Net working capital peg
Last updated
Quick Answer
The net working capital peg is the agreed normal level of working capital the business is expected to be delivered with at closing.1,2
What it is
It is set in the letter of intent or the purchase agreement, usually off a trailing average established during quality of earnings work, and the closing balance is trued up against it dollar for dollar afterwards. Two definitions have to match for the mechanism to work: the one the peg was set under, and the one the closing statement is computed under.1,2
Operational context
What good looks like
Why It Matters
A peg is a direct price term that most buyers negotiate last and least. The standard accounting definition of working capital is frequently the wrong definition for the agreement, and a peg set on one basis and trued up on another is a repricing nobody intended.1
Frequently Asked Questions
What is Net working capital peg in venture capital?
It is set in the letter of intent or the purchase agreement, usually off a trailing average established during quality of earnings work, and the closing balance is trued up against it dollar for dollar afterwards.
Why is Net working capital peg important for startups?
Understanding Net working capital peg is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.
Sources & References
- 1.T3-35 — Alvarez & MarsalTips for Preparing and Navigating Through Working Capital DisputesAlvarez & Marsal(The net working capital peg is the agreed normal level of working capital the business is expected to be delivered with at closing.)secondary · T3 · deal-documents · metric
- 2.T3-37 — Lincoln InternationalWorking Capital Adjustments and Tips to Mitigate M&A DisputesLincoln International(The net working capital peg is the agreed normal level of working capital the business is expected to be delivered with at closing.)secondary · T3 · deal-documents · metric
- 3.T3-38 — (law-firm client alert)Net working capital in M&A agreements (via Lexology)(law-firm client alert)(The net working capital peg is the agreed normal level of working capital the business is expected to be delivered with at closing.)secondary · T3 · deal-documents · metric
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