Working Capital Adjustment in M&A deals
A contentious issue in M&A deals can often be the working capital adjustment that is embedded in the SPA. Albeit the term normalised working capital (NWC) may be familiar to many, its nuances are often misunderstood in the context of a purchase price adjustment as a part of the acquisition. This article discusses the fundamentals behind the working capital adjustment and how one can leverage the same to improve their position on something that often is a heavily negotiated point.
- Understanding Working Capital Adjustment Mechanism:
- How is Target Normalised Working Capital Calculated?
- A full year average eliminates the impact of seasonality on normalised working capital.
- EBITDA, on which the agreed Enterprise Value is based, is also measured on the basis of results in the trailing 12 months.