Avoid nasty surprises at the end of the deal.
In an acquisition, the seller is expected to deliver a certain level of working capital to the buyer. Seller and buyer must negotiate a working capital target and definitions to be included in the purchase agreement.
Too often, seller and buyer wait until the end of the acquisition process to reach common ground on working capital. And since the working capital true-up can mean a significant adjustment to the final purchase price, the only way to avoid a nasty surprise at the end is to spend more time on working capital at the front-end.
Instead, sellers typically spend their time identifying a suitable buyer, and buyers conduct due diligence and arrange transaction financing. But by leaving the working capital true-up to the end, major issues can arise. The closing can be delayed, and post-closing disputes are all too common.
