Working capital adjustments: lessons from De Santis and Iacobucci v Doublesee Enterprises Inc.

In complex M&A transactions, there could be a significant delay between the initial valuation of a target company and the closing of the deal. As we explained in our previous article, “Net working capital adjustments: what’s the deal?”, parties can protect themselves against fluctuations in value during this period by negotiating purchase price adjustments (PPAs). According to the American Bar Association’s 2016 Canadian Private Target Mergers & Acquisitions Deal Points Study, the most common PPA is the working capital adjustment (which was included in 83% of recent Canadian M&A deals with a PPA). Mechanics of working capital adjustments Typically, working capital adjustments provide for an adjustment to the purchase price based on the level of working capital at closing. For purposes of negotiating the purchase price, the parties assume that the target company’s working capital at closing would be at a certain level or range at closing…

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