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Larger companiesWorking capital peg
What is a working capital peg? The target that moves your price
A working capital peg is the normal amount of working capital you and the buyer agree the business hands over at closing. Working capital is what customers owe you, plus inventory, minus the bills you owe. Hand over less than the peg and the price goes down by the gap. Hand over more and it goes up.
Selling
8 min read
Figures: SRS Acquiom, more than 1,570 deals closed 2020 to the third quarter of 2025SRS Acquiom, deals closed 2019 to 2024Lincoln International, modified May 12, 2026Read November 12, 2026
Legend Atty · Founder, BridgeBook
Published
What does a peg look like in dollars?
Here's one made-up sale, added up line by line. The buyer agreed to a price of $40,000,000, and both sides agreed the business would hand over $4,000,000 of working capital. That $4,000,000 is the peg. On closing day the business came in $300,000 short.
Why it matters: it's common, and it's real money. SRS Acquiom finds a price adjustment in more than 90%[1] of the private deals it handled from 2019 to 2024. It's worked out after closing, so the price in the letter isn't final until then.
- Final adjustment went to the buyer
- 51%[2]To the seller: 38%. Deals closed 2020 to Q3 2025
- Median adjustment in the buyer's favor
- 0.27%[2]Share of deal value, same deals
- Buyer's statement due
- 90 daysMedian after closing, 2024 deals[2]
What counts as working capital?
Usually three things: what customers owe you (receivables), inventory, and the bills you owe suppliers (payables). Cash and debt are left out. Offers at this size are often quoted cash-free and debt-free. You keep the cash, pay off the debt at closing and leave a normal level of working capital behind. The peg is how the contract says what normal means, in dollars.
Every outside figure on this page is another publisher's, named and dated. Both example companies are made up. SRS Acquiom's figures come from private deals it handled as paying agent. They lean toward larger deals than most of the companies this page is for.
How is the peg set?
Usually as an average of past months. Lincoln International writes that the peg is usually an average of working capital over the last 3 to 12 months[3].
Which months, and which items, is where the money is. A peg built on twelve months smooths out a season. One built on the last three can sit high or low, depending on when those months fall.
The first word on it comes early. BDO's 2019 guide notes that the letter of intent usually sets out how working capital will be treated[4]. The letter of intent (LOI) is the buyer's written offer, mostly non-binding, signed before due diligence. Once you've signed it, you're negotiating with one buyer.
What do seasons do to the peg?
They move the closing number, and they tempt a buyer to pick busy months. A made-up example: a distributor with $30,000,000 in sales carries the most receivables and stock in spring. Its working capital peaks at $5,600,000 in May and falls to $3,000,000 in December.
A made-up seasonal company, month by month
| Month | Working capital |
|---|---|
| January | $3,200,000 |
| February | $3,600,000 |
| March | $4,400,000 |
| April | $5,200,000 |
| May | $5,600,000 |
| June | $5,000,000 |
| July | $4,600,000 |
| August | $4,000,000 |
| September | $3,800,000 |
| October | $3,600,000 |
| November | $3,200,000 |
| December | $3,000,000 |
| Peg from all twelve months | $4,100,000 |
| Peg from March to August | $4,800,000 |
| December close against the twelve-month peg | -$1,100,000 |
| December close against the March to August peg | -$1,800,000 |
Made-up example. Every peg and gap on this page is worked from these twelve balances.
The twelve months average $4,100,000. Close in December against that peg and $1,100,000 comes off the price. That isn't all lost. In a slow month much of the gap has already been collected as cash. In a cash-free deal, that cash stays yours.
Now say the buyer proposes a peg from March to August, the busy six months. That average is $4,800,000, and the same December close takes $1,800,000 off. The extra $700,000 is real money: the buyer gets more working capital than the business needs in a normal month.
So ask for the months in writing, and run the closing month against the peg before you agree to either.
What happens after closing?
The price is paid on an estimate, then trued up. The true-up is a price change after closing, once the real working capital is counted. The buyer prepares that count, called the closing statement.
In SRS Acquiom's 2024 deals, the buyer's closing statement was due a median 90 days after closing. The seller then had a median 30 days to review it[2].
Deadlines slip. In 32%[2] of those deals the buyer's statement arrived after the deadline. By then you no longer run the company, so keep your own copy of the books as of closing day.
Which way does the money usually move?
More often to the buyer, and usually in small amounts. SRS Acquiom tracked deals closed from 2020 to the third quarter of 2025. Final adjustments went to the buyer in 51% and to the seller in 38%[2].
The median adjustment in the buyer's favor was 0.27% of deal value. But about 20% of those claims ran over 1% of the deal[2].
The true-up is one of several things between the price and your wire. Here's how the price becomes the wire, and the offer to cash calculator does the walk with your own figures.
How often do sellers dispute it?
Often enough to plan for. In SRS Acquiom's deals closed from 2020 to the third quarter of 2025, about 29%[2] disputed the buyer's first calculation.
A dispute can start with the rules, not the arithmetic. If the peg was built one way and the closing statement another, both sides can be right on their own terms. The fix is a sample calculation attached to the contract, built the same way as the peg.
What should the letter of intent say?
Enough that the peg can't move after you've stopped talking to other buyers. Five terms to settle before you sign.
| Term | What to ask for |
|---|---|
| The months | Which months the peg averages, and whether it's adjusted for your season. |
| The items | What counts as debt instead: customer deposits, earned bonuses not yet paid, taxes owed. |
| The rules | The same accounting rules for the peg and the closing statement, with a sample attached. |
| The timing | How many days the buyer has to send the statement, and what happens if it's late. |
| The limit | Whether claims are paid from a small separate escrow, or can reach past it. |
BridgeBook's own list. No outside source.
Escrow is money held back after closing to cover claims. To see where the peg falls in the whole sale, read how long a larger sale takes.
What we'd look at first
Before a buyer proposes a peg, a dedicated advisor goes through your months with you and your controller. Three things come first.
- Twenty-four months of working capital at each month's end, so the season shows.
- Which month you're likely to close in, and where it sits against your average.
- The items a buyer may call debt, listed before the letter of intent arrives.
Questions about the working capital peg
What is a working capital peg?
The peg is the amount of working capital you and the buyer agree the business hands over at closing. Come in under it and the price goes down by the gap. Come in over it and the price goes up. Working capital is the money tied up in running the business day to day: what customers owe you, plus inventory, minus the bills you owe.
What happens if working capital comes in under the peg?
The price goes down by the gap, dollar for dollar. A made-up example: the target is $4,000,000. On closing day customers owe you $3,000,000, inventory is $2,500,000 and you owe $1,800,000 in bills. That's $3,700,000 of working capital, $300,000 short of the target, so a $40,000,000 price becomes $39,700,000. Had it come in $300,000 over the target, the price would have been $40,300,000.
How is the peg calculated?
Usually as an average of the last 3 to 12 months of normal working capital.
After closing, which way does the price usually move?
Down more often than up. SRS Acquiom tracked deals closed from 2020 to the third quarter of 2025. The final change went the buyer's way, lowering the price, in 51% of them. It went the seller's way, raising it, in 38%.
When is the final number settled?
The buyer's closing statement came a median 90 days after closing in SRS Acquiom's 2024 deals. The seller then had 30 days to review it.
Where these numbers come from
- SRS Acquiom, 2025 M&A Deal Terms Study. Deals closed 2019 to 2024. Read November 12, 2026.
- SRS Acquiom, 2026 M&A Working Capital Purchase Price Adjustment Study. More than 1,570 deals closed 2020 to the third quarter of 2025. Read November 12, 2026.
- Lincoln International, Bridging the Gap Between Target and Closing Net Working Capital in M&A Deals. Modified May 12, 2026. Read November 12, 2026.
- BDO, Net Working Capital in Mergers and Acquisitions. February 15, 2019. Read November 12, 2026.
Outside figures are other publishers', named and dated, and they don't feed our calculator. How we use outside figures
Keep reading
- Larger companiesFrom Sale Price to Cash at ClosingWhat comes off the price in the letter before money reaches your bank, in the order it happens.
- Larger companiesHow Long It Takes to Sell a Larger CompanyWhat happens in each month of a sale, from getting ready to the wire, and what a first offer commits you to.
- Larger companiesWhat a Distribution Company Sells ForWhat distributors keep as profit, how working capital moves the price, and how a sale runs at each size.
- SellingHow to sell a businessThe steps from a first valuation to closing day, and what to get ready before buyers look.
- Larger companiesAverage Profit Margin by Company SizeWhat companies your size keep as profit, by size and by industry, from tax returns the IRS publishes.
- Larger companiesWhat a $10,000,000 Company Is WorthWhen buyers stop counting your pay as profit, and who can buy a company this size.
One important decision. Two good places to start.
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