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Working Capital: Best Practices in Setting a Net Working Capital Target and Post-Close Settlement

December 15, 2020

Transaction Advisory Services Group

During a transaction, there are a lot of moving parts: Both buyer and seller want to make sure they are getting the best possible deal, and detailed legal, financial, and operational diligence takes center stage. Oftentimes, this means the net working capital target is negotiated last. But minimizing its importance could be a critical mistake.

Setting a net working capital target helps secure a level of liquidity on the date of acquisition that’s consistent with historical practices. Without it, the buyer may have to inject additional capital – beyond the agreed-upon purchase price – to pay its payables and create more saleable inventory. Beyond that, a contentious net working capital dispute post-close can interrupt management attention from operations and can create erosion in buyer-seller chemistry.

The ideal scenario in any deal is to set an accurate working capital target and ensure a smooth post-close settlement process. Our latest whitepaper outlines four best practices to help you do just that.

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