Beyond Valuation: Why the Final Purchase Price Is Often Different

One of the most common misconceptions in M&A is that once the valuation has been agreed, the transaction price is fixed. In reality, the headline valuation is often only the starting point. Between signing and closing, several purchase price adjustments can materially change what the seller ultimately receives.

Among these adjustments, working capital is one of the most frequently misunderstood.

Most acquisitions are negotiated on a debt-free, cash-free basis. The agreed Enterprise Value assumes the buyer will receive a business capable of operating normally from the day ownership changes. This means the company should be transferred with an agreed level of working capital—sufficient inventories, receivables and operating liquidity to support ongoing operations.

If the business is delivered with less working capital than expected, the buyer will usually require a reduction in the purchase price. Conversely, if more working capital is delivered, the seller may receive an upward adjustment. This mechanism, commonly referred to as a working capital true-up, protects both parties by ensuring neither gains an unintended advantage immediately before closing.

The importance of working capital varies significantly by industry. Manufacturing companies, food and beverage producers, distributors, agribusinesses, pharmaceutical companies, healthcare providers and logistics businesses typically carry substantial inventories, receivables or contract assets. For these sectors, working capital negotiations can represent one of the most significant commercial discussions in the entire transaction. By contrast, software companies, professional services firms and asset-holding businesses generally have relatively modest working capital requirements, making the adjustment less material.

Private equity investors tend to examine working capital particularly closely. Because acquisitions are often financed through leverage, preserving sufficient operating liquidity after closing is essential to protect investment returns. Strategic buyers also place considerable emphasis on working capital, especially in cross-border acquisitions where uninterrupted operations and customer relationships are critical.

In practice, however, working capital is only one component of a broader purchase price adjustment process. Experience from cross-border transactions shows that sellers frequently devote considerable attention to negotiating EBITDA multiples while underestimating the impact of completion adjustments. Discussions surrounding net debt, debt-like items, cash-like items and working capital often determine the actual proceeds received by shareholders.

This can be illustrated through a simple framework that many advisors use when reconciling value from Enterprise Value to Equity Value:

Although the agreed Enterprise Value may never change, each adjustment can move the final purchase price significantly. It is therefore not unusual for the amount ultimately received by shareholders to differ materially from the valuation announced at signing.

For M&A practitioners, understanding these adjustments is increasingly important. Financial due diligence should not only verify historical financial performance but also identify unusual working capital movements, seasonality, customer advances, inventory build-ups, delayed supplier payments and other factors that may influence the closing balance sheet. Addressing these issues early helps reduce disputes, shortens completion negotiations and protects transaction value.

For business owners, the lesson is equally important. Negotiating valuation is only one part of the transaction. Preparing for purchase price adjustments is often what determines how much value is actually realised at closing.

Protemus Insight

At Protemus, purchase price negotiations are often explained through an EV-to-Equity Reconciliation framework. While valuation determines the headline number, the seller's final proceeds are frequently shaped by three critical adjustments: Net Debt, Working Capital and Debt-like Items. Understanding these mechanics early enables founders to negotiate beyond valuation and preserve value throughout the transaction.