Using the NWC peg as a buyer

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July 26, 2024

by a searcher from New York University - Leonard N. Stern School of Business in Grand Rapids, MI, USA

QoE came back on a deal I have under LOI as L12M $210k and L3M $350k (increase in AR).

I expect this NWC peg should come off the top of the purchase price, but the seller thinks it's prorated based on months to the end of the year.

With no hypothetical risks on this deal, should I dig in with the seller? I assume so. Looking for experience to guide me.

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Reply by a searcher
from University of Pennsylvania in Charlotte, NC, USA
Thanks ^redacted‌. Anonymous, based on your question I believe you are misunderstanding the concept and mechanics of a NWC peg. If you do have a solid grasp on it, could you rephrase and add appropriate information that would allow someone to help you. Or if not, there are a number of good NWC discussions on this platform and I'd recommend starting there. Good luck.
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Reply by an intermediary
from Georgetown University in Delray Beach, FL, USA
Each broker is different with respect to the advice to clients - my starting point for sell-side clients is that a normal level of working capital is included in the price. if you're asking the seller to reduce price by the amount of working capital I'd tell you to pound sand unless you were paying a nice premium.
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