What working capital actually costs you in a sale

The working capital adjustment is the part of a sale agreement sellers hear about last and worry about most. Search for it and you will find advisory firms describing it as the place where deals quietly lose their value.

Here is the scale, from the deal studies rather than the marketing. On a €1.5m sale, the median amount held back for this adjustment is about one percent, so roughly €15,000, and the average opening claim against it is 0.9 percent, about €13,500. Those figures come from deals larger than yours and better lawyered, which matters and is dealt with at the end. The order of magnitude is still the point: this is not usually where a fortune goes.

Where a fortune can go is one step earlier, in a number most sellers never negotiate at all.

#The mechanic, briefly

A private sale is normally priced cash-free and debt-free, which means the price is for the trading business itself: you keep the cash, you settle the debt, and the buyer gets what is left (enterprise value rather than equity value).

That phrasing assumes something it never says out loud: that the business arrives with a normal amount of working capital in it. Enough stock to keep trading, enough unpaid customer invoices to fund next month, with the unpaid supplier invoices that go alongside. Hand over an empty business and the buyer has to put that money in themselves.

So the parties agree a peg, a target level of net working capital, usually the average of the last twelve months on an agreed formula. At closing they use an estimate. Sixty to a hundred and twenty days later the buyer produces a closing statement, and the price moves euro for euro with the difference between what was actually delivered and the peg.

Deliver more working capital than the peg and you are paid for the excess. Deliver less and you refund the shortfall.

#What the data shows

One term first, because it appears in every figure below. An escrow is part of the price parked with a third party at completion instead of being paid to you, and released later once both sides agree the final numbers.

Deals with an adjustment

over 90%

up from around half a decade earlier

Median separate escrow

≈1%

of transaction value, last two years

Average initial buyer claim

0.9%

of transaction value

Three further findings from the same study, each of which changes how you should prepare.

Buyers usually win the calculation. Buyers' proposed figures were reviewed and ultimately accepted in seven out of ten purchase price adjustments.

Disputes are rare and short. Even contested claims took less than two months to resolve on a median basis.

It runs both ways. For deals closing in 2024, SRS Acquiom found nearly equal prevalence of claims and surpluses. The adjustment is not systematically a seller's loss; it is a true-up.

And the amount actually claimed has been falling. The share of the adjustment escrow that buyers drew on fell from an average of 74% in 2020 to 19% by the third quarter of 2024.

#Where the real money is

Not in the adjustment. In the peg.

The adjustment moves the price by the gap between what you deliver and the target. The target itself is negotiated, from a formula and a reference period that both sides choose.

Put numbers on that. If your business runs on €300,000 of net working capital, arguing the peg down by ten percent is €30,000 in your pocket, which is more than double the €13,500 average claim we started with, and it is settled before a single closing statement exists. The adjustment is the part everyone worries about. The peg is the part worth preparing for. Our FAQ on whether working capital affects your valuation covers the shorter version.

This is also where the definition matters more than the number. The formula for what counts as working capital is agreed in the document: whether deferred revenue is in it, whether accrued bonuses are in it, whether an intercompany balance is in it. SRS Acquiom found that the "worksheet" method, which spells the calculation out line by line rather than deferring to accounting policy, is now used in over a third of deals. That trend exists because the definition is what people argue about.

#What the escrow structure tells you

The American Bar Association's biennial study of private target agreements found that 58% of deals used a separate escrow to hold back part of the price against the post-closing adjustment, up from 53% in the previous edition. Among those, 42% made that escrow the sole source of recovery for adjustment claims.

That second number is the one to negotiate for. If the adjustment escrow is the buyer's only route to recovery, your exposure is capped at the escrow. If it is not, an adjustment claim can reach past it.

The trend on escrow size is in the seller's favour. In the Canadian companion study covering 2020 to 2022, the average escrow was 4.56% of deal value, down from 10.85% in 2018, with 43% of escrows below 3%.

#What to do before you are in a process

Know your own working capital cycle before anyone proposes a peg. If you cannot say what your net working capital was in each of the last twelve months, you cannot tell whether a proposed average is fair or flattering to the buyer. Our guide on the gap between profit and cash covers the calculation.

Watch what you do in the last quarter before closing. Collecting hard, delaying supplier payments and running stock down all take cash out of the business and all reduce delivered working capital. They feel like good housekeeping and they cost you money at completion, euro for euro.

Get the definition written out. Not "net working capital determined in accordance with the accounting principles," but a line-by-line schedule with the actual accounts. The worksheet approach exists because the general formulation produces disputes.

Argue about the period, not just the average. If your business grew during the reference period, a trailing average understates the working capital a growing business genuinely needs, and the peg will be set low, which is in your favour. If it shrank, the reverse. Both sides know this.

#What this does not tell you

The population caveat here is significant and worth stating plainly. The ABA study covers publicly filed agreements for deals between $25m and $900m. SRS Acquiom's data comes from transactions where it acted as shareholder representative, which means institutionally advised deals. Neither is evidence about a €2m owner-managed business sold to another owner.

Smaller deals often have no adjustment mechanism at all, which sounds simpler and is not: it means the working capital question is settled inside the headline price, usually without anyone naming it. If your sale has no peg, the risk has not gone away, it has become invisible.

And none of this covers the ordinary version of the problem, which is not the sale at all: the working capital your business ties up every day while you own it. That is a larger number than any adjustment and it is available to you now rather than at exit.

#Sources

• SRS Acquiom, M&A Working Capital Purchase Price Adjustment Study, 2026 edition: more than 1,500 private target acquisitions representing over $385bn, and more than 2,900 purchase price adjustments resolved; adjustments present in more than 90% of transactions, up from around 50% a decade earlier. https://www.srsacquiom.com/our-insights/working-capital-adjustment-study/
• SRS Acquiom 2025 edition, as reported by DealLawyers.com, January 2025: median separate escrow of approximately 1% of transaction value, average initial buyer claim of 0.9%, 24% of claims exceeding 1%, buyer calculations accepted in seven of ten adjustments, contested claims resolved in under two months on a median basis. https://www.deallawyers.com/blog/2025/01/post-closing-adjustments-srs-acquiom-issues-working-capital-ppa-study.html
• SRS Acquiom 2024 edition, as summarised by Fasken, March 2025: 1,250 private target acquisitions closed between January 2020 and the third quarter of 2024; escrow claim rates falling from 74% to 19%; the worksheet method now used in over a third of deals. https://www.fasken.com/en/knowledge/2025/03/key-takeaways-from-srs-acquioms-2024-ma-deal
• American Bar Association, Business Law Section, 2025 Private Target Mergers and Acquisitions Deal Points Study: 139 publicly available definitive agreements for deals between $25m and $900m. https://businesslawtoday.org/2025/12/announcing-aba-2025-private-target-mergers-acquisitions-deal-points-study/
• Goulston & Storrs, analysis of the 2025 ABA study: 58% separate adjustment escrow, of which 42% sole source of recovery. https://www.goulstonstorrs.com/insights/article/2025-aba-private-target-m-and-a-deal-points-study-what-s-market
• Miller Thomson, on the Canadian companion study covering 2020 to 2022: 83 agreements, 54% with a purchase price adjustment, 87% of those working capital based, average escrow 4.56% of deal value against 10.85% in 2018. https://www.millerthomson.com/en/insights/ma-in-canada-trends-insights/whats-market-in-private-ma-insights-from-the-latest-aba-deal-points-study/

#A note on sourcing

Every plain-language explanation of working capital adjustment mechanics that we could find was published by an M&A advisory firm as marketing. The mechanics described above are standard and uncontroversial, but for anything load-bearing this article cites the deal-terms studies rather than an advisory blog.