Including inventory in WC peg?

July 25, 2025

by a searcher from University of California, Los Angeles in Orange County, CA, USA

I'm looking at a deal (stock sale) with about $1M in active inventory, which is considered excessive because the business really only needs about $400k of inventory on the books if we were to acquire. Our offer will be presented as: Total = purchase price (3.5x EBITDA) + WC (AR - AP). Should we include inventory as part of the WC peg? Or should all the inventory be baked into the purchase price (3.5x EBITDA)? Or perhaps half the inventory value should be baked into the purchase price while the remaining half is set up on a consignment basis? I have read different opinions on this forum, but wanted to get some more feedback.

Reply by a professional
from Georgia Southern University in Atlanta, GA, USA

One side point to add - Be careful assuming any of it is "excess". Its often a core business strategy that drives sales (people buy from us because we have it available and ship fast) or better margins (volume discounts, etc.). Either that or its old/obsolete/slow moving items. Most don't hold true excess if there's zero benefit

Reply by a searcher
from The University of Chicago in Nashville, TN, USA

Inventory should be included in NWC so either state that it is included or take that $1M amount off of your 3.5x multiple and present a lower offer. I would be careful asking for $400K in inventory at close because they could run down their useful inventory and leave you with aged-and-excess that will have essentially no value assuming they are low velocity SKUs. If they just over ordered active SKUs then a consignment model isn't a bad option, just be careful that it is still the market price.

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