Protecting Deal Value: Working-Capital Hurdles in M&A Transactions

The purchase price in a typical merger or acquisition is often calculated as a multiple of the target company’s EBITDA. Because current assets and liabilities can be manipulated in ways that won’t be reflected in EBITDA, such transactions should be subject to a working capital hurdle. Without such a hurdle, the buyer could end up with future cash flows that fail to meet its expectations.
AS-16000-003A_Working Capital Article-lg
Download