What is Working-Capital Adjustment?
A post-close true-up that nudges the purchase price up or down based on the actual working capital delivered at closing versus a target.
Most acquisitions assume the business is handed over with a normal level of working capital - enough cash, receivables, and inventory, net of payables, to keep running day one. The parties agree a target at signing; at close, the real number is measured and the price adjusts dollar-for-dollar against the target. Deliver more working capital than the target and the price ticks up; deliver less and it ticks down. Why it matters to you: this is one of the most common places a clean headline price quietly shrinks. The definition of 'working capital' (what counts, what doesn't) and the target peg are negotiable and material. Model it before you sign, and don't drain cash or stretch payables right before close - the adjustment will catch it.
Example
- Target working capital is $2M. At close the company delivers $1.6M, so the $40M price is reduced by $400K to $39.6M.