Working Capital Peg: Case Study of Two Firms

Working capital peg in M&A is a negotiated benchmark that shifts value after close and signals how clean or messy a deal will after signing. In practice, the peg rests on a 12-month historical average, with recent deals tailoring it for seasonality and business specifics. Buyers push for higher pegs to protect against shortfalls, while sellers push for lower pegs to minimize post-close adjustments. The last few years have pushed pegs toward nuance: longer tail review periods, more detailed SPA exhibits, and explicit exclusions for cash, debt, taxes, and one-time accruals.

From a practitioner’s view, the true-up moves the most value. Closing net working capital (NWC) is compared to the peg; if closing NWC exceeds the peg, the seller receives a premium; if below, the buyer pursues a downward adjustment. In 2025, SRS Acquiom analyzed 1,200+ private-target acquisitions and confirmed post-closing adjustments as a standard feature in modern M&A.

The data show the impact can exceed 20% of total deal value in some cases, and the true-up window commonly runs 30 to 90 days after close. This window matters because disputes during this period are a leading cause of post-close litigation.

Key components and exclusions of NWC

Key components of NWC are accounts receivable net, inventory net, trade accounts payable, and recurring accruals. Exclusions include cash, debt, taxes, and one-time accruals. Some business models require customized pegs, such as negative NWC in prepaid arrangements. In practice, the peg serves as a governance tool as much as a price lever; clear definitions in the SPA and detailed exhibits reduce ambiguity and the chance of disputes. The industry has moved toward tailored pegs that reflect the business model and seasonality rather than a blunt 12-month average.

Let me walk through a concrete example to illustrate the mechanics and risk. A NYSE-listed buyer agreed to acquire a $50M industrial equipment company. The peg was calculated on a 12-month average, but due to seasonality in equipment shipments, a seasonal peg was used for the closing period. The result: a miscalculation at closing led to a $2M positive purchase price adjustment in favor of the seller.

That misstep shows two truths: the peg is a live commitment, not a checkbox; and the tail risk sits in the numbers and the timing of the true-up. Embarc Advisors published a real case showing how a tailored approach saved $2M in net proceeds, reinforcing that precise peg calculations matter.

Market data and practical implications

The broader market data reinforce these lessons. Over 90% of U.. private M&A deals now include a working capital adjustment clause, and the average mid-market deal sees NWC as 3-5% of enterprise value, though this varies by sector. In a $75M distributor deal, Auxo Capital Advisors notes the use of a seasonal peg that aligns with monthly revenue patterns, reducing variability in the true-up. This approach aligns the peg to real economic activity so the post-close true-up is mechanical rather than speculative.

In practice, the true-up process follows a roughly 15-45 day review period for SPA working capital schedules in many deals, but 90 days is not unheard of for large or complex cases. The risk is that disputes over NWC components and calculation methods become the flashpoint for litigation.

Negotiation context: clarity, exhibits, and guidance

Clearer SPAs and explicit exhibits matter. Kroll’s guidance on working capital transactions emphasizes a structured approach to calculation mechanics and dispute resolution, while PwC UK’s 2025 working capital studies highlight how robust, well-defined pegs and schedules reduce post-close friction.

From the seller’s side, sophistication has risen. Lincoln International reports sellers narrowing the gap with buyers through detailed post-close adjustments, and notes a growing trend toward neutral or seller-favorable adjustments when the structure is well-defined and the data is clean. The 2025 data also show that closing NWC disputes exceed $1B in large-cap deals, signaling that this is not a niche issue but a core risk in big transactions.

Practical framework for pegs

A practical, field-tested approach to pegs looks like this: define NWC on a cash-free, debt-free basis; exclude one-time accruals; align the peg to a representative 12-month period with adjustments for seasonality; set a clear true-up window with defined dispute resolution steps; and attach detailed schedules that break out accounts receivable net, inventory net, and trade accounts payable with explicit calculation rules. When these elements are in place, post-close adjustments become more mechanical and less opportunistic.

Case study takeaway: the difference between a miscalculated peg and a correct, model-driven peg often boils down to data discipline and process rigor.

Case-driven outcomes

In the industrial equipment example, a misread of the seasonal pattern produced a $2M swing, equivalent to more than typical bank fees in an advisory engagement. In the distributor case, a seasonal peg aligned to fiscal patterns limited variance and sped up the true-up, with a smoother post-close experience for both sides.

What this means for practitioners today: insist on a peg that reflects the target company’s business rhythm. Use a 12-month baseline, but apply seasonality adjustments where appropriate. Expect and plan for a 30-90 day true-up, and build a robust dispute mechanism into the SPA. Do not treat the peg as a math exercise alone; treat it as a contract that governs risk and certainty in the post-close period. As you close more deals, you’ll see sellers becoming more sophisticated in negotiating neutral or seller-favorable adjustments, especially where the data and processes are transparent.

Practical notes and next steps

Document a precise definition of NWC components in the SPA, include exhibits with schedules that map each line item to a calculation, and set a clear audit or review process. Use a tailored peg when seasonality or business model warrants it, and prepare for a 30-90 day true-up period post-close.

Monitor industry guidance from Kroll, PwC UK, Clearly Acquired, and Auxo Capital Advisors as living resources that keep pace with evolving practices. If you want to deepen your understanding, read the sources and case studies cited here, and consider taking Matactic’s free M&A course to build fluency in working capital adjustments.

In short, working capital peg decisions shape value long after signing. They require discipline, precise data, and clear contract language. If you’re negotiating a deal today, start with a robust peg framework, align it to the business, and insist on clean schedules and a defined true-up process. For more terms and practical insights, explore the Matactic glossary and sign up for our free M&A course.