How is working capital peg determined in M&A transactions?

Working capital peg determination establishes the normalized working capital level expected at transaction closing, directly impacting purchase price through post-closing adjustments. Harbor View Consulting helps Maryland buyers and sellers navigate this critical negotiation point by analyzing historical working capital trends, identifying seasonal patterns, and normalizing for unusual items. Our approach examines monthly working capital levels over 12-24 months, adjusts for non-operational items and timing differences, considers business growth and seasonality impacts, and validates assumptions through detailed account analysis. Key considerations include defining included accounts (operating vs. non-operating), treatment of deferred revenue and customer deposits, inventory valuation methods, and accounts receivable collectibility. Our Baltimore team ensures the peg reflects sustainable business operations rather than temporary fluctuations, protecting both parties from unfair adjustments. Clear definition and calculation methodology prevent post-closing disputes and facilitate smooth transaction completion.