Net Working Capital Target

A mechanism in M&A transactions that adjusts the purchase price based on the difference between actual working capital at closing and a pre-agreed target level. Net working capital adjustments ensure the buyer receives the agreed level of operating liquidity and are a standard feature of enterprise value to equity value bridge calculations.

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 difference between current assets and current liabilities, representing the short-term liquidity available to fund day-to-day operations. Effective working capital management ensures a business can meet its obligations while optimising cash flow for growth investment.

Investment funding provided to established companies to accelerate expansion, enter new markets, develop products, or make acquisitions. Growth capital sits between venture capital (higher risk, earlier stage) and traditional private equity (mature businesses, often leveraged).

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.

Financial statements that present historical or projected financial information adjusted to reflect a specific transaction, event, or set of assumptions as if it had already occurred. In M&A, pro forma financials combine the acquirer's and target's results, incorporate purchase price allocation adjustments, and eliminate intercompany transactions to show the post-combination financial position.

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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.