressed before accounting for the target's cash balances and debt obligations, which are then adjusted at completion to calculate the equity value payable to the seller. Under this convention, equity value equals enterprise value plus cash and cash equivalents less financial debt (including debt-like items such as pension deficits, deferred consideration, and unpaid tax).

A third-party account established at closing of an M&A transaction to hold a portion of the purchase price (typically 5-15%) for a specified period, providing the buyer with security against potential warranty claims, indemnity obligations, or purchase price adjustments. The escrowed funds are released to the seller upon expiry of the escrow period or resolution of any outstanding claims.

A pricing mechanism in M&A transactions where the purchase price is fixed based on a set of accounts prepared at a specified date prior to completion, with value leakage protections to ensure no value is extracted from the target between the locked box date and closing. Locked box mechanisms provide price certainty and avoid the disputes often associated with completion accounts adjustments.

A form of private equity financing provided to early-stage, high-growth potential companies in exchange for equity. VC firms typically invest across multiple rounds (seed through Series C+), provide strategic guidance, and target returns through exits within 5-10 years.

A short-term financing arrangement designed to fund a company's day-to-day operational needs, bridging the timing gap between paying suppliers and receiving payment from customers. Working capital facilities typically take the form of revolving credit facilities, overdrafts, or invoice finance arrangements, and are secured against current assets such as receivables and inventory.

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How long does it take to sell a business?

A well-run sale process usually takes six to twelve months from going to market to completion, but the preparation that determines your price should begin twelve to twenty-four months earlier.

What is working capital and why does it matter in M&A?

Working capital is current assets minus current liabilities; in M&A, buyer and seller agree a normalised target, and under completion accounts the price rises if working capital at completion is above it and falls if it is below.

What special considerations apply to B2B ecommerce and wholesale businesses?

B2B ecommerce differs from B2C: sales cycles are longer, deals are larger, inventory management is critical, and wholesalers expect payment terms and volume discounts.