How to negotiate Net Working Capital

January 02, 2022
by a searcher from Emory University - Goizueta Business School in Atlanta, GA, USA
Are there any published standards to refer to when negotiating net working capital with a seller?
I am in negotiations to buy a business and the primary sticking point is net working capital. The seller believes there should be no adjustment, that any capital tied up should be theirs. As a financial buyer, I have modeled and set price based on a multiple assuming normalized working capital will stay with the business. In this particular transaction, the expected net working capital represents ~12% of the sales price.
from Seton Hall University in Morristown, NJ 07960, USA
On the last deal I was involved with, cash flow was awesome but seller was using short-term financing to purchase long term assets. Business was well positioned to cover, so there shouldn't have been a big issue, but the ST financing lopsided the NWC, and the parties made a big deal of it. Overall, I agree with the other comments where people are saying, model it out on your particular facts, it shouldn't be a sticking point, just has to be realistic and fit your circumstances.
from Northwestern University in Orlando, Florida, USA