Searchers - beware the working capital peg. The peg is meant to ensure an appropriate amount of fuel is delivered to take over the business in the normal course of business. It also ensures the seller continues to operate the business in the normal course through close. However, there are a ton of pitfalls - seasonality, non-operational current assets/liabilities, deferred revenue, etc and this in reality can affect your ultimate purchase price and indirectly your valuation.
I obviously recommend setting a peg in the purchase agreement but there are different ways to calculate it and to work together with a cooperative seller to ensure it meets the objective of both parties. I recommend using an advisor to help you think through the balance sheet and associated working capital peg.
Working Capital - Beware the Peg
by a professional from University of Wisconsin - Madison
More on Searchfunder
Searchfunder is an online community and toolkit for searchfunds. Over 80% of those involved in searchfunds maintain a Searchfunder.com account to help them network, problem solve challenges, and keep up with the industry.
We maintain partnerships with database providers that make searching more effective, efficient and affordable along with features that help searchers find deals and investors and vice versa.
We maintain partnerships with database providers that make searching more effective, efficient and affordable along with features that help searchers find deals and investors and vice versa.
489 views
13 comments
Sign in to see all replies.
Create an account.