"We were doing a post-close working capital reconciliation, and the seller and I were at odds by $3.2 million. That was not the call you want to receive late on a Friday. The root cause? How we defined and calculated net working capital. A simple reconciliation process turned into a six-month argument that burned through legal fees, strained relationships, and converted what felt like a smooth deal into something that created frustration for all parties involved."
"During the next 18 months, I witnessed this same exact scenario occur in four more M&A transactions within our portfolio. Teams spent months discussing the purchase price, earnouts and reps & warranties. Then they tacked on a working capital clause (typically copied and pasted from prior agreements) in the final couple of weeks leading up to closing without considering the details."
"Working capital disputes are common and costly. Post-closing disagreements over working capital definitions, accounting decisions and timing can lead to legal battles, frustration and damaged relationships. Most disputes can be avoided by clearly defining working capital terms upfront, aligning with respective incentives and establishing a neutral third-party arbitration mechanism. The deals that flow smoothly are the ones in which both parties actually agree on what they are buying and selling."
A post-close reconciliation on a $140 million acquisition produced a $3.2 million disagreement that escalated into a six-month argument, legal fees, and strained relationships. Similar working capital conflicts recurred across four additional M&A transactions over 18 months. Teams prioritized valuation, purchase price, earnouts, and reps & warranties while treating working capital as boring 'plumbing', often adding a copied working capital clause just before closing. Ambiguous definitions and timing of calculations caused disputes. Clear, specific working capital definitions upfront, alignment of incentives, and a neutral third-party arbitration mechanism reduce the risk of costly post-closing disagreements and preserve deal momentum and relationships.
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