Working capital is by far the most often-used purchase price adjustment – approximately 95% of all private company acquisitions use a post-closing purchase price adjustment and approximately 92% of those deals use working capital as an adjustment metric. This video, combined with our last installment of Dealology on purchase price never being the headline number, completes the picture to allow you to assess enterprise value and follow the money to determine how much will actually change hands at and after the closing.
In this video
- Why working capital purchase price adjustments are used
- How working capital adjustments work
- Factors to consider when determining “normalized level” and “target” working capital
- How to calculate working capital, including certain line items that are often in and out (e.g. cash; debt; deferred revenue; taxes; accounts receivable)
- Neutralizing gamesmanship to avoid managing to the target number