Net Working Capital: What To Know When Involved in an Acquisition

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Net Working Capital: What To Know When Involved in an Acquisition

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June 18, 2024

In today’s complex macroeconomic and geopolitical environment, deal makers face numerous challenges when evaluating potential acquisitions. Inflationary pressures, supply chain disruptions, and more create significant commercial, operational, and financial hurdles. While a quality-of-earnings analysis may address some of these issues, it is equally important to consider their impact on the “normal” level of working capital when setting the peg at closing.

Our exclusive article discusses key considerations for assessing the normal level of working capital.

The Importance of Net Working Capital (NWC)

Explore how NWC is essential for funding short-term operations and significantly impacts business transactions and purchase price adjustments in acquisitions.

What to Consider When Evaluating NWC

Discover how to construct a detailed analysis of NWC components to accurately determine the required levels and establish a realistic peg during acquisitions.

Establishing the Net Working Capital Peg Is More of an Art Than a Science

Understand how setting the NWC peg requires evaluating recent business changes and key metrics to ensure accurate and future-proof working capital levels.

Defining Closing Net Working Capital in the Sale and Purchase Agreement

Learn how clear documentation of closing NWC in the sale agreement prevents manipulation and ensures accurate calculation methods, reducing dispute likelihood.

Adjustment Mechanism

Discover how an adjustment mechanism addresses discrepancies between the NWC peg and closing amount, with various strategies to limit adjustments and mitigate disputes.