Working Capital Peg

The agreed level of working capital that the target business should have at the completion of an M&A transaction, established during negotiations and used as a benchmark for purchase price adjustments under a completion accounts mechanism. The target is typically set at the average net working capital over a 12-month trailing period, normalised for seasonality and non-recurring items.

The cumulative amount of committed capital that a general partner has drawn down from limited partners through capital calls to fund investments, management fees, and fund expenses. Called capital represents the actual cash invested by LPs and is used to calculate performance metrics including DPI and TVPI.

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).

The contractual framework in an M&A transaction that determines how the final purchase price is calculated and adjusted to reflect the financial position of the target at closing. The two principal mechanisms are completion accounts (which adjust the price post-closing based on actual financial metrics at the completion date) and locked box (which fixes the price based on a historical balance sheet date with no post-closing adjustment).

A contractual provision in an acquisition where a portion of the purchase price is contingent on the acquired company achieving specified performance targets post-completion. Earnouts bridge valuation gaps between buyer and seller expectations.

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 contractual provision in acquisition agreements that allows the buyer to withdraw from or renegotiate a transaction if the target company experiences a significant negative event between signing and closing. MAC clauses define what constitutes a material change and typically exclude general market downturns, industry-wide conditions, and changes in law, focusing instead on company-specific deterioration.

Earnings adjusted to remove non-recurring, unusual, or non-operating items to present a sustainable level of profitability. Normalisation adjustments commonly include removing one-off restructuring charges, litigation settlements, above- or below-market executive compensation, and related-party transactions.

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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.

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.