Working Capital: Bring or Buy it?

by a searcher

1 month ago

Hey all - curious to get people's thoughts on the best way approach securing working capital in a competitive deal process for a business doing <$1M in SDE.

There seems to be two schools of thought; push for a normalized level of WC to be included in the deal / purchase price OR skip the WC discussion with the seller altogether, pay a slightly lower multiple and include WC in your loan.

"Buying" WC: Allows you to offer the highest purchase price in your LOI, but can create confusion and conflict when trying to educate seller on the concept of WC

"Bringing" WC: Sellers see a slightly lower purchase price in your LOI, but you avoid leaving WC up for debate

Which route have you seen more success with? Does it ever make sense to present both options to the broker / seller and gauge which they'd be more keen on?

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15 comments

searcher from San Diego State University

From my perspective if the WC needs are high its difficult to assess the true WC needs before due diligence so it would be better to offer a purchase price inclusive of NWC and agree to set a target during due diligence once you have access to the necessary info.

4 weeks ago | like reply | 0 likes

intermediary from Queens University of Charlotte - McColl School of Business

Hi Ian. Short answer, depends on type of company, length of working capital cycle, and relative cost of financing WC. my email is --@----.com if you want to discuss further.

4 weeks ago | like reply | 0 likes

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