Most private acquisitions start with at least one happy event – seller and purchaser agree on a price. That event quickly leads to a new negotiation, as they realise that the balance sheet of the business is going to change between signing and closing. Income will be earned (or lost), payables and receivables will go up or down, and capital expenditures will be made. From a financial perspective, the target business will not be the same as it was on the date the business deal was made. With that in mind, a purchaser wants to make sure that it receives a business whose working capital is consistent with ordinary operations. A seller, on the other hand, wants to ensure that it retains any excess working capital. So they make a new deal. Such is the nature of the working capital adjustment.
Working-capital provisions are not simple to draft, and they are...