You’ve found a target company, made an offer, completed weeks of due diligence, spent countless hours planning for integration and just before you’re ready to sign on the dotted line, the notion of working capital hits the negotiation table. The success of the deal now hinges on ensuring working capital targets, and any potential adjustments, satisfy the interests of both the buyer and seller. It doesn’t matter how big the deal is, at some point, and perhaps initially with no apprehension, you’ll encounter a discussion about working capital during the M&A process.
As advisors we have routinely witnessed the problems that arise from failing to appropriately negotiate working capital targets early in the process. These problems can limit the ability of both parties to come to consensus in other areas of negotiation and can ultimately have profound impacts on the final sale price of the company.