Negotiating Working Capital: Maximizing M&A Valuation

In most M&A transactions, the parties arrive at a purchase price by multiplying the target company’s revenue or earnings before interest, taxes, depreciation, and amortization (EBITDA) by an agreed-upon multiple. While this is generally true, a buyer will also typically require a minimum amount of “working capital” on the balance sheet when the deal closes to ensure there are no immediate liquidity issues. A buyer doesn’t want to pay twice: Once to buy the business and then to have to inject capital post closing in order to keep the business running.

A working-capital hurdle is a predetermined working-capital amount that is assumed in the purchase price. For example, a deal might include a purchase price of $100m based on the seller’s delivery of $15m of working capital at closing. If the seller delivers less than the agreed upon working capital amount at closing, the purchase price will be adjusted accordingly.

The working capital issue is highly complex and can be one of the most contentious issues in M&A negotiations. During the webinar Ben explores...

  • How working-capital hurdles provide protection and benefits to both parties in a transaction
  • How working-capital hurdles are calculated
  • How purchase price adjustments are made based on agreed upon working capital hurdles
Additionally, Ben addresses questions from the audience at the end of the webinar. Watch it now.

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