11/05/2026
The purchase price in an M&A deal isn’t always the amount the seller ultimately receives. Working capital is the reason why.
In many acquisitions, the purchase agreement establishes a target working capital amount that the business is expected to deliver at closing, typically reflecting the amount needed to operate the business in the ordinary course.
If, at closing, the business delivers less working capital than the agreed target amount, the purchase price may be adjusted downward, leaving the seller with fewer proceeds. If the business delivers more, the purchase price may be adjusted upward. The terms of the deal, of course, will dictate these calculations.
But the match is only part of the story. Disputes can arise over which assets and liabilities count as working capital, how the target amount was calculated, and how the closing adjustment is determined.
For sellers, these provisions can materially affect the proceeds received at closing.
For buyers, they help ensure the business has the cash it needs to operate after closing.
Whether you’re buying or selling a business, working capital targets, definitions, and adjustment mechanisms deserve careful attention during negotiations.
