Glossary · Deal structure

Working capital peg

The working capital peg is the normal level of net working capital: typically the 12-month average: the seller must leave at completion. Every deviation triggers a euro-for-euro price adjustment.

Definition

Without a peg, a seller could optimise cash just before completion: wind down inventory, accelerate receivables, delay payables: leaving the buyer under-funded for ongoing operations and forcing fresh cash injection.

The peg neutralises that. The 12-month average net working capital (receivables + inventory − payables, excluding cash and debt) is fixed in the SPA. At completion the actual NWC is measured; any delta cash-settles either way. The headline price remains a cash-free / debt-free / normalised-NWC price.

Worked example

A Ghent wholesaler has a 12-month average NWC of €420k (peg). At completion the actual NWC is €380k. The buyer pays €420k less and €40k goes to the seller: or the seller refunds €40k. The exact mechanism lives in the "purchase price adjustment" clause.

When it matters

Around 90% of Benelux SME share deals above €1m run a NWC peg. Sellers watch: a too-short measurement window (3 months vs 12) can unfairly penalise seasonality. Buyers watch: no peg = the seller has open season to optimise pre-completion.

Read: completion accounts vs locked box

Frequently asked

What measurement window is used?: Typically a 12-month trailing average for seasonal sectors. For stable service businesses 6 months may suffice. Shorter than 3 months is manipulable.
What does NOT go into the NWC peg?: Cash, bank debt, financial leases, intercompany items, and one-off positions (one-off tax advance, legal dispute). These sit in the "debt" or "debt-like items" list instead.
What happens without a peg?: The buyer carries the risk: the seller can hollow out the balance sheet just before completion. In Benelux practice this leads to price chips or retroactive adjustment: both avoidable with an upfront peg.
Is locked box an alternative to the peg?: Yes: under locked box the price is fixed at a reference date (typically the most recent year-end) and all cash flow from that date accrues to the buyer. No peg, but "permitted leakage" clauses block abnormal extractions.

Related terms

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Definition

Frequently asked

What measurement window is used?

Typically a 12-month trailing average for seasonal sectors. For stable service businesses 6 months may suffice. Shorter than 3 months is manipulable.

What does NOT go into the NWC peg?

Cash, bank debt, financial leases, intercompany items, and one-off positions (one-off tax advance, legal dispute). These sit in the "debt" or "debt-like items" list instead.

What happens without a peg?

The buyer carries the risk: the seller can hollow out the balance sheet just before completion. In Benelux practice this leads to price chips or retroactive adjustment: both avoidable with an upfront peg.

Is locked box an alternative to the peg?

Yes: under locked box the price is fixed at a reference date (typically the most recent year-end) and all cash flow from that date accrues to the buyer. No peg, but "permitted leakage" clauses block abnormal extractions.