May 20, 2018 – Negotiating Working Capital: Maximizing M&A Valuation
News by Ascento Capital • May 20, 2018
The working capital issue can surprise a seller and cost the seller millions of dollars. Many business owners assume the purchase price for their business will be based on a multiple of some financial metric, e.g. revenue or EBITDA. This is generally true, but a buyer typically requires a minimum amount of “working capital” on the balance sheet when they buy the business to ensure there are no immediate liquidity issues. A buyer does not want to pay twice, once to buy the business and then have to inject capital at the closing of an M&A transaction to keep the business running.